Kenney v. Helix TCS, Inc., No. 18-1105, 2019 WL 4557433 (10th Cir. Sept. 20, 2019)

The legalization of cannabis in several states had left a major question unanswered: is an employee who violates the federal Controlled Substances Act (“CSA”) by distributing cannabis as part of his or her job still subject to the federal Fair Labor Standards Act (“FLSA”), which provides for the payment of wages?

On September 20, 2019, in Kenney v. Helix TCS, Inc., No. 18-1105, 2019 WL 4557433 (10th Cir. Sept. 20, 2019), a three-judge panel of the Tenth Circuit unanimously answered that question in the affirmative. The court explained that employers are not excused from complying with federal law simply because they are violating federal law in other respects (the so-called “illegality defense”). Most importantly, the court noted that employers in the cannabis industry should not gain an unfair advantage over other employers who are required to comply with federal law.

Helix TCS, Inc. (“Helix”) provides security and inventory control services to cannabis businesses in Colorado. Robert Kenney, a Helix employee in Denver, regularly worked more than 40 hours each week but was not provided with overtime pay, as required by the FLSA. Kenney filed suit to claim the unpaid overtime, and Helix countered with a motion to dismiss, claiming that its employees, including Kenney, were exempt from the FLSA’s requirements.

Helix argued that Kenney’s job activities during his employment were in clear violation of the CSA, and were, thus, not entitled to FLSA protections. The company explained that if cannabis industry employees were afforded the protections of the FLSA, the federal government would be sanctioning unlawful conduct. In other words, continuing to impose criminal sanctions on individuals for cannabis-related offenses, while simultaneously holding that the individuals engaged in those offenses are entitled to minimum wage and overtime for the same conduct, would be an “absurd” result. As such, Helix demanded the suit be dismissed.

The district court denied Helix’s motion to dismiss but certified Helix’s interlocutory appeal of that order to the Tenth Circuit, leading to its unanimous decision.

The Tenth Circuit first noted that, while the FLSA expressly includes a number of exemptions, there is no exemption listed for employees in the cannabis industry. In the court’s view, Helix was asking the court to repeal the FLSA’s overtime mandate, but only for employers specifically in the cannabis industry. The court feared any such repeal would encourage employers to engage in federally illegal markets in order to avoid the reach of federal laws to which they would otherwise be subject. As such, the Tenth Circuit rejected Helix’s arguments and affirmed the district court’s ruling.

On October 7, 2019, Helix filed a petition for a rehearing of the matter en banc. A hearing will likely occur in early 2020 to determine whether or not the case may proceed. Although we must now wait for a further opinion from the full Tenth Circuit bench to truly put this matter to rest, it is likely the decision will provide clarity into the other unanswered questions remaining as a result of the conflict between the federal government’s position on cannabis and ongoing state cannabis legalization efforts.

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