As local authorities begin drafting and, in certain circumstances even finalizing, local ordinances for cannabis licensing, prospective licensees are faced with a number of considerations about how to structure their company so as to optimize the likelihood of obtaining a license. One factor several jurisdictions, such as Sonoma County, have proposed or adopted is giving priority licensing to companies that intend to “hire local.”
Many cannabis companies instinctively adopt a “local-first” ethos as part of their core values. However, when structuring business operations, companies must keep in mind the myriad local, state, and federal employment laws that affect the way in which it may operate.
Federal law prohibits companies from denying employment to an individual if the denial is based on certain criteria that are unrelated to one’s ability to perform the job at hand. The federal criteria includes: age, disability, genetic information, harassment, national origin, pregnancy, race or color, religion, and sex.
However, some states, and even some municipalities, have their own laws that offer even broader protection. California, for example, has additional protected classes upon which an employer may not discriminate in the hiring process. In California, protected categories include: race or color, ancestry or national origin (including language use restrictions), religion or creed, age, mental or physical disabilities, medical condition, genetic information, sex or gender (including pregnancy, childbirth, breastfeeding or related medical conditions), marital status, sexual orientation, gender identity or gender expression, or military and veteran status.
While the federal and state lists inevitably overlap to a certain extent, a company must comply with the most restrictive set of laws applicable to its location. Moreover, the intent of the employer is not the deciding factor when determining whether improper discrimination has occurred. Rather, the fact that a particular practice has the effect of discrimination is sufficient to create a legal issue. This means that even a company with the best of intentions can run afoul of employment laws if otherwise valid practices have the effect of discrimination.
This issue sometimes arises with respect to local-preference hiring practices. By way of an example, say a company has adopted a hiring practice whereby they give preference to individuals who live in the same city as the company is headquartered in and that city happens to have a population that is skewed to a particular demographic; the applicant pool is therefore also going to be skewed towards that disproportionate demographic. In such a scenario, if that demographic is skewed with regards to race or ethnicity, for example, the company’s hiring practice has the effect of discriminating based on race and ethnicity. This is true, even if done without the intention to discriminate based on race or ethnicity, but rather to simply benefit “locals,” without regard to race or ethnicity.
For example, according to the 2010 United States Census, 66.1% of Sonoma County residents self-identified as “White alone, not Hispanic or Latino”, whereas 40.1% of Californians self-identified as “White alone, not Hispanic or Latino.” On the other hand, 3.% of Sonoma County residents self-identified as “Asian alone”, whereas 13.0% of Californians self-identified as “Asian alone.” Similarly, 1.6% of Sonoma County residents self-identified as “Black or African American alone”, whereas 6.2% of Californians self-identified as “Black or African American alone.” In other words, compared to the State of California as a whole, Sonoma County has a greater percentage of individuals self-identifying as “White alone, not Hispanic or Latino” and a smaller percentage of individuals self-identifying as “Asian alone” or “Black or African American alone.” Because of these demographic disparities, a hiring plan that favors local applicants (Sonoma County residents) may have the effect of discriminating based on race or ethnicity, even if done without the intention to discriminate.
When the effect of discrimination arises, an employer may yet avoid liability if it can prove that the hiring criterion was job-related and consistent with business necessity; however, this is a fairly difficult standard of review, especially if reasonable alternatives with a less discriminatory effect exist. As such, companies looking at licensing in areas that have a less-than-varied demographic with regards to any of the protected classes should be wary of a local preference hiring plan and consult with an attorney prior to implementation.
For more information, visit the California Department of Fair Employment & Housing’s website.