Tenth Circuit Refuses to Dismiss FLSA Suit Against Marijuana Business

Employment Law
 

The U.S. Court of Appeals for the Tenth Circuit was not persuaded that because marijuana remains illegal under the federal Controlled Substances Act (CSA), an employer was absolved of the requirements of the Fair Labor Standards Act (FLSA).

Helix TCS provides security services for businesses in Colorado’s state-sanctioned marijuana industry. A former security guard for Helix, Robert Kenney filed suit alleging the company misclassified him and similarly situated workers as exempt from the FLSA’s overtime obligations.

Despite regularly working more than 40 hours each week, Kenney and the other security guards received a salary instead of overtime even though they frequently performed nonexempt job duties, he claimed.

Helix moved to dismiss the case, arguing that the FLSA does not apply to workers such as Kenney because Colorado’s recreational marijuana industry is in violation of the CSA. After the district court denied the motion, Helix appealed to the Tenth Circuit.

The federal appellate panel rejected Helix’s attempt to implicitly repeal the FLSA’s overtime mandate for employers in the marijuana industry, noting that the U.S. Supreme Court has repeatedly stated that an implied repeal argument “faces a stout uphill climb.”

With the presumption that repeals by implication are disfavored, the court disagreed that the two laws are mutually inconsistent. Case law is clear that employers are not excused from complying with federal laws because of their other federal violations, the court said.

“The district court correctly reasoned and case law has repeatedly confirmed that employers are not excused from complying with federal laws just because their business practices are federally prohibited,” the panel wrote. “This has been true with respect to the FLSA in multiple contexts, strengthening the conclusion that it remains true in this novel context of the marijuana industry.”

The Supreme Court has emphasized the “striking breadth” of the FLSA’s definition of an employee, which is purposefully expansive to maximize the full reach of the act, while Congress has shown that it knows how to limit this broad definition of employee when it intends to do so—which it did not do in the case of the CSA, the court pointed out.

“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 said.

The purposes of the FLSA do not conflict with the CSA “quite as directly as Helix implies,” the court added. Some of the reasons for the statute’s enactment include preventing unfair competition and providing a remedial scheme for the benefit of all workers.

“Denying FLSA protection to workers in the marijuana industry would consequently encourage employers to engage in illegal markets where they are subject to fewer requirements,” the court wrote. “But together, the FLSA and CSA discourage businesses from participating in the marijuana industry by alternatively subjecting them to federal labor obligations and imposing criminal sanctions. Accordingly, accepting the plain language interpretation that Mr. Kenney and similarly situated employees are covered by the FLSA promotes the legislature’s intent in enacting the statute.”

To read the opinion in Kenney v. Helix TCA, Inc., click here.

Why it matters: The court refused to absolve employers in the marijuana industry from the requirements of the FLSA, emphasizing that employers are not excused from complying with federal law because of other federal violations. However, the panel did note an argument that remains unresolved. Helix told the court that because Colorado’s marijuana industry is authorized only within the state’s borders, it is not engaged in commerce within the meaning of the statute, which requires interstate activity. But because Helix waived the argument by raising it for the first time on appeal, the court declined to consider it.

manatt-black

ATTORNEY ADVERTISING

pursuant to New York DR 2-101(f)

© 2020 Manatt, Phelps & Phillips, LLP.

All rights reserved