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.
Affirming the district court's decision, the Tenth Circuit observed that the FLSA predated the CSA, and, historically, the FLSA "unquestionably covered" workers in the cannabis industry. The court also emphasized that Congress did not exclude employees in the cannabis industry from federal employment protections when it passed the CSA; nor did it amend the FLSA to do so at any point since.
Drawing comparisons to Al Capone's obligation to pay taxes on illicit income, the Tenth Circuit further reasoned that Helix was 2not excused from complying with federal [employment] laws" simply because of its "other federal violations."
Ultimately, the court found that the purpose of the FLSA - to promote "the health, efficiency, and general well-being of workers" - does not directly conflict with the CSA and that the FLSA is instead a remedial scheme to "benefit all workers."
Although the appellate court did not address the merits of Mr. Kenney's claim against Helix, the Tenth Circuit's decision evidences a clear reluctance to relieve state-compliant cannabis businesses from the robust web of statutory employment protections merely because cannabis is illegal under the CSA. Indeed, the decision clearly signals an intent to require the state-compliant cannabis industry to comply with the obligations imposed by other federal laws as well.
In a particularly telling footnote, the Tenth Circuit stated:
Helix's opening brief cites a variety of jurisprudential arenas as supporting the contention that federal courts "consistently decline to reward participation in the marijuana industry." The only context Helix continued to argue through oral argument is the Trademark Act. Beyond noting that Mr. Kinney convincingly distinguishes each of the contexts and relevant authorities that Helix cites, we will similarly restrict our analysis. A trademark qualifies for registration and its associated benefits if the trademark owner has "used [the mark] in commerce" or has a bona fide intent to do so, and courts have long held that the commerce must be "lawful" for it to satisfy the "use in commerce" requirement. Helix urges us to adopt a similar interpretation for the FLSA. Although the Trademark Act and FLSA both regulate interstate commerce, however, they function in fundamentally different ways. The Trademark Act confers a benefit on owners who register their marks, securing a registrant's right to benefit from a good reputation and thus protecting him from unfair competition. The FLSA, in contrast, prevents unfair competition, not by conferring a benefit on certain actors but by imposing obligations across the labor market. Reading "lawful" into the threshold commerce requirement here would not further the statute's purposes by denying illegal businesses a benefit, as in the trademark context, but would thwart the FLSA's goals by exempting illicit markets from costs imposed on lawful employers (internal citations omitted).
Protect Yourself
As such, businesses in the cannabis industry are well advised to consult cannabis, employment, and other counsel, as necessary, to ensure that their policies and procedures comply with federal and state employment laws and that their conduct is otherwise in compliance with other applicable federal laws.
Client Alert 2019-239
