As legalization of marijuana expands from state to state, businesses in the industry are constantly feeling out the reach of the federal laws they’re bound by. And a recent Colorado class-action case working its way through the U.S. District Court is telling marijuana businesses that, yes, their employees are protected by the Fair Labor Standards Act and no, the protections do not depend on the legality of the business itself under federal law. An attorney for the plaintiffs says at its heart, the case is a quite basic FLSA case about employees seeking the unpaid wages to which they are entitled.
In Kenney v. Helix TCS, a class of security guards claim they have been misclassified by Helix as exempt employees not eligible for overtime pay. Helix filed a motion to dismiss the case, claiming the court did not have jurisidiction over the case because the Controlled Substances Act prohibits Helix’ underlying activities. In January, the court denied the motion for dismissal, ruling it does have subject matter jurisdiction because it has jurisdiction over the FLSA. The court did grant Helix’ motion for interlocutory appeal. Lindsay Itkin, an attorney with Josephson Dunlap in Houston representing the plaintiffs, said their underlying wage claims are currently on hold until the interlocutory appeal over the FLSA’s coverage is resolved.
“We see this as a pretty simple case, where they are non-exempt employees who were misclassified as exempt, regardless of what industry they work in,” Itkin said.
In summer of 2017, the U.S. District Court for the District of Oregon rejected the same type of jurisdictional challenge to an FLSA class action in Greenwood v. Green Leaf Lab. In that case, the court held Green Leaf’s argument was not actually one of jurisdiction, but rather a challenge to the legal sufficiency of the plaintiffs’ FLSA claims. In the plaintiffs’ response to Helix’ motion to dismiss, Itkin and Josephson Dunlap managing partner Michael Josephson argue the court should view Helix’ challenge the same way.
Brett Painter, a partner at Davis Graham & Stubbs who practices labor and employment law, said he doesn’t think cases such as Helix will necessarily make waves outside the employment context. He agreed with Itkin’s characterization that its scope is quite limited to the FLSA in its applicability.
“It’s a little bit unique to the statute at issue and broader purpose of protecting employees rights’ to wages, which on some level is seen as somewhat sacrosanct,” he said. Painter said the concept of using the illegality of something as a defense for conduct is not unheard of. An example, he said, would be an employment contract in which an employee waives his or her rights to overtime pay. That would not be an enforceable contract, Painter said, the employer can’t divest itself from its FLSA obligations. He said in cases such as Helix, the courts are not giving the companies the benefit of their federally illegal conduct, such as operating in the marijuana industry.
Case law seems well-settled on the matter that a business having illegal aspects under federal law does not preclude the business from compliance with other federal laws. In addition to the Green Leaf case, the plaintiffs’ response to Helix’ motion to dismiss cited a handful of other cases outside the marijuana industry in which courts have ruled favorably to employees on the question. Many have related to undocumented workers. In Lucas v. Jerusalem Cafe, the Eighth Circuit Court of Appeals ruled the FLSA’s definition of an “employee” applies to undocumented workers, and they are therefore eligible for unpaid wages. In Kobey v. United States, the 9th Circuit ruled illegal businesses are still subject to the Social Security Act.
“From our perspective, it’s a really slippery slope that Helix is arguing here,” Itkin said. “Their argument seemingly suggests that employers can avoid complying with the FLSA simply by choosing to violate another federal law from a big-picture perspective, outside of just the [Controlled Substances Act]. … Otherwise no one would follow any federal law, and would just say, ‘I don’t have to do that because I’m doing this.’”
Itkin said she believes some cases Helix has cited on the opposite side of the argument are misplaced comparisons, such as those about banks’ refusal to provide loans for marijuana businesses and barring a marijuana business from filing for a trademark. She said she believes those cases are distinguishable from the Helix case because they concern discretionary benefits provided to the businesses, not federal mandates the way FLSA compliance is mandatory.
“I think it’s a comparison of apples to oranges, as opposed to an oranges to oranges comparison.” Itkin added there is no existing case law exempting marijuana businesses from the FLSA.
She said the firm’s response to Helix’ appeal is due this summer. She said she believes the issue actually on appeal, of whether Colorado’s marijuana industry employers are covered by the FLSA, misses the mark. The more appropriate question to answer, Itkin said, is whether the plaintiffs have sufficiently pled that they are actually employees under the FLSA entitled to overtime.
“We’re going up on appeal on this question of whether or not the marijuana industry employers in Colorado’s state-sanctioned marijuana industry are covered by the FLSA, but that really delves a little bit deeper than what the actual issue on appeal should be.”
—Julia Cardi