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Hashish Litigation: One other Blow to the Illegality Protection (Kennedy v. Helix TCS, Inc.)

cannabis litigation employment flsaSure, hashish continues to be federally unlawful. However no, that doesn’t imply hashish companies ought to act as if federal legislation doesn’t exist. It does, and it most likely applies to any hashish enterprise. However, our hashish attorneys usually hear claims that federal legislation doesn’t apply. In actual fact, two questions that I’ve heard quite a few instances are:

  1. If the opposite aspect breaches this hashish contract and we sue them, will they only declare that the contract is federally unlawful to get off the hook, and in that case, will the choose agree?
  2. Does federal legislation apply to our hashish enterprise?

The reply to the primary query is admittedly fairly powerful. Our hashish attorneys see events put every kind of issues in contracts to attempt to keep away from this drawback—from acknowledgements of federal illegality, to waivers of the fitting to carry a case in federal court docket, to outright waivers of the illegality protection. Whether or not any clauses may make a distinction in litigation will not be clear, and relying on the jurisdiction, a court docket may theoretically agree that the contract is illegitimate and might’t be enforced, although we consider that’s unlikely to occur in any state court docket in a state with a industrial hashish licensing system. In any case, one would hope choose wouldn’t sympathize with a celebration who signed a contract, breached it, after which claimed the entire thing was unlawful.

The reply to the second query is far simpler: federal legislation nearly actually applies. A superb rule is that if the federal authorities says enterprise has to do one thing, they should do it. Alternatively, when federal legal guidelines provide protections or advantages to regular companies, these usually don’t apply to hashish corporations (resembling chapter safety or sure tax deductions). Listed here are a sequence of examples:

  • The Managed Substances Act: Despite the fact that the federal authorities hasn’t actually enforced the CSA in opposition to state-lawful operators in a couple of years, it actively enforces it in opposition to allegedly unlicensed operators. Theoretically, nothing is stopping the federal authorities from bringing fees in opposition to each licensed dispensary in the USA (excluding strictly medical operators as protected by the Rohrbacher Blumenauer modification, as prolonged infrequently). In actuality, it doesn’t appear like the federal authorities will abandon its present coverage of non-enforcement any time quickly.
  • Federal Trademark Legal guidelines: Pondering of utilizing a longtime firm’s logos on hashish items? Properly, they may haul you into court docket beneath the federal trademark legal guidelines. A federal trademark registration provides the holder the fitting to hunt sure cures in opposition to illegal customers of that trademark (the “infringer”), no matter whether or not the infringer was promoting a authorized or unlawful good. Even companies with out federal trademark registrations can carry trademark actions in opposition to infringers.
  • Federal Commerce Secret Legal guidelines: If a hashish firm improperly acquires info, information, strategies, or another form of secret from another firm, the hashish firm could possibly be sued beneath the federal Defend Commerce Secrets and techniques Act.
  • Federal Environmental Legal guidelines: Hashish corporations that don’t adjust to federal environmental legal guidelines threat being penalized and even criminally indicted.
  • Federal Tax Legal guidelines: Sure, hashish corporations must pay federal taxes, however sadly, because of Inside Income Code part 280E, they can’t take common enterprise deductions, in order that they find yourself paying taxes on their gross receipts much less their allowed price of products offered.
  • Federal Employment Legal guidelines: Because of the Tenth Circuit Courtroom of Appeals (a federal appellate court docket primarily based in Denver that’s one step beneath the U.S. Supreme Courtroom), we will now add compliance with the Honest Labor Requirements Act (“FLSA”) to this record.

The case at difficulty is Kenney v. Helix TCS, Inc., which we’ve been following for a few yr. As we defined beforehand:

Helix TCS, INC. (“Helix”) gives safety providers to hashish companies. Kenney, an worker of Helix, was categorized as an exempt worker, that means Helix didn’t pay him additional time pursuant to the necessities of the FLSA. Kenney introduced swimsuit in opposition to Helix claiming he was misclassified as exempt and will have been paid additional time.

Helix moved to dismiss the case, arguing that Kenney was not entitled to the protections of the FLSA as a result of hashish was totally forbidden beneath the CSA. The district court docket denied the movement to dismiss however licensed the ruling for quick attraction to the Tenth Circuit Courtroom of Appeals.

On Enchantment, Helix contends that its workers are usually not entitled to the protections of the FLSA. Helix’s foremost argument is that every one individuals in state leisure marijuana industries assume the chance that their actions will topic them to federal prison sanctions and due to this fact they don’t seem to be entitled to advantages beneath federal legislation, and can’t count on federal court docket to help their conduct. Primarily Helix is arguing that the federal authorities could be aiding workers in drug trafficking in the event that they afforded the workers the protections of the FLSA.

On September 20, 2019, a three-judge panel of the Tenth Circuit issued a concise, 12-page opinion unanimously disagreeing with Helix and holding conclusively that the FLSA does apply to hashish companies. In a single a part of the Kenney opinion, the court docket famous that “case legislation has repeatedly confirmed that employers are usually not excused from complying with federal legal guidelines simply because their enterprise practices are federally prohibited.” After reviewing this legislation, the court docket held that “the FLSA is concentrated on regulating the exercise of companies, partly on behalf of the person staff’ well-being, relatively than regulating the legality of particular person staff’ actions.” In conclusion, the court docket held that the FLSA does apply to hashish corporations and allowed the case to proceed.

There is a crucial notice within the wake of the Kenney case: the case is simply “binding” on jurisdictions inside the Tenth Circuit, that are the District of Colorado, District of Kansas, District of New Mexico, Japanese District of Oklahoma, Northern District of Oklahoma, Western District of Oklahoma, District of Utah, and District of Wyoming. The choice will simply be “persuasive” authority for federal courts elsewhere within the U.S., which implies that they don’t essentially should be adhered to. Despite the fact that Kenney gained’t be binding on federal courts outdoors the Tenth Circuit, we don’t see many courts departing from the Kenney rule.

It’s possible you’ll be asking why this case is related to the illegality protection. The reply is easy—the court docket’s reasoning is broad sufficient to use outdoors of the context of the FLSA. In different phrases, courts throughout the nation may both cite the case persuasively outdoors the FLSA context, or simply come to totally different conclusions primarily based on the identical reasoning. Even when federal legality doesn’t occur quickly, we count on that the federal illegality protection will proceed to weaken considerably over the subsequent few years.

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