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August 4, 2016

LEGAL AG TRENDS: Pay, Water & Labor Issues Still Top the Charts But Cannabis Work Gaining Momentum

Interviews with a handful of attorneys specializing in agricultural work revealed that there is a new area of law gaining momentum in that sector: cannabis law.

While the old standbys—labor issues, water law, wage and hour violations, PACA work—still garner much of the attention, more and more ag attorneys are dealing with issues surrounding the legal cultivation of marijuana.  And if California voters approve a ballot measure in November legalizing personal marijuana use, and the polls indicate they will, legal work on this agricultural crop will surely rise to new highs.

“We have two attorneys dealing specifically with cannabis regulations,” said Jeffrey Gilles, managing partner of L+G, LLP Attorneys at Law, Salinas, Calif.

“Right now we are doing some work for a company installing a hydroponic system for a cannabis operation,” said Riley Walter of Walter Wilhem Bauer, Fresno, Calif.

“That’s funny you should ask,” said David LaRiviere of LaRiviere, Grubman PC, Monterey, CA.  “We have one intellectual property rights cannabis case in-house right now and another one came in just today.”

LaRiviere admits that when the first case crossed his desk he questioned whether the firm wanted to go down that path.  But on reflection, why not?

Aaron Colby, who is a partner at Davis Wright Tremaine LLP, Los Angeles, CA, said it makes perfect sense for agricultural attorneys to get involved in the cannabis arena.  It is a crop and its cultivation, packaging and sales do and will have many of the same issues as any other crop, especially as more farmers embrace that opportunity.  In addition, there are specific laws related to cannabis production that are a legal minefield that growers need to be aware of.

Gilles made the same point, noting that the two attorneys in his firm specializing in cannabis law have become experts in the laws regulating its production.  “Since we do so much ag work, it makes perfect sense for us.”

Walter noted that some traditional old-line farmers might hesitate before adding cannabis to the firm’s crop rotation.  “But the farmer’s 26-year old son, with a degree from UC Santa Cruz, probably looks at it a little differently,” he quipped.

As always, legal issues in the ag community are as diverse as the crops in the industry, but many issues seem to rise to the top year after year.

Colby noted several areas—all related to employee issues—where he has seen an uptick in action this past year.  He said California employment law is often the source of issues for agricultural employees because “agriculture requires the use of so many non-exempt employees” governed by many different laws.  He said sick leave has created many recent issues as local jurisdictions enact their own regulations and rarely include a carve-out for agricultural work.  Specifically in agriculture, he said sick leave creates a huge operational headache for employers because there is no way to plan for it.  Vacations can be scheduled; time off for sick leave cannot.  Yet it is the law and employers must make sure their policies are consistent with federal, state and local laws.

Disability leave regulations have also created some issues for ag employers, according to Colby.  He said the law requires “reasonable accommodations” on disability leave.  That subjective term is up for interpretation, but he said an employer should not automatically terminate an employee that has used up his disability leave time without being able to return to work.  “Maybe he can come back within two weeks and a ‘reasonable accommodation’ would be unpaid leave for those two weeks.  Don’t run the red light and automatically fire them!”

Colby said the federal government has issued a guidance document on this concept which signals that “they are going to enforce this provision.”

He said another area of employment law deserving attention is the joint employment concept if you use farm labor contractors.  For liability purposes, firms are being held accountable for violations by FLCs that they contract with.  Due diligence is key and one cannot assume that the FLC is following the letter of the law.

He also advised employers to eliminate the idea of “rounding” up and down when determining hours worked.  “Employees must be paid for every minute that they work.  Round at your own risk,” he said.

And he added, that “working” has a broad definition.  If an employee is required to call a number every day to determine the work schedule for the following day, the time it takes to make a phone call needs to be compensated.  That minute might seem inconsequential.  But, he said if you have 300 workers calling every day for an extended time period, that’s 300 minutes of time not being compensated on a daily basis.  Multiply that by the number of work days in a year and you have the potential for a class action.

Gilles of L+G said water and labor always seem to be the main issues in agriculture in one way or another.  “They are both a constant challenge.  Right now I’d say the scarcity of labor supply is right in the middle of the challenges facing growers.”

He said growers are scrambling for workers and they do have to pay particular attention to the myriad of California employment laws that are germane.  One area of increased work for L+G has to do with growers attempting to utilize the federal H-2A program.  The firm is not working on the actual H-2A applications but it is working with applicants as they try to comply with some of the provisions of that law dealing with worker housing.  “We are helping employers find and develop (housing) locations and helping them work through the permit process” with various local agencies regulating zoning laws, and making sure the housing complies with federal regulations.  This work has led Gilles to adopt the general industry viewpoint that the H-2A program needs to be streamlined.  It is just very cumbersome to work with, he said.

Walter said there has been a “proliferation of attacks on wage and hour violations.  Plaintiff attorneys are trolling various industries—dairy, oil and gas, and now processing facilities—looking for violations that can turn into ‘class actions’.”

He said another area of the firm’s legal work involves working with ag businesses to secure loans.  Banks, he said, are asking their borrowers to have ironclad agreements in place assuring the grower of sufficient water to irrigate his crops.  “You have to have a water management plan with contracts.”

Walter said another issue that has recently surfaced because of the drop in almond prices is buy/sell agreements between almond growers and their processors.  He noted that there were some “gaping holes” in these contracts that have now just begun to surface because of the less than stellar farm gate price for almonds.  When the industry was flying high some of those problems and issues were glossed over.  But with lower returns, contracts are being scrutinized more carefully.

Walter has also seen some new issues surrounding the interaction between bankruptcy and water law as the value of water rights are being factored into some of these cases.

LaRiviere said if you look at the major issues impacting agriculture—water management, immigration, shortage of labor and taxes—those are the issues involved in the work his firm does for its clients in the industry.  For example, his firm is heavily involved in patent work.  He said they have seen many new patent applications for technologies that will reduce labor.  Along this line, LaRiviere warned firms with new technology that U.S. patent law is all about who gets there first.  “It has created a race.  Anyone can patent anything, whether they invented it or not.  It is all about the priority date.”

He cautioned firms against sharing ideas before they have started the patent process.  “The danger of not moving quickly is the issue.  It doesn’t have to be expensive but you have to start the (patent) process very early.”

He said a common practice has been to invent something and tinker with it before patenting it.  That is not the path he recommends.  “You have to have it patented before you improve the technology.”