New Series: Employment Law and the Cannabis Industry

Published at JD Supra

Perkins Coie

This blog series addresses common employment-related issues for cannabis industry professionals.

This first post addresses timekeeping considerations for manufacturers and retailers of cannabis products to ensure compliance with applicable state and federal law. Future posts will address other employment-related issues, including the administration of meal and rest periods, overtime and regular rate considerations, engaging independent contractors, exempt and nonexempt employment classifications in industry-specific roles, accommodating employee off-duty cannabis use, and similar topics.

Wage and Hour Compliance: Timekeeping

Large-scale class actions and other litigation alleging violations of legal obligations regarding payment of wages and related recordkeeping constitute a large percentage of active employment-related litigation and can expose businesses, including individual founders and owners, to exorbitant financial risk. Ensuring accurate timekeeping and compliance with related requirements is key to avoiding such liability.

The Fair Labor Standards Act (FLSA) governs pay practices for employees federally, though many states and localities have additional requirements.

As a baseline, employers must compensate all hourly (or “nonexempt”) employees for all time they are “suffered or permitted to work” and engaged in tasks directly related to their job duties. To comply with the FLSA’s recordkeeping rules, employers must accurately maintain employee payroll records for at least three years and the records upon which wage computations are based for two years, so that these records may be available for inspection by representatives of the U.S. Department of Labor (DOL) Wage and Hour Division (WHD).

An employer’s method for recording all time worked should consider the practical realities of each position. For example, retail and security staff may face different timekeeping obstacles than members of cultivation or manufacturing teams, such as:

  • Retail and security employees. Retail employees and security staff should be able to clock in and out promptly and effectively upon entering and leaving a retail facility. However, if these employees must use employer-owned devices to record their time, the employees may be entitled to be paid for time spent waiting for device access, booting up the device before logging in to the timekeeping system, and turning off the device after logging off.[1] Employers should also have coverage processes in place to allow employees to take appropriate paid and unpaid nonworking breaks, and to ensure any time spent on bag checks or other security measures is captured appropriately.
  • Cultivation and manufacturing employees. Cultivation and manufacturing employees who spend time putting on and removing protective equipment, or engaging in other necessary onsite pre-work activities, are generally entitled to compensation for time spent completing those tasks. Additionally, cultivation and manufacturing employees may be working in facilities, or areas within facilities, located a significant distance from where these employees arrive for work. Employers should carefully consider whether their timekeeping procedures accurately reflect the time spent by employees at the worksite, including time spent traveling to other areas of the worksite to commence work. A best practice is to instruct employees to clock in before performing any task related to their job.

In short, employers should take care to ensure employees are paid for all tasks that are integral and indispensable to the employees’ duties. Further, the FLSA requires employers to accurately maintain all payroll records for at least three years and the records upon which wage computations are based for two years, so that these records may be available for inspection by representatives of the U.S. Department of Labor Wage and Hour Division.[2]

This is one example of the wage and hour issues that employers should consider in the cannabis industry, and we will issue further guidance on these and related topics. Companies and organizations should work with experienced legal counsel to determine the best approach to ensure compliance with these requirements.

[1] The U.S. Court of Appeals for the Ninth Circuit held on October 24, 2022, in Cadena v. Customer Connexx, LLC, 51 F.4th 831 (9th Cir. 2022), that the time a group of call center workers spent booting up their computers was compensable time under the federal Portal-to-Portal Act, which amended the FLSA. We discuss this decision and the Ninth Circuit’s reasoning in this Update.

[2] Note that state or local requirements may mandate longer recordkeeping.

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