The commercial litigation landscape for CBD, hemp and marijuana is constantly evolving as federal and state courts issue decisions that impact investors, commercial contracts, employment issues, intellectual property and insolvency. The CannaBizDisputes™ blog regularly tracks and reports on these developments.

Federal courts experiencing uptick in cannabis-related employment litigation


The widespread legalization efforts by several states have caused an unmistakable uptick in cannabis-related employment litigation in federal courts throughout the country. For example, federal district courts in Arizona and Connecticut have recently found that the states' respective statutes, which protect employees that lawfully use cannabis, create implied rights of action and are not preempted by the CSA or other federal statutes. See Noffsinger v. SSC Niantic Operating Co., LLC, 338 F. Supp. 3d 78 (D. Conn. 2018) (state law protecting employees that lawfully use medical marijuana does create a private right of action and is not preempted by CSA or Drug Free Workplace Act, which do not "make it illegal to employ a marijuana user"); Whitmire v. Wal-Mart Stores Inc., 359 F. Supp. 3d 761 (D. Ariz. 2019) (state law creates implied private right of action for employee terminated for using cannabis).

Currently around nine states have passed medical marijuana laws with explicit anti-discrimination protections, including Arizona, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada, Pennsylvania, and Rhode Island. 359 F. Supp. 3d at 780. However, in the absence of an applicable state protection, courts continue to find that an employee's cannabis use (even off the clock) is a legitimate ground for termination, since discrimination statutes do not prohibit adverse treatment based on how an employee chooses to treat a disability. Shepherd v. Kohl's Dep't Stores, Inc., 2016 WL 4126705, at *6 (E.D. Cal. Aug. 2, 2016).

Still, where a federal employment statute does otherwise apply, courts have permitted claims to go forward against cannabis companies, finding that “employers are not excused from complying with federal laws, such as the FLSA, just because their business practices may violate federal law.” Kenney v. Helix TCS, Inc., 284 F. Supp. 3d 1186, 1190 (D. Colo. 2018). For example, in Kenney v. Helix, the plaintiff sued his former cannabis-industry employer for misclassifying him as exempt from the FLSA’s overtime obligations. The employer moved to dismiss the case and argued that it was not subject to the FLSA since applying the statute to the cannabis industry would put it in conflict with the Controlled Substances Act’s prohibition on marijuana. The district court rejected that argument because it found that “employers are not excused from complying with federal laws, such as the Fair Labor Standards Act, just because their business practices may violate federal law.” The employer thereafter appeal, arguing as it did below that “Congress did not seek to level the same [employment] playing field that it tried to demolish.”

The Tenth Circuit has now affirmed by decision dated September 20, 2019, holding that the district court “correctly reasoned and case law has repeatedly confirmed that employers are not excluded from complying with federal laws just because their business practices are federally prohibited.” In doing so, it rejected the employer’s “level playing field” argument based on an important distinction:

Helix counters that ‘Congress did not seek to level the same playing field that it tried to demolish.’ But adhering to the plain language of the statute here does not level the playing field within the illicit marijuana market but rather beyond it, preventing these unlawful businesses from procuring an unfair advantage over all other legitimate employers who are required to comply with federal overtime laws. Indeed, applying FLSA protections to workers such as Mr. Kenney will not grant these individuals any surplus benefit that they cannot easily obtain elsewhere, but the reverse would excuse Helix from FLSA costs and obligations and thereby allow it to reap additional benefit from its CSA violations. 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.

While this opinion closely tracks prior district court decisions, it now stands amongst the highest authorities for the proposition that cannabis-industry employers must abide by federal employment laws.

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10.15.2019  |  PRACTICE AREAS: Litigation and Dispute Resolution  |  INDUSTRIES: Cannabis

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