You probably know it’s headed downhill as a party in a lawsuit when the court is comparing your arguments to Al Capone’s. That’s what happened in this recent FLSA case out of the 10th Circuit – Kenney v. Helix TCS, Inc., 18-1105 (10th Circ.).
As outlined below, however, case law is clear that employers are not excused from complying with federal laws because of their other federal violations. … The employers’ argument to the contrary rests on a legal theory as flawed today as it was in 1931 when jurors convicted Al Capone of failing to pay taxes on illicit income.
The case involves a security firm that provides services to Colorado’s recreational cannabis industry and a lawsuit brought by one of their guards alleging violations of the Fair Labor Standards Act. The security firm lost the argument at the district court that we’ve seen many times made by parties looking to get out of contracts or regular liability just because they were involved with a party operating the marijuana or marijuana/cannabis-adjacent space. The one that argues that because marijuana is still a class 1 regulated substance under the Controlled Substances Act, anyone acting in cannabis or cannabis-adjacent spaces would be profiting from illegal activity or the contract involves illegal matter and therefore the court should not enforce the law or the benefit of the parties’ bargain.
Thankfully for the cannabis industry, most federal courts have rejected these arguments. The rationale behind this decision from the 10th Circuit is no different. “[J]ust because an Employer is violating one federal law, does not give it license to violate another.”
In making that determination, the court astutely observed the following rationale, which other litigants may find persuasive and useful in similar situations:
But adhering to the plain language of the statute here does not level the playing field within the illicit marijuana market but rather beyond it, preventing these unlawful businesses from procuring an unfair advantage over all other legitimate employers who are required to comply with federal overtime laws. Indeed, applying FLSA protections to workers such as [the plaintiff] will not grant these individuals any surplus benefit that they cannot easily obtain elsewhere, but the reverse would excuse [employer] from FLSA costs and obligations and thereby allow it to reap additional benefit from its CSA violations. Denying FLSA protection to workers in the marijuana industry would consequently encourage employers to engage in illegal markets where they are subject to fewer requirements. But together the FLSA and CSA discourage businesses from participating in the marijuana industry by alternatively subjecting them to federal labor obligations and imposing criminal sanctions. Accordingly, accepting the plain language interpretation that [the plaintiff] and similarly situated employees are covered by the FLSA promotes the legislature’s intent in enacting the statute.
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