So imagine that your biggest pothead friend from college has opened up a cannabis dispensary that sells weed for recreational use. Your old pal would be selling something that remains utterly unlawful under federal law, the recent and sweeping changes to state law notwithstanding. But two wrongs don’t make a right, according to the Tenth Circuit Court of Appeals: if you’re going to sell something that federal law treats just like heroin, you’d at least better comply with federal wage and hour laws. Yes, cannabis sellers: thou shalt not rip off your employees for wages, even when they’re doing something illegal under federal law.
In its recent decision in Robert Kenney v. Helix TCS, Inc. (September 20, 2019), the Tenth Circuit affirmed the notion that an employer does not escape its responsibilities under federal law by virtue of its violations of other federal laws. Ergo: a cannabis company cannot deem its employees exempt from the protections of the Fair Labor Standards Act (“FLSA”) solely on the basis that their job functions violate the Controlled Substances Act (“CSA”).
In Helix, a former security guard of a Colorado cannabis security company, brought a collective action claiming that the employer misclassified him and other security guards as exempt from overtime under the FLSA. The employee argued that he and the other guards consistently worked in excess of forty hours per week, yet the employer paid them a salary instead of overtime wages. No dispute existed as to whether the employees satisfied the statutory requirements of the FLSA. Instead, the employer moved to dismiss, arguing that the employees were disentitled to any FLSA protections because they were engaged in work with an illegal substance – a violation of the CSA.
The employer claimed that reading the FLSA and CSA in congruence reflects an implicit repeal of the overtime mandate for employers in the cannabis business. The employer argued further that applying the FLSA to its employees would “create a clear repugnancy” between the FLSA and CSA by rewarding the sale of a controlled substance under the FLSA, and prohibiting the same under the CSA.
Not so fast, said the Tenth Circuit. The Court flatly rejected the employer’s joint interpretation of the statutes, affirming the district court’s finding that the employees are well within the protections of the FLSA.
The panel characterized the employer’s “implied repeal” argument as one that is highly disfavored, even by the Supreme Court. According to the panel, the FLSA “unquestionably” covered workers in the cannabis industry prior to the enactment of the CSA. The panel, therefore, approaches such arguments with the presumption that Congress will explicitly suspend the operation of an existing law when it intends to do so. Moreover, the panel noted that Congress has amended the FLSA many times since the CSA was enacted in 1970. Though Congress specifically exempted other categories of workers, it did not exempt employees in the cannabis industry.
The Tenth Circuit ultimately determined that the employees’ claims are both in line with the plain reading and overall purpose of the FLSA without impacting the legitimacy of the CSA whatsoever. The court reasoned that the law is well-settled in that “employers are not excused from complying with federal law because of their other federal violations.” The Tenth Circuit further pointed out that excusing compliance with the FLSA would effectively encourage employers to engage in illegal businesses that are subject to fewer requirements. On the other hand, the FLSA and CSA work together to discourage “participation in the marijuana industry by alternatively subjecting them to federal labor obligations and imposing criminal sanctions.”
So how does this affect employers?
The Helix decision effectively reminds cannabis companies that federal law remains supreme, and applies equally to cannabis employees. The decision is not exclusive to the FLSA, but mentions federal law as a whole. Accordingly, any future attempts by cannabis businesses at using the CSA as an escape to conforming to federal law may be thwarted, or at least diminished by this decision, as federal courts throughout the country are likely to follow suit.
In the context of the FLSA, companies in the industry should either ensure that relevant employees are paid overtime wages, or adjust work hours to prevent employees from exceeding forty-hour work weeks. These employers should also take care to conform to the other requirements of the FLSA including recordkeeping, minimum wage requirements, child employment, and retaliation against employees for complaining about the former requirements.
Cannabis companies should also consider compliance with Title VII, which is a federal law that protects employees from discrimination and harassment in the workplace. Title VII claims are common, and are another instance upon which cannabis companies would likely rely on the existence of a CSA violation. Nonetheless, in the current regulatory environment, the implication of Helix into the future would certainly undermine such employer arguments.