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Cannabis Unpaid Wages Lawsuit Pushes Policy

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Mandatory arbitration clauses latest focus

Denver, CO On April 27, the federal District Court for the District of Colorado granted conditional certification to a class of plaintiffs who brought unpaid wage claims against Helix TCS, a cannabis security company. The defendant employer began almost immediately to try to mitigate the financial impact that a successful collective action lawsuit might have under the Fair Labor Standards Act (FLSA).

Appreciating the importance of Robert Kenney v. Helix TCS Inc. requires a little bit of context, however. The cannabis industry poses all sorts of problems for federal courts because, although permitted under some state laws, cannabis commerce is still illegal under federal law. Add to that, recent moves to limit the reach of collective actions under the FLSA. And then, of course, there is the issue of the enforceability of mandatory arbitration clauses in employment agreements. Kenney is a hot, steamy policy stew.

Federal labor law and the Controlled Substances Act

Helix provides security, inventory control, and compliance services to the marijuana industry in Colorado. Robert Kenney worked as a security guard for Helix between February 2016 and April 2017. He alleges that he and other similarly situated security guards regularly worked more than forty hours per week. Nevertheless, Helix classified them as exempt employees under the FLSA and paid them a salary instead of overtime. Mr. Kenney filed a lawsuit against Helix in 2018, contending that the company willfully misclassified the security guards as exempt employees even though they frequently performed non-exempt job duties.

Helix moved to dismiss the Complaint, claiming that workers like the security guards could not claim the protections of the FLSA because marijuana businesses are illegal under the federal Controlled Substances Act (CSA). The District Court denied the motion. In 2019 the Tenth Circuit affirmed the decision, noting that “employers are not excused from complying with federal laws because of their other federal violations.”

At the time, commentators hailed the Tenth Circuit’s decision as a great victory for the budding marijuana industry. From the worker’s viewpoint, a decision to the contrary would have arguably left them defenseless against federal labor law violations. At worst, it could have turned into open season for wage and hour abuses against them, especially in states without strong state law protections.

Collective action certification – Step one

One victory in hand, Mr. Kenney and other security guards sought to pursue their lawsuit against Helix through a collective action, a process under the FLSA that is similar to a class action lawsuit. In most Circuit Courts of Appeal, this is a two-step process, often referred to as the Lusardi process, after the 1987 case in which it was first set out.

The first step is to seek conditional certification of a class that includes all similarly situated individuals plausibly affected. It casts a very broad net. All possible plaintiffs are notified of the pending lawsuit.

Thereafter, both plaintiffs’ and defendant’s counsel go forward with the discovery process. On the basis of discovery, defendant’s counsel typically objects to the inclusion of certain plaintiffs as too differently situated to merit inclusion.

In 2021 this process was challenged in Swales v. KLLM Transport Services, LLC. The Fifth Circuit adopted a new one-step process that is arguably more favorable to employers. The Tenth Circuit gives no evidence of adopting this new process, but it is a hot-button issue for FLSA collective action lawsuits and many are watching courts outside the Fifth Circuit to see if the new approach will spread. The Swales decision is very recent, so few cases have considered it.

Whittling down the class of plaintiffs

Helix’s counsel is now going through the anticipated step of objecting to the inclusion of certain potential plaintiffs as not sufficiently similar to the named plaintiff.  If they are successful with a sufficient number of categories of workers or individuals, they could, in theory, defeat the collective action certification. Practically speaking, that would end the lawsuit. They have started by objecting to the inclusion of Dustin Wolfe Sr., who signed an agreement to arbitrate any employment disputes, including FLSA claims.

Mandatory arbitration clauses in employment contracts

Employers frequently require employees to sign agreements to arbitrate employment disputes as a condition of employment. The practice is highly controversial. Arbitration generally favors employers, and someone looking for a job, especially a low-paying one, is generally in no position to negotiate about the terms.

In California, for instance, such clauses in employment agreements are unenforceable by statute. On the other hand, federal law, as articulated by the Supreme Court, broadly favors arbitration agreements even in the context of employment.

Colorado Senate Bill 20-093, the "Consumer and Employee Dispute Resolution Fairness Act" was introduced in 2020 an effort to promote efficiency and justice in arbitration proceedings. The bill would have expanded the circumstances under which an arbitrator could be disqualified for partiality and limited certain conditions that could be onerous for workers, such as being required to travel more than 100 miles to attend arbitration proceedings. Modest as it was, SB 20-093 died in committee.

Today then, whatever popular sentiment exists against requiring arbitration of employment disputes as a condition of employment, it has not yet matured into statute. Courts sometimes make law in fresh interpretation of public policy, though. It would be a surprising turn of events, but we shall see.


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