The federal Fair Labor Standards Act (“FLSA”) is the law that, among other things, requires covered employees to be paid time-and-a-half for hours worked over 40 hours in a given week. As we have repeatedly said to anyone who will listen, the fact that cannabis remains federally illegal does not mean that cannabis employers can ignore federal employment (or any other) law. The case of Waxler v All Green Transport LLC, et al., currently pending in the U.S. District Court for the Western District of Michigan with case number 23-cv-00897, is a perfect example of that.

In Waxler, the plaintiff is a secure transport delivery driver who claims that the defendant, his employer, All Green Transport, LLC (“AGT”), failed to pay him overtime for hours worked in excess of 40 hours, in violation of the FLSA and a corollary state law. AGT took a shot at an early escape from the lawsuit by means of a motion to dismiss, which at its core is a litigation tool designed to have a case dismissed based on the idea that the allegations in the complaint are insufficient to support the plaintiff’s claims. Unfortunately for AGT, the Court did not buy its arguments. And, quoting the Tenth Circuit Court of Appeals (because the Sixth Circuit, which covers Michigan has not explicitly addressed the issue) the District Court stated that “employers in the marijuana industry are not excused from complying with federal laws just because their business practices are federally prohibited.”

Just like employers in most industries, cannabis industry employers need to be aware of and comply with their obligations under the FLSA. Failure to do so can leave your company exposed to enormous risk. FLSA actions can be costly for employers, particularly where, as here, a plaintiff styles the lawsuit as a class action. In a worst case scenario, the employer could be on the hook for double the unpaid overtime for all members of the class (in other words, all of the covered employees) for the entire three-year look-back period for knowing violations of the FLSA. Additionally, the FLSA provides that a successful plaintiff is entitle to attorneys’ fees. Depending on the size of an employer’s workforce, seven-figure judgments are not out of the question.

Additionally, this case is a great example of the value in retaining experienced employment counsel who understands the cannabis industry. Defendants’ attorneys made an argument for dismissal based on a statutory exemption to the FLSA found in the Motor Carriers Act (“MCA”), another federal law that specifically covers truckers and similar drivers. The Court, however, noted that the exemption that Defendants were relying on only applies to drivers who cross state lines for their work. That should raise a red flag immediately for anyone familiar with the cannabis industry’s unique framework. While nobody likes a Monday morning quarterback, and defense counsel may have had strategic reasons for raising this defense, it is safe to say that arguing before a federal judge that your cannabis company client is entitled to an exemption that only applies to drivers who cross state lines is a highly risky litigation strategy that could potentially put your client in a tough spot with both the DEA and also your state’s cannabis regulators. Of course, Plaintiff did not allege that they crossed state lines, so at the motion to dismiss stage, the Defendants’ argument was a nonstarter. However, it will be interesting in to see if Defendants continue to pursue this defense after some factual development in the case.

This case should serve as a reminder that regardless of legacy cannabis operators’ prior practices, if you are participating in the regulated state-legal cannabis industry anywhere in the U.S., you should be paying attention to complying with all of the federal laws applicable to businesses, including the FLSA, the FMLA, OSHA’s rules and regulations, and the federal environmental laws, just to name a few. Given the rapid state of change in this industry, we encourage operators to be proactive about their compliance. It is far more cost effective to be proactive in ensuring compliance than to be put in the crosshairs of a lawsuit in federal court. Dykema’s Cannabis Industry Team is comprised of attorneys from across the firm’s practice groups and stands ready to assist with all manner of legal issues, including taking preventative measures, such as reviewing and updating employment policies and conducting employment practice audits to ensure compliance.

As this is not the end of this case, Dykema will continue to provide additional updates. Unless the Defendants opt to settle with the Plaintiff (NB, unlike most lawsuits, in some jurisdictions FLSA settlements have to be approved by the Court), this lawsuit will likely continue to run at least through the end of the year, and probably into 2025.