Reed Smith Client Alerts

Although cannabis remains illegal pursuant to federal law in the United States, the U.S. Court of Appeals for the Tenth Circuit recently held that state-licensed cannabis businesses nevertheless must comply with the overtime requirements set forth in the federal Fair Labor Standards Act (FLSA). The Tenth Circuit's decision in Kenney v. Helix TCS, Inc., No. 18-1105 (September 20, 2019), really is a "mixed bag" for the state-compliant cannabis industry in the United States. On one hand, the appellate court refused to treat cannabis-related businesses like federal pariahs, even recognizing "marijuana's history as a legal industry." On the other hand, the court found that those businesses must pay overtime pursuant to federal law.

Authors: Michael H. Sampson Melissa M. Ferrara Adam D. Brownrout

The dispute below

Robert Kenney, a former Helix TCS, Inc. (Helix) security guard, sued his employer, alleging that Helix willfully violated the FLSA by misclassifying him and similarly situated employees as “exempt” and improperly denying them overtime despite their working more than 40 hours per week. Helix, a Colorado company providing security services to the state-compliant cannabis industry, filed a motion to dismiss, arguing that the FLSA does not apply to employees who work in that industry because the federal Controlled Substances Act (CSA) makes cannabis illegal in the United States. The U.S. District Court for the District of Colorado denied the motion to dismiss, and Helix filed an interlocutory appeal.

The Tenth Circuit's opinion

As the Tenth Circuit recounted, Helix "does not dispute the fact that Mr. Kenney is an employee who worked more than 40 hours per week, and Mr. Kenney has clearly alleged that he is covered by the plain language of the FLSA. Nor does Helix argue that Mr. Kenney fits into one of the FLSA's enumerated categories of excluded employees" (footnote omitted). Instead, Helix argued on appeal that the CSA effectively trumps the FLSA and that the two statutes were in irreconcilable tension. The Tenth Circuit disagreed.