High Times faces potentially expensive litigation
High Times made headlines in October when its former chief executive, David Kohl, filed a $6 million wrongful termination lawsuit against the 43-year-old marijuana magazine’s parent company.
Reportedly, after one year with High Times, Kohl was fired after demanding, among other things, that the High Times staffers be “more professional.”
In his lawsuit, Kohl alleges that his criticism of the board’s “laziness” and “ineffectiveness” was “entirely justified” and that his termination stemmed from “efforts to alter the culture of professionalism and inappropriate behavior” allegedly present at High Times.
Matt Stang, the High Times director who terminated Kohl, had been arrested in 2012 with 45 others, for alleged cannabis trafficking in connection with a multimillion-dollar New York City drug ring. Stang pleaded guilty and paid a $250,000 fine, but it isn’t a stretch of the imagination to view his transgression as worthy of termination. Yet, the magazine elected to retain Stang.
When Kohl was subsequently fired, he alleged that High Times “manufactured” the reason for his dismissal to avoid paying the three years of severance that was owed to him under his employment agreement.
Depending on the state in which an employer operates, the obligation to pay severance typically hinges on the language of the offering and employment agreements. In general, employers tend not to award severance to employees who has been terminated for their own misconduct, i.e., “for cause.”
Not surprisingly, “cause” is among the most heavily negotiated terms in an employment agreement. Employers want to maintain broad discretion to determine what constitutes termination “for cause.” Many employers define cause as a breach of contract (such as confidentiality or intellectual property provisions), violation of a code of ethics, or a failure to follow company policy.
Cause also frequently includes employee infractions such as fraud, embezzlement, theft, violence, harassment, misuse of company property (such as watching pornography online), failing a drug or alcohol test or conviction for certain crimes involving “moral turpitude” (dishonesty, immorality or unethical behavior). The outcome of Kohl’s litigation against High Times will likely depend on whether Kohl was truly fired “for cause,” which would defeat his right to severance. If Kohl were fired “without cause,” severance would be payable under the terms of the employment agreement.
Cannabis-related employment litigation is being dominated by whether medical cannabis use by employees where it’s legal constitutes “cause for termination.”
The Americans with Disabilities Act (ADA) precludes employers from taking an adverse employment action (such as termination) on the basis of disability. The ADA also requires employers to make reasonable accommodations to disabled employees (subject to undue hardship on the employer). Yet, the ADA contains exceptions for drugs that are unlawful under the Controlled Substances Act, including cannabis.
As a result, most states and courts have determined that employers are permitted to enact zero-tolerance policies and are not required to accommodate employees’ legal use of medical cannabis — frequently regardless of whether the employees’ use of cannabis was on or off the job.
Courts in Oregon and California have determined that the voters who legalized medical cannabis did not intend to affect an employer’s ability to include cannabis use as cause for termination or other adverse employment actions. Few states, including New York, Delaware, Arizona and Minnesota, protect employees from termination for failing a drug test, assuming they have medical authorization.
To avoid wrongful termination lawsuits stemming from termination without cause, employers should draft employment agreements in a manner that clearly defines “cause” (as noted above) and specifies the compensation or benefits employees would be entitled to receive in the event of termination for cause. Employment agreements should spell out whether all cause or just certain categories of cause extinguishes the employer’s obligation to pay severance.
There are a handful of other preventive measures employers may take to avoid ending up on the defense end of a wrongful termination lawsuit.
First, it is critical to maintain a written record. This includes regular and recurring performance reviews and appraisals. Supervisors should be encouraged to speak openly with their employees about and to document performance matters throughout the year.
Second, perform a thorough investigation prior to termination. This includes, among other things, following up on claims of poor performance and reviewing written performance reviews, appraisals, employment agreements and offer letters. Preparedness is critical.
Third, include a representative from human resources or another management-level employee to review the grounds for, and to observe, the termination. This could help to avoid a “he said/she said” account of what transpired during terminations. Clear statements concerning an employer’s reasons for termination may reduce the likelihood that employees will reach their own conclusions about why they were let go. Draft talking points and avoid apologies — less is more.
And finally, maintain employment practice liability insurance. Standard general liability insurance generally does not include such coverage. The cost of premiums frequently pales in comparison to full-blown litigation.
Kohl is not the first executive of a cannabis-related company to sue a former employer for wrongful termination. Cannabis companies are clearly targets for expensive termination lawsuits, and they should work expeditiously to avoid them.
Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a white-shoe boutique firm.