Cannabis Cultivator Beware: A Wage & Hour Trap for the Unwary

Sometimes California’s cannabis laws can be surprising, even to the experts. Our firm came across one example of this recently: Section 26065 of MAUCRSA (Cal. Bus. & Prof. Code § 26065), which provides simply that employees “engaged in the cultivation of cannabis under this division shall be subject to Wage Order No. 4-2001 of the Industrial Welfare Commission.

A Brief Background on Wage Orders

Under California’s labor and employment laws, minimum wage rates and overtime pay requirements are set through the publication of Industrial Welfare Commission “Wage Orders.” Today, there are 18 IWC Wage Orders and all of them are posted on the Department of Industrial Relation’s website.

To be user-friendly and to allow for industry-specific customization, most of the wage orders only apply to specifically designated industries such as the “Canning, Freezing, and Preserving Industry” (Wage Order 3-2001), the “Public Housekeeping Industry” (Wage Order 5-2001), and the “Broadcasting Industry” (Wage Order 11-2001). However, there is one “Miscellaneous Employees” catch-all wage order (Wage Order 17-2001) covering all employees not expressly covered by an industry-specific Wage Order.

In our experience, while it is sometimes hard to tell which wage order covers a particular employee, it is usually not so difficult. California courts typically allow for the words within each wage order to have their common ordinary meaning and sometimes the wage orders themselves will have helpful definitions to provide additional guidance (for example, Wage Order 14-2001 includes a 120-word definition for “sheepherder”). Because of this, executives, HR professionals and employment counsel all tend to recite the applicable wage orders as second nature – Wage Order 9 covers truckers and the transportation industry, Wage Order 1 covers employees in the manufacturing industry, etc.

This is precisely why Section 26065 of California’s cannabis law is such a tricky surprise.

More About Section 26065 of MAUCRSA

California Business and Professions Code section 26065 (“Section 26065”) provides simply that employees “engaged in the cultivation of cannabis under this division shall be subject to Wage Order No. 4-2001 of the Industrial Welfare Commission.” But, on its face, Wage Order No. 4-2001 (Wage Order 4) only applies to “persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis.”

Meanwhile, Wage Order No. 14-2001 (Wage Order 14) covers “Agricultural Occupations,” Wage Order No. 8-2001 (Wage Order 8) covers “Industries Handling Products After Harvest,” and Wage Order No. 13-2001 (Wage Order 13) covers “Industries Preparing Agricultural Products for Market, on the Farm.” But because of California’s cannabis laws, none of these three “agriculture” wage orders apply to the cultivation of cannabis.

This essentially means that California cannabis farmers compete under a materially different set of wage and hour laws from those covering all other farming employers in the state.

Why Subjecting Cannabis Cultivators to Wage Order 4 Matters?

In our estimation, there are three main reasons why pushing cannabis cultivation into Wage Order 4 matters.

1) Cannabis Cultivators Need to Pay More Overtime Wages

With just a few exceptions, each of the wage orders provides for the following overtime pay requirements: (1) overtime pay equal to one and one-half times an employee’s regular rate of pay for all hours worked in excess of eight hours in a workday as well as for the first eight hours worked on the seventh consecutive day of work, and (2) double pay equal to two times an employee’s regular rate of pay for all hours worked in excess of twelve hours in a workday as well as for every hour worked on the seventh consecutive day of work after the first eight hours.

Wage Orders 4 provides for this. But Wage Order 14 allows, at least for now, farming employers to pay a normal wage rate to its employees for the first ten (10) hours of work in any workday. In addition, Wage Order 14 does not currently require double pay other than for work in excess of 8 hours on the seventh consecutive day of work.

Over the next seven years, the overtime pay requirements under Wage Order 14 will change slightly each year in order to “phase in” overtime pay requirements that more closely resemble those found in the other wage orders. However, even after this phase in completes in 2025, farming employers in the cannabis industry will have some more burdensome overtime pay requirements remaining. For example, under certain circumstances, Wage Order 14 allows agricultural employers to have employees work 7-day workweeks without having to pay any overtime wages. Cannabis cultivators will not have this benefit. Also, most farming employers do not currently have to pay overtime to employees who spend more than half of their working time as an “irrigator.” Also, unlike the other industry-specific wage orders, Wage Order 14 for agriculture (other than cannabis) permits different overtime pay arrangements if memorialized in a collective bargaining agreement so long as the unionized employees earn at least thirty percent (30%) more than minimum wage. This gives other farming employers outside the cannabis industry the opportunity to work with a union to come up with more flexible overtime pay practices. Cannabis cultivators seem not to have this opportunity.

2) Fewer People are “Overtime Exempt” on a Cannabis Farm

One main difference between Wage Order 4, which applies to cannabis cultivation because of Section 26065, and Wage Order 14, which broadly applies to all other agricultural pursuits in the State, is the more permissive way Wage Order 14 approaches the classification of overtime exempt employees, i.e., those employees who are not legally entitled to overtime pay. Wage Order 4 lays out three common statutory exemptions from the obligation to pay overtime wages. These three common exemptions, which are found in nearly all the wage orders, are referred to as the “executive exemption,” the “professional exemption,” and the “administrative exemption.” Put simply, the executive exemption allows employers to avoid paying overtime wages to its executives as long as they manage the enterprise, have the authority to hire and fire other employees, exercise discretion and independent judgment in their roles, and earn a monthly salary equivalent no less than two times the state minimum wage. The professional exemption applies to licensed professionals. And the administrative exemption applies to highly paid administrators who manage general business operations, typically with specialized or technical training or experience.

In contrast, the types of employees who are overtime exempt under Wage Order 14 are noticeably different. For example, within the agriculture industry, overtime pay requirements do not apply (per Wage Order 14) to the parents, spouse, children, or legally adopted children of farming employers. The overtime pay requirements also do not apply to anyone “engaged in work which is primarily intellectual, managerial or creative, and which requires exercise of discretion and independent judgment,” if the person earns pay in excess of two times the state minimum wage rate.

3) Cannabis Cultivators Must Deal with Some Strange “Farming” Requirements

Lastly, requiring cannabis cultivators to operate under Wage Order 4 produces a handful of other surprising, yet arguably not expensive, requirements. For example, Wage Order 4 requires climate control (“The temperature maintained in each work area shall provide reasonable comfort consistent with industry-wide standards for the nature of the process and the work performed.”); this isn’t required from most farming employers under Wage Order 14. It is unclear what “industry-wide standards” for climate control exist for outdoor cultivation.

Wage Order 4 also requires employers to provide, separate from bathrooms: (i) a changing room with “suitable lockers, closets or equivalent for the safekeeping of employees’ outer clothing during working hours,” (ii) “an adequate number of suitable seats” within “reasonable proximity to the work area,” and (iii) “suitable resting facilities.” These requirements aren’t found in Wage Order 14.

At our firm we regularly work with cannabis businesses to mitigate liability and protect their business, including handling wage and hour claims, and helping set clear policies for the organization and its members to abide by. If your cannabis cultivation business needs to establish or ensure compliance with California’s Wage Orders, including Wage Order 4, please contact the cannabis industry labor & employment attorneys at Rogoway Law Group.

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