7 Best Practices for Hiring—and Terminating—Employees in the Cannabis Industry
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7 Best Practices for Hiring—and Terminating—Employees in the Cannabis Industry

Establishing policies and procedures for hiring and termination can help cannabis businesses avoid lawsuits.

In the latest of a series of layoffs in the cannabis industry, Canadian LP Canopy Growth announced the closure of two greenhouse facilities and the elimination of roughly 500 employees in British Columbia.

When these significant events occur in a turbulent marketplace, businesses should consider their employee hiring and termination practices to avoid employment discrimination and wrongful termination lawsuits.

While it may be tempting for businesses to hastily hire staff and launch their operations, traditional human resources functions should not be forgotten. Establishing policies and procedures for hiring and terminating employees is critical to protect businesses from employment practices liability (EPL) claims, according to HUB International, an insurance broker that provides business and personal insurance as well as employee benefits across North America.

Here, the company outlines seven best practices for hiring and terminating employees.

1. Build out a formal onboarding process.

Cannabis businesses should take the hiring process out of the hands of a single individual and create a uniform process that can be replicated as the company grows. Make sure the process is the same, whether the company is hiring a cultivation technician or an accountant. Businesses should know and comply with their state’s employment regulations. For multi-state operators, the policies and procedures will have to include those of all states in which the business operates. Companies should consider their employee base and the protected classes they may belong to; for example, businesses with more than 50 employees are subject to Family and Medical Leave Act and other regulations.

2. Compose an employee handbook.

Once a business has a formal hiring strategy, it should be documented in an employee handbook. Employees want and need to know what’s expected of them. A good employee handbook will detail required protocols for timekeeping and vacation as well as behaviors that are grounds for dismissal—all of which can help you when questions and legal issues arise. Get the help of legal counsel in developing the handbook.

3. Keep time religiously.

Businesses should maintain timekeeping protocols that are consistent across locations, and make sure they’re actually enforced so that if management is called on to defend them, they will know when and how often the employees took breaks, as well as how many hours they work daily and weekly. Avoid wage and hour exposure by enforcing breaks and lunch times, as well as pre-approval for overtime, vacation days and PTO. Train managers on proper timekeeping so they can enforce state laws and manage breaks appropriately. Businesses should also make a distinction in their policies between exempt and non-exempt employees as required by law. The business’s HR team, regardless of size, should be running monthly and annual reports to ensure the company is meeting state standards in all areas of employment liability.

4. Document, document, document.

If a business has a problematic employee or a situation that has risen to a level where it needs to be addressed, document the details. Should employees of a protected class engage in an EEOC, class action or personal lawsuit after they’re terminated, management will need this documentation to support its actions.

5. Set a formal and fair termination procedure.

The core of this procedure is well-thought-out details of the company’s review process, including how employee performance is evaluated and what happens when those standards aren’t met. Businesses should spell out which behaviors are grounds for dismissal and describe the termination process. When talking to the employee about their termination, managers should have another employee in the room to avoid claims of mishandling later on. (This is typically someone from HR or the company’s attorney.) Management should determine how the distribution of final compensation, such as medical insurance or PTO, will be handled so they are prepared to answer those questions. These procedures should be spelled out in an employee handbook, which is given to all employees at onboarding.

6. Know who to talk to.

Businesses should retain a qualified employment attorney to help set these policies and procedures and to consult when a unique or particularly difficult situation arises.

7. Get the right EPL insurance policy.

A dedicated EPL policy is key to protecting your business from these risks. An EPL policy will defend a business from claims of sexual harassment, discrimination and wrongful termination, and will include defense costs as well as coverage for government-imposed fines. Claims of breach of employment, negligent evaluation, failure to employ or promote, deprivation of career opportunity and mismanagement of employee benefits plans can also be covered. Businesses should work with their insurance brokers to determine what defense limits they should retain. These limits should be based on the business’s location, clientele, employee profile and what the business sees as its biggest risks.

When discussing the policy with an insurance broker, businesses should 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. Finally, consider your EPL policy’s limit structure. Should defense limits to be outside or inside the coverage?

Editor’s Note: This article was adapted from HUB International’s blog posts titled “Cannabis Businesses Face Heightened EPL Exposure When Hiring" and “Cannabis Businesses Face Heightened EPL Exposure When Laying off Employees."