In Kenney v. Helix TCS, Inc. No. 18-1105 (10th Cir. Sept. 20, 2019), the 10th Circuit Court of Appeals held that employers in the cannabis industry must abide by the wage/hour requirements of the Fair Labor Standards Act (FLSA) despite that cannabis remains federally prohibited as a Schedule 1 controlled substance under the Controlled Substances Act (CSA).

The facts of the case are straightforward. A former security guard employed in Colorado alleged that his former employer had misclassified and failed to pay him and others similarly situated to him overtime pay for hours worked over 40 in a workweek. By way of background, the FLSA covers businesses (1) with two or more employees; (2) that engage in interstate commerce; (3) have an annual dollar volume of sales of business done of at least $500,000 (and some business regardless of sales volume); and (4) whose work affects interstate commerce. The FLSA requires employers pay non-exempt employees time and a half their normal rate of pay for hours worked over forty in a workweek. Here, employees allegedly were not being paid overtime. The employer moved to throw out the employee’s claims and argued that the FLSA did not apply to its workforce because cannabis businesses were not covered by the federal wage/hour law. Specifically, the security company claimed that making cannabis workers subject to federal wage/hour law would create a “clear repugnancy” between the FLSA and CSA and render them “mutually inconsistent”.

The trial court denied the employer’s position and the appellate court agreed noting “employers are not excused from complying with federal laws’ because of their other federal violations” and compared the issue to workers in the gambling industry who are covered by the FLSA and by further highlighting that undocumented immigrants are covered under the FLSA. The court went on and pointed out that “Congress has actually amended the FLSA many times since the enactment of the CSA without excluding employees working in the marijuana industry, despite specifically exempting other categories of workers”.

Employer Takeaways

Notably, the court did not go further and address whether cannabis businesses are exempt from complying with the FLSA if they act solely intrastate, but cannabis businesses should understand that the phrase “affects interstate commerce” is interpreted by courts very broadly and includes, not only shipping product across state lines, but also accepting credit cards, buying/receiving supplies from out of state, etc.

The 10th Circuit covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming so, while this case is only technically binding on jurisdictions within those states, the case will be used in other wage/hour cases in other states for the argument that workers are entitled to the FLSA’s protections. As such, cannabis employers that are otherwise covered by the FLSA should ensure they properly classify their workers and pay them overtime for all hours worked over forty in a workweek.

In any event, despite the application of the FLSA, cannabis business will still be subject to state wage/hour laws, most of which has similar exemption and wage/hour minimum wage and overtime requirements.

About the Author

Sara H. Jodka is a member in the firm’s Columbus office. She is a member of the firm’s labor and employment group and also a member of the firm’s cannabis practice group, which boasts over 40 attorneys practicing in the cannabis space. She can be reached at 614-744-2943 or via email at sjodka@dickinsonwright.com.