D.C. Circuit Delivers a Rare Win for A Cannabis Employer in a Decision in Which One Judge Questions Whether the NLRB Has Jurisdiction Over a “Criminal Enterprise”

A three-member panel for the D.C. Circuit Court of Appeals declined to enforce part of a National Labor Relations Board (“NLRB” or the “Board”) decision concluding that a Curaleaf dispensary in Arizona fired a worker in violation the National Labor Relations Act (“NLRA”).  Absolute Healthcare v. NLRB, No.22-1320 Consolidated with 23-1009, 2024 U.S. App. LEXIS 13072* (9th Cir. May 31, 2024).  The worker was a union organizer working with the United Food and Commercial Workers Union, Local 99, at the dispensary where she worked.  Because the Board’s finding was not based on “substantial evidence,” the Court refused to uphold the Board’s remedies of reinstatement and back pay to the worker.  In doing so, the Court also rejected the Board’s expansive non-monetary remedies: management’s reading of the NLRB notice and union access to employees at the dispensary.

The Court of Appeals Held the NLRB’s Finding that the Company Unlawfully Terminated a Budtender Was Not Supported by Substantial Evidence.

The case involved Curaleaf’s discipline and termination of a worker at a dispensary in Gilbert, Arizona.  The Company was forced to discipline the employee due to a host of performance issues that began in April 2020.  Over the next few months, the employee received multiple disciplinary actions.  For example, in July 2020, Curaleaf discovered the employee had committed several additional “extreme” errors, which warranted placing her on a final written warning.  After discovering the “extreme” errors, but before issuing the final written warning, Curaleaf learned that the employee was trying to organize a union at the Gilbert store.  The Company issued the final written warning shortly thereafter.

In August 2020—less than a month after the employee was placed on the final written warning—her cash drawer was short $20.  Although an assistant manager initially told the employee that she would not be terminated because “it would take at least four cash-handling violations to be fired,” senior managers disagreed with the assistant manager’s interpretation of the Company’s policy.  Therefore, because of the employee’s already-lengthy history of infractions and the final warning, Curaleaf terminated the employee and cited the most recent cash shortage and her three prior disciplinary actions as the sole bases for her termination.

The Court explained the high degree of deference it gives to NLRB decisions, noting that it will “will uphold a decision of the Board if its findings are supported by substantial evidence, it applies the proper legal standard, and it does not depart from precedent without reasoned explanation.”  Therefore, the Court examined whether the Board had substantial evidence for its findings that Curaleaf terminated the worker under the Wright Line test adopted by the NLRB.  The Board’s decision to reject Curaleaf’s explanation for the employee’s termination did not satisfy step 2 of the Wright Line analysis because it was not supported by substantial evidence.  Specifically, the Court rejected the Board’s findings regarding Curaleaf’s application of its disciplinary policy to the employee.

The Court concluded that “[b]ecause the Board’s reading of the record is not “reasonably defensible[,]’ we grant Curaleaf’s petition for review as to the unlawful-discharge finding and deny the Board’s cross-application for enforcement.”  The Court also denied enforcement of the Board’s order that required management to read the NLRB notice and grant union access to the dispensary.

A Strongly Worded Concurrence Questions the Scope of the NLRB’s Jurisdiction Over the Cannabis Industry

While employers welcome any win they can get under the NLRA these days, it is the concurring opinion by one of the D.C. Circuit Judges that should catch the attention of the cannabis industry.  In his concurrence, Judge Walker raises questions of whether the Board even has jurisdiction over cannabis dispensaries.  In addressing the jurisdictional issue, Judge Walker used some eye-popping language:

Congress empowered the National Labor Relations Board to protect the labor rights of certain employees of certain employers that affect interstate commerce. It is an undeniably broad grant of jurisdiction. But it may not be quite as broad as the NLRB assumes.

Consider the facts of this case. The NLRB ordered a criminal enterprise called Curaleaf Gilbert to pay a drug dealer to sell illegal drugs.  That is a curious order from the branch of government tasked with faithfully executing federal law.

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…[T]he NLRB usually retains jurisdiction even after an employer breaks a law. Indeed, Congress tasked the NLRB with holding employers accountable when they violate federal labor law. But that’s when the enterprise is otherwise legitimate — not necessarily when its sole aim is to sell an illegal product or provide an illegal service.

That distinction may be more significant than the NLRB appreciates. After all, rings of bookies and counterfeiters affect interstate commerce, but the NLRB does not seem eager to adjudicate their labor disputes. Ditto for street gangs.

Why does that change when a corner boy calls himself a “budtender” and his crew incorporates under state law?[Emphasis added]

The comparison to “counterfeiters,” “bookies,” and “street gangs” certainly cannot feel good for those in the industry.  However, if the consolation prize is that cannabis dispensaries fall outside the jurisdiction of this decidedly pro-employee, pro-union NLRB, is it worth it?  And if cannabis dispensaries fall outside the jurisdiction of the NLRB, will unions begin to organize the cannabis industry under state union organizing laws?  And will the results be any better for cannabis employers?

Conclusion

There are a few important takeaways from this case.  First, this case is an important reminder that cannabis employers should ensure their supervisors understand what they can and cannot do under the law (or any existing labor peace agreement).  The labor movement is strongly organizing in cannabis, so now is the time to train your supervisors on the law to avoid finding yourself before the NLRB.  Second, if you are a cannabis employer that finds yourself before the NLRB, should you consider arguing that the Board lacks jurisdiction over you under the arguments made by Judge Walker in the concurrence in this case?

Bianchi & Brandt attorneys work with cannabis employers to develop strategies to proactively create a positive work environment for employees.