Cannabis Industry Subject to Federal Wage Law Says Tenth Circuit

Cannabis Industry Subject to Federal Wage Law Says Tenth Circuit

October 11, 2019

On September 20, 2019, the Tenth Circuit held that cannabis industry employers are subject to the Fair Labor Standards Act (FLSA). Defendant contended that because the employer’s employment activities are in violation of the Controlled Substances Act, the FLSA’s protections to do not apply to its workers.  This argument was soundly rejected by the Tenth Circuit – putting cannabis industry employers on notice that the FLSA and most likely other federal workplace protections apply to workers in the cannabis space.    

Earlier this year we discussed the case, Kenney v. Helix TCS, Inc., at the time the appeal was first argued.  The defendant Helix TCS, Inc. (Helix) is a security company catering to the state-sanctioned marijuana industry in Colorado.  Plaintiff Robert Kenney sued Helix under the FLSA, alleging that Helix misclassified him as exempt from overtime. Helix argued that the FLSA does not apply to its business because marijuana (and therefore Helix’s business) is illegal under the federal Controlled Substances Act.

The Tenth Circuit affirmed the trial court’s opinion, denying Helix’s motion to dismiss. The court held that "employers are not excused from complying with federal laws just because their business practices are federal prohibited." Accordingly, the Tenth Circuit found that Kenney could proceed with his original FLSA claim on the merits in the lower court.

Following the Tenth Circuit’s ruling, on October 7, 2019 Helix filed a petition for a rehearing en banc. If granted, all judges on the Tenth Circuit, as opposed to the panel of three that originally decided the appeal, would vote on the merits of Helix’s arguments. If Helix's request for en banc review is denied, their final option would be to request the U.S. Supreme Court to take their appeal.

This ruling should not come as a surprise, and employers within this space should ensure compliance with federal labor laws. This includes not only properly classifying and compensating employees under the FLSA, but also maintaining policies consistent with federal discrimination laws, respecting employees’ rights under the National Labor Relations Act, and providing any other federal workplace protections.

If you have any concerns about your business’s compliance with federal and state labor laws, please contact your normal Saul Ewing Arnstein & Lehr labor and employment attorney.