Cannabis businesses operating under the authority of state or tribal laws necessarily violate at least one federal law (the Controlled Substances Act) on a daily basis. Operating in this gray market, however, does not give anyone a free pass to violate other generally applicable federal laws. Think back to Al Capone being brought down for tax evasion.
Courts have made it clear that employers are not excused from complying with federal laws because of their other federal violations. As one example, employers in the industry have to pay their employees overtime when required under federal law. This issue was the subject of recent litigation that arose from the state-sanctioned marijuana market in Colorado.
On September 20, 2019, the Tenth Circuit issued a ruling in Kenney v. Helix TCS, Inc. that Helix TCS (“Helix”) violated the Federal Labor Standards Act (“FLSA”) by not paying its former employee overtime. This ruling affirmed the District Court’s denial of Helix’s motion to dismiss the complaint.
The basic overview of the litigation to date is that an employee of Helix, which provides security, inventory control, and compliance services to the marijuana industry in Colorado, filed a lawsuit against Helix under the FLSA back in 2017. In the complaint, Kenney argued that Helix misclassified him, and similarly situated employees, as exempt and owes them overtime wages. In response, Helix moved to dismiss the action, arguing that Kenney is not entitled to the protections of the FLSA because he is employed in the marijuana industry, which is entirely outlawed by the CSA. The Tenth Circuit Court of Appeals held that cannabis industry workers are not categorically excluded from FLSA protections, but did not draw any conclusions about the merits of Kenney’s case, which could go on to trial.
In its opinion, the Tenth Circuit pointed to a decision out of a federal court in Oregon that dealt with a similar set of facts. The Greenwood v. Green Leaf Lab LLC case involved an employee who worked for Green Leaf as a courier, transporting marijuana samples from other businesses to Green Leaf’s marijuana-testing laboratory in Portland, Oregon. Green Leaf treated Greenwood as an independent contractor, despite controlling practically every aspect of his work. Greenwood alleged that the job-related expenses he had to pay on a daily basis resulted in his net compensation being significantly less than minimum wage, which would be a violation of the FLSA. The district court denied Green Leaf’s motion to dismiss, finding that the FLSA applied to marijuana businesses just as it does to other categories of businesses.
The take-away is that marijuana industry employers seeking to take a position that is potentially at odds with the FLSA or other labor laws should confer with an experienced labor and employment attorney before doing so.