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Tenth Circuit to Decide if the FLSA Applies to Employers in the Cannabis Industry

Posted: January 10, 2019

In January 2018, the District Court for the District of Colorado rejected a cannabis company's argument that it was not subject to the Fair Labor Standards Act (FLSA) because it was engaged in an industry "entirely forbidden" by the Federal Controlled Substances Act (CSA) and denied its motion to dismiss. The matter now sits before the Tenth Circuit where it will decide whether employees working for cannabis companies are protected by federal employment statutes, specifically the FLSA.  

The cyber and personal security company catering to the legal cannabis industry argued to the Tenth Circuit Court of Appeals in November that is exempt from the Fair Labor Standards Act ("FLSA") --the federal law which mandates overtime premiums. The company, Helix TCS, was sued by a former security guard who alleges Helix never paid him (and other security guards) overtime for hours worked over 40 in a given workweek.  In response, Helix took the position that the FLSA did not apply to it because marijuana is still an illegal substance under federal law, and therefore the company is participating in a criminal enterprise which is not subject to federal employee protection laws (even if the enterprise is state-sanctioned).  

The District Court rejected Helix's argument wholesale, relying on a decision in a similar case from a federal court in Oregon, and also on the fact that “case law is clear that employers are not excused from complying with federal laws, such as the FLSA, just because their business practices may violate federal law.” Notwithstanding the District Court's sharp rebuke of the arguments raised by Helix, it granted Helix's request to immediately appeal the ruling to the Tenth Circuit Court of Appeals. The Tenth Circuit heard argument on November 15, 2018. 

The Tenth Circuit will now decide whether employees in the cannabis industry are entitled to the protections of the FLSA and cannabis companies must follow its dictates.  The decision will potentially affect the cannabis industry across the country, not just within the Tenth Circuit, as more states are discussing and implementing legislation to authorize medical and/or recreational cannabis use. Additionally, a holding in Helix's favor could raise questions regarding other federal employment statutes, for example, the Americans with Disabilities Act and the Civil Rights Act. 

The relationship between marijuana's status under federal and state law will continue to be a theme of cannabis litigation in the coming year, absent federal action regarding its status as a Schedule 1 drug or guidance from the Department of Justice. We will continue to follow the Helix case, and other cases regarding the relationship of state and federal laws affecting the cannabis industry.