Cannabis Businesses Must Adhere to Federal Employment Laws, Appeals Court Says

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A federal appeals court ruled last week that cannabis businesses are still subject to federal minimum wage and overtime laws despite the industry being illegal at the federal level.

Lawyers representing Helix TCS Inc, a Colorado-based firm that provides security and software services for the state’s cannabis operators, argued that because commercial cannabis violates the Controlled Substances Act, industry employees are not protected by overtime guarantees codified in the Fair Labor Standards Act.

The 10th U.S. Circuit of Appeals in Colorado rejected that argument on September 20, finding instead that “employers are not excused from complying with federal laws just because their business practices are federally prohibited.”

The case concerns Robert Kenney who worked for Helix TCS Inc. as a security guard. His lawsuit alleges he and other security guards regularly worked over 40 hours per week but were denied overtime pay. Helix TCS Inc., the lawsuit alleges, opted to pay the employees salary instead of overtime.

In its decision, the court did not rule on the facts of the case, but allowed the case to move forward by reaffirming a prior court’s decision to deny Helix TCS Inc.’s motion to dismiss. Kennedy’s case can now move forward, the court found, where the facts of the case can be challenged.

Lawyers for both the plaintiff and defendant could not be reached for comment.

Jennifer McGrath, a cannabis attorney based in Southern California, told Cannabis Wire that the case clears up what she says most people would already assume—that the same rules concerning employment apply to cannabis and non-cannabis businesses alike.

She said clients new to the legal business world often approach her office inquiring about workers’ compensation, overtime pay, and other non-cannabis specific business questions.

“Most of them haven’t been in business before, at least not regulated business,” she said. “I often tell them they have to follow all the laws everybody else does.”

The court also noted that Congress has amended the Fair Labor Standards Act “many times” since the inception of the Controlled Substances Act, yet has not opted to include language excluding cannabis industry workers from the law’s protections. 

McGrath called the case a routine Fair Labor Standards Act decision comprised of similar facts as those found in other cases from lower courts. In one 2018 case cited in the decision, workers engaged in an illegal gambling business were found to be entitled to the same employment protections as employees in lawful industries, one court held. 

In another case in Oregon, a U.S. District Court judge similarly ruled in 2017 that the Controlled Substances Act did not exempt a cannabis testing company from paying minimum wage or overtime to a courier who picked up samples. The court cited a legal advice memorandum written for the National Labor Relations Board referred to as the Wellness Memo that found that just because an employer “is violating one federal law,” the memo read, “does not give it license to violate another.”

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