Federal non-enforcement of employment agreements within the cannabis industry and various legal issues that accompany.

By Jenna Halop | jenna.halop@student.sjcl.edu

With the rapid growth of legal cannabis in the United States comes an equally immense growth of cannabis-related jobs, labeling cannabis as the fastest-growing industry in the U.S. job market. The attractive high dollar income and vast opportunities for both individuals and businesses are only a couple of reasons why this industry is projected to outpace the top job sectors. However, those who want to journey into this booming business should familiarize themselves with the legal impacts on a much greater level. Despite the growing support for legalization, cannabis is nonetheless federally prohibited under the Controlled Substances Act (“CSA”). Even for states that have legalized cannabis, whether medicinally or recreationally, there has been less freedom and ultimately more problems than initially anticipated. Seeing as state law cannot impede the federal government’s constitutional authority, federal law remains the “Supreme Law of the Land,” and residents of legalized states are still subject to the full extent of federal cannabis laws and penalties.

Federal courts have been reluctant to enforce agreements that deal with prohibited activity because enforcement of any such contract would violate public policy and condone illegal activity. Consequently, the federal government has full discretion to ignore the enforcement of an agreement between parties if its content includes cannabis-related activities. This current precedent does not favor nor upholds the federal rights and protections of an employee or employer whose business agreement solely deals with cannabis, regardless if both parties abide entirely by state law.

For example, one who breaches such a contract may claim the “defense of illegality,” proposing that the agreement should have never existed because it contracts illegal activity. If a federal court accepted this defense, the contract would essentially disappear, and the breaching party would not be held liable for anything they may or may not have done, preventing the non-breaching party from recovering little, if anything at all. The non-breaching party is bound to face numerous challenges such as money loss, property loss, or emotional suffering. This is a reoccurring legal problem in the cannabis industry.

Some states that have legalized cannabis provide labor protections for cannabis farmers, farmworkers, dispensaries, and others employed in this sector. In the states that have legalized cannabis, an agreement made between parties for cannabis-related goods or services in exchange for money or other benefits is classified as a legit employment contract. So long as the contract and the terms are enforceable under state law, the legal implications, rights, and protections that accompany such an employment agreement are also statutorily enforced. However, because the federal government has the capability of ultimately enforcing the CSA against those engaged in cannabis-related conduct, a state-protected cannabis employment contract now becomes federally void as an illegal contract, exposing those involved to federal persecution with little to no recoverable damages. This current system causes conflict, uncertainty, and vulnerability for those who find themselves in federal court seeking justice but who also relied on and followed state cannabis laws.

For some, the best and sometimes only way to receive protection under the law is by bringing a state claim, whereby they are shielded by state law, to a state court. However, when a claim is seeking damages exceeding $75,000 or when a federal law or Constitutional right has been violated, the injured party is more likely to be made whole in federal court than in state. Yet, in the cannabis industry, if an employee’s Constitutional rights or other federal laws have been violated, or a contractual dispute results in damages in excess of $75,000, the federal courts do not provide protection for those involved in cannabis activity, despite any suffering. As a result, one can only cross their fingers and hope to receive the utmost remedies and protections state courts may offer.

Some federal courts have begun attempting to find resolutions to cannabis contractual disputes despite the ongoing federal and state conflict. The Northern District Court of California held in 2016 that a cannabis-related contract did not constitute an illegal contract to the point of nonenforcement because doing so would allow for unjust enrichment and a disproportionately harsh penalty upon one party. That same year the District Court of Colorado denied the defense of illegality as to a disputed contract based on the court’s reasoning that there is currently no clear and consistent federal public policy regarding cannabis. Based on these decisions, it is possible that a federal court would uphold a cannabis employment agreement. Nonetheless, the court’s ability to uphold federal law when deciding these disputes currently diminishes the hope that one will be federally protected when engaged in activity relating to cannabis, regardless of how strictly they adhere to state law.

During the last five decades, cannabis and all it encompasses have substantially impacted various states despite remaining federally illegal. No matter the socioeconomic headway states have made by legalization, the federal government has made it abundantly clear that cannabis and any conduct relating to its use, possession, manufacturing, or distribution is federally prohibited no matter the law in any given state. But while most federal courts agree that enforcement of employment contracts dealing with cannabis would encourage illegal activity and violate public policy, nonenforcement would be diminishing, if not completely abolishing, federal labor protections for employers and employees.

In any sector, federal labor rights and protections are essential to the efficiency, health, and well-being of those engaged. States in support of legalization are currently attempting to ensure the same for everyone involved in the cannabis industry. Yet, regardless of their attempts to minimize risks and losses, these risks for both employers and employees remain without federal backing. So, while this industry may open a wide array of opportunities, those who choose to venture into it should stay aware of the legal complications that may accompany. For starters, one should know their labor rights and protections under state and federal law and how these are limited by the federal illegality of cannabis.

Jenna Halop is a third-year law student at San Joaquin College of Law, expecting her Juris Doctorate degree in May of 2021. She also has a B.S. in Criminology from CSU, Fresno. Originally from the Central Coast of California, Jenna misses the sandy beaches and salty air but has grown to love the mountainous and fruitful Central Valley.