Even burgeoning global industries experience layoffs. Cannabis is no exception.
At the end of 2019, more than 600 cannabis employees got pink slips, a sign that the industry’s growing pains aren’t soon to fade. 1
While there are varying reasons for these cuts and constant market fluctuations only add fuel to the fire, layoffs are where the issues begin - not end - for employers. Employers that don’t have established policies and procedures ahead of a series of layoffs are putting themselves and their business at risk.
The 11 states where cannabis is legal for recreational use and the 33 where it’s medically legal tend have more onerous employment practices liability (EPL) laws, where liability is often assumed by the employer for mistakes like poorly handled layoffs. This is further compounded by the fact that HR departments at fledgling cannabis companies tend to be small or non-existent, and often ill prepared to deal with the legalities that come with immature termination practices.
Cannabis companies have a lot to lose. Ensuring the right practices are in place prior to any layoffs is critical. Consider the following best practices for terminating employees at your cannabis company:
- Document, document, document. If you’ve got a problematic employee or situation that has risen to a level where it needs to be addressed, create an employee folder to document the details. Should employees of a protected class engage in an EEOC, class action or personal lawsuit after they’re terminated, you’ll need this documentation to support your actions.
- Set a formal and fair termination procedure. The core of this procedure is well-thought-out details of your review process, including how employee performance is evaluated and what happens when those standards aren’t met. Spell out which behaviors are grounds for dismissal. Describe the termination process. When talking to the employee about their termination, make sure to have another employee in the room to avoid claims of mishandling later on. This is typically someone from HR or your attorney. Determine how the distribution of final compensation such as medical insurance or PTO will be handled so you’re prepared to answer those questions. These procedures should be spelled out in an employee handbook given to all at onboarding.
- Know who to talk to. Retain a qualified EPL attorney (not your cousin who does divorce law) to help you set these policies and procedures and to consult when a unique or particularly difficult situation arises.
- Get the right EPL coverage. A dedicated EPL policy is key to protecting your business from these risks. An EPL policy will defend a business from claims of breach of employment contraction, negligent evaluation, failure to employ or promote, wrongful termination, deprivation of career opportunity and mismanagement of employee benefits plans can be covered. When discussing the policy with your broker consider reimbursement coverage versus pay on behalf (do you want the policy to pay your defense costs directly, or will you lay out the money and they’ll reimburse), the definition of a claim and wrongful act will be different for each EPL policy and finally, consider your EPL policy’s limit structure. Do you want defense limits to be outside or inside the coverage? Your EPL coverage will be determined by your location, clientele, employee profile and what you see as your biggest risks.
Contact HUB’s Cannabis experts for more information on instituting these procedures as well as transferring your EPL exposure to the right insurance policy for your cannabis business.
