Employment laws and the risk of ignorance

Following state and federal regulations is crucial for compliance

Ignorance of the law is not a defense for violating it, so I want to cover some of the main employment laws that you need to be familiar with.

Some laws only apply to employers that have a minimum number of employees, such as 15 or 50. But as your business grows, you need to be aware that you may be growing right into a law you never had to comply with before! Let’s start with four laws that I think are pretty important to know about.


The Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) prescribes standards for wages and overtime pay, which affect most private and public employment. The act requires employers to pay employees who are not otherwise exempt at least the federal minimum wage and overtime pay of 1.5 times the regular rate of pay when working more than 40 hours in a work week. The federal minimum wage has been $7.25 an hour since 2009. States have labor standard laws too, and when they are in conflict with federal laws, businesses are required to give their employees the more generous pay and benefits.

In short, the definition of an exempt employee is someone in upper management, executive suite or outside sales. (For more information on exempt employees, review the FLSA fact sheet at this website: www.dol.gov/whd/overtime/fs17a_overview.pdf.) Oftentimes, employers try to call every employee “exempt” so they don’t have to pay them minimum wage or overtime, nor do they have to pay income and Federal Insurance Contributions Act (FICA) taxes. Businesses do this by declaring every employee an “independent contractor” and issuing them a 1099 tax form instead of a W-2. This is illegal. You are playing with fire if that’s how you operate your business.

Most of the employees in your cannabis operation are probably not exempt, and thus you must pay them minimum wage and overtime for hours worked in excess of 40 hours per week. If you are not sure how these labor laws impact you, this is the time to speak to an attorney. You don’t want to be caught violating one of these laws. The penalties are expensive and the damage to your reputation can be severe. Make certain your employment lawyer has advised you on compliance with the FLSA as well as any applicable and related state laws.


Americans with Disabilities Act

The Americans with Disabilities Act of 1990 (ADA) and similar state laws basically afford employment protection for those with documented disabilities. Fundamentally, these laws say that if someone with a disability can still perform the tasks of a job, they must not be excluded from employment solely because of that disability. Further, businesses must make “reasonable accommodation” for employees with disabilities. For instance, if an employee with a chronic back condition needs a special ergonomic chair or a standing desk, you generally have to provide that for them.

The ADA is a rather fluid law, in my opinion, and so are state laws addressing disabilities. Its requirements change over time as new cases are brought forth involving actual employment situations. So it’s hard to provide a one-size-fits-all summary of how to stay in compliance. The law applies to employers with 15 or more employees (individual states may have laws that apply to employers with fewer employees). If you’re running any decent-sized operation, you probably exceed that number.

Ironically, the ADA does not consider the use of or addiction to illegal drugs to be a qualified and protected disability. And since marijuana is still illegal at the federal level, those who need/want to use it cannot claim ADA protection. But the law still applies if you have 15 or more employees, so make sure you have secured proper legal advice to ensure compliance.

Also, part of the way you avoid running afoul of the ADA is by writing very solid job descriptions and employment ads.


Workers’ Compensation

Almost every state in the U.S. has a mandatory workers’ compensation law. These laws basically say that the employer will pay for job-related employee injuries and, in exchange, the employer may not be sued for those injuries. The employer’s workers’ compensation coverage becomes the “exclusive remedy” for payment, and the employee cannot sue for millions of dollars over an injury.

In most states, workers’ compensation benefits are required for employers having three or more employees. Paying salaries and benefits in cash does not exempt you from state workers’ compensation laws. It is absolutely critical that you check with your state to find out if your company is subject to the workers’ compensation law, and if so, how to buy insurance to satisfy that requirement. My friends in the insurance business tell me that workers’ compensation coverage for marijuana businesses is hard to come by, but that doesn’t excuse you from having it where required.


Family Medical Leave Act

The Family Medical Leave Act (FLMA) applies to employers with 50 or more employees. The laws basically require employers to give 12 weeks of unpaid leave for certain situations including serious injury or illness, child birth or adoption. While most employees cannot afford to go 12 weeks without a paycheck, some can and do, and businesses must have their job waiting for them when they return. Again, an attorney can be very useful in advising about these issues.



That’s just four of the big laws you need to be aware of. Please note that it is not an exhaustive list of all the laws that apply. Good risk management practice starts with identifying the things that can cause injury or harm, and violating employment laws is definitely something that can cause considerable financial harm. So, if this point hasn’t been made enough already, get solid legal counsel to make sure that you are in compliance.


Brenda Wells, Ph.D. is the Robert F. Bird Distinguished Professor of Risk and Insurance at East Carolina University and the owner of Risk Education Strategies. She has published articles on the risk management implications of cannabis legalization and is a sought-after expert in the risk management and insurance field. She can be contacted at brenda@riskedstrategies.com.


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