Cannabis Case Goes to US Supreme Court

Fred WhittleseyCannabis Compensation Consultants, Compensation Expert Witness Blog

Alice in Wonderland: Does Federal Law Apply to Cannabis Employees and Contractors?

Most legal issues with cannabis companies have been on central business issues: Consumer health and safety regulations, continued black market activity, dispensary compliance, banking access, taxation, interstate transportation, and the ongoing conflict between the federal status of cannabis (a Schedule 1 drug, like heroin and meth) and the state-by-state patchwork of legalization for medical and/or recreational use.

Aside from criminal prosecutions, cannabis topics don’t make their way to federal courts, especially the U.S. Supreme Court. Until now.

Articles in MJBiz Daily (May 19, 2020), and in WeedWeek (by Hillary Corrigan, May 29, 2020) report a case being petitionied to the Supreme Court that tests the balance of federal laws against an illegal drug and federal laws mandating overtime pay. A compensation issue (yay!).

The specific issue is that the employee had been receiving overtime pay as a guard in a security service that “doesn’t touch the flower” and was promoted to supervisor. He then chose to participate in a program that compensated him in company stock in lieu of overtime.

The Company argues that the employee does not have the right to sue for overtime pay because – get this – the Company operates in an illegal industry. The Company’s attorney says “an individual perpetrating a federal drug crime is not entitled to federally mandated compensation.” Ouch.

I particularly like a statement from one of the attorneys representing the employee seeking overtime pay: “During Prohibition, bars still had to pay their bartenders overtime.”

Cannabis issues aside, if this were a legal business, there are two key points not referenced in the suit:

1) A promotion from non-supervisory employee to a Supervisor role commonly results in the employee being classified as “exempt” – exempt from the right to get overtime pay for hours worked in excess of 40 in a work week. So the Company is right.

2) The Company needs to prove #1 above because if a Court rules that the employee is nonexempt, the employer cannot pay overtime in the form of stock, even with the employee’s consent. So the Company is right.

The case submitted to the Supreme Court does not address either of these issues. It is about whether a company that pays federal taxes also must adhere to federal overtime pay rules under the Fair Labor Standards Act (FLSA).

Did you ever read “Alice’s Adventures in Wonderland & Through the Looking Glass?” by Lewis Carroll?

We’ll see if the USSC takes the case, or sends it back to Colorado, where cannabis is legal. The Supreme Court is dealing with the forest if they send it back down; the judge there will have to deal with the trees.