The truth is that cannabis has now become (and continues to become) big business and the issue of regulation, much, none or in the middle, is now coming to the forefront in legal circles. Many firms (my own included) have cannabis practice groups and are advising companies in this burgeoning field about the rules of the road, in many areas of the law. One of these is the wage hour laws and the trend has been for courts to find that the Fair Labor Standards Act applies to workers in this industry. Yet another federal court, this time an appellate court, has held that the FLSA applies to these workers. The case is entitled Kenney v. Helix TCS and issued form the Court of Appeals for the Tenth Circuit.

The Court held that the federal Fair Labor Standards Act applied to workers who worked for a business whose existence violated another federal law, the Controlled Substances Act (CSA). This seems paradoxical but maybe not, given the salutary purpose of the FLSA, i.e. protecting workers from being underpaid and taken advantage of.

In Kenney a group of security guards employed by a cannabis entity filed a collective action, charging that they were misclassified as exempt and thus were deprived of overtime. The employer defended by contending that the FLSA did not apply to its workers because they worked with a substance that was deemed illegal under the Controlled Substances Act. Thus, the employer reasoned that it did not have to pay overtime. The lower federal court did not agree and neither did the Tenth Circuit disagreed.

The Tenth Circuit observed that there was no doubt that the FLSA covered marijuana workers. The Court stated 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.” The Court held that a “plain reading and the overall purposes … does not require disavowal of the CSA.”

The Court also held that both of the purposes of both laws were advanced because allegedly illegal businesses were not shielded from the compliance costs that lawful businesses have to deal with. In conclusion, the Court labeled the employer’s contention that the FLSA did not apply as a “legal theory as flawed today as it was in 1931 when jurors convicted Al Capone of failing to pay taxes on illicit income.”

The Takeaway

The Tenth Circuit may have given the roadmap for courts to extend this reasoning to other types of controversies. Certainly, federal courts nationwide may take this as a sign to extend the reach of federal law to the cannabis industry in a manner as to not conflict with the CSA. The end result may be an equalizing effect, as ensuring that all entities in the legal cannabis industry comply with some common standards, like the FLSA.