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Medical marijuana employers still must follow federal wage, hour law

Philip Bruce is a labor and employment attorney with McAfee & Taft law firm.
Philip Bruce is a labor and employment attorney with McAfee & Taft law firm.

The Tenth Circuit Court of Appeals recently answered the question of whether the Fair Labor Standards Act applies to employees involved in the marijuana industry. What happened in that case?

The case involved Robert Kenney, a former employee of Helix TCS Inc., a company involved in Colorado’s marijuana industry. Helix TCS Inc. provides security, inventory control, and compliance services to companies involved in the marijuana industry in Colorado. Kenney, a former security guard for Helix, alleged in his wage and hour lawsuit that he and other security guards were improperly classified as salaried exempt employees and, as such, were entitled to overtime for all hours worked in excess of 40 per week. Helix argued that the federal Fair Labor Standards Act (FLSA) did not apply to Kenney because his employment activities were in violation of the federal Controlled Substance Act (CSA), which classifies marijuana as an illegal controlled substance.

What was the basis for Helix’s argument?

The gist of Helix’s argument was that the FLSA and CSA were legally incompatible because requiring Helix to pay overtime would require the court to find that Congress intended to both forbid Kenney’s work (under the CSA) and reward it (requiring overtime under the FLSA) based on the same conduct: his involvement in drug trafficking. Helix also tried to argue that the FLSA did not apply to them because they were not involved in interstate commerce, a condition that is required in order for the FLSA to apply to a business enterprise. The court, however, ruled the company had waived this argument because it waited until the appeals stage to make it.

What did the court decide?

The court rejected this argument and held the FLSA still applied, notwithstanding the fact that the employees’ job duties were arguably illegal under federal law. The court based its decision on several factors, including the fact that many other courts have previously ruled that an individual is not exempt from complying with certain federal laws because of violations of other federal laws. The Tenth Circuit specifically looked at cases involving taxes and noted that the courts in those cases held that the fact that a business is unlawful should not exempt it paying taxes on income that, if lawful, it would still have to pay. A widely recognized example, the court noted, is when jurors convicted Al Capone for failing to pay taxes on income earned through illegal activities. Additionally, the court noted that Helix would actually receive a competitive advantage over legitimate business because of Helix’s violations of the CSA. In other words, Helix would have an unfair advantage over legitimate business since Helix would not be required to pay minimum wage or overtime.

What does this mean for Oklahoma employers in the medical marijuana industry?

Tenth Circuit has jurisdiction over Oklahoma, so even though it was a Colorado company, Oklahoma federal courts must follow the ruling. So, Oklahoma employers involved in the medical marijuana industry should ensure their pay practices comply with the FLSA and, likely, all other applicable federal employment laws. This includes correctly classifying employees, paying overtime for non-exempt employees, and keeping proper time records for non-exempt employees. There is a possible argument that Oklahoma marijuana industry employers, unlike Helix, may be able to make an argument that the FLSA does not apply to them because they are not engaged in interstate commerce, but with the inflow of money, marijuana tourism, and more and more out-of-state services (like banking) getting involved in the Oklahoma marijuana industry, it is not impossible that a court could hold the marijuana industry does involve interstate commerce, despite sales being limited to medical marijuana license holders issued in Oklahoma. The safe bet for those in the marijuana industry to not get burned is to make sure employment practices comply with federal laws, even if the actual business may not.

Paula Burkes Business writer

Paula Burkes

Paula Burkes has nearly 40 years' experience writing and editing award-winning material, including since early 2001 with the business desk of The Oklahoman. After earning a journalism degree from Oklahoma State University in 1981, Paula wrote for... Read more ›

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