January 31, 2025

Downsizing With Dignity: How To Lay People Off Legally and Respectfully

Learn how to handle layoffs legally and respectfully in the cannabis industry. Discover best practices for compliance, communication, and ethical workforce reductions.
Downsizing With Dignity: How To Lay People Off Legally and Respectfully
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The cannabis industry has faced its share of economic challenges, leading many companies to make difficult decisions about workforce reductions. As capital becomes harder to secure, markets fail to meet projections, and large deals fall through, leadership teams often confront the challenging task of reducing staff to preserve the organization’s viability.

Laying off employees is never easy and can lead to labor and employment disputes if not handled properly. Below, we discuss how workforce reductions have impacted the cannabis industry and offer key considerations to help cannabis operators navigate layoffs with legal compliance and respect for employees.

A Brief History Of Layoffs In The Cannabis Industry

Layoffs in the cannabis industry have been cyclical, often reflecting broader economic and regulatory shifts. For example, the overproduction of cannabis in certain states has led to market saturation, forcing companies to cut costs. Additionally, delays in licensing processes and shifting federal enforcement policies have disrupted business operations, further contributing to workforce reductions. 

One of the largest contraction periods occurred in 2022. Companies that once flourished were forced to scale back due to funding shortages, market saturation, and shifting regulations. This was driven by a confluence of factors: 

  • Declining investment due to tightening capital markets left many companies without the resources to sustain their workforce. 
  • Market oversaturation in key regions, coupled with slower-than-expected regulatory rollouts in new states, further compounded financial pressures. 
  • Shifting consumer demand during the economic uncertainty of the pandemic era forced many operators to scale back their operations. 

Recent High-Profile Layoffs in the Cannabis Sector

MedMen

The California-based cannabis retail behemoth MedMen Enterprises Inc. (OTC:MMNFF) terminated its highly anticipated acquisition of PharmaCann (except for aspects of PharmaCann’s Illinois business) in October 2024. The company further announced that it would lay off 190 workers amid a massive corporate restructuring that includes selling off “non-core” real estate assets and minority positions in various cannabis brands.

Eaze

Eaze, the delivery technology platform which operates in California and Oregon, was once lauded for raising more than $100 million and projecting more than $1 billion in cannabis transaction values. The company scaled back its projections by approximately 50%. The company later announced that it would terminate 20% of its staff and replace its CEO.

FlowKana

Several rounds of layoffs affected California cultivator and distributor FlowKana. The company, which had been celebrated for its successful $125 million financing, announced it would lay off a portion of its workforce over several occasions between 2020 and 2022.

New Frontier Data

Shortly after U.S.-based New Frontier Data acquired the Canadian publishing platform Civilized Worldwide, New Frontier announced in early December 2020 that it would “temporarily” lay off the online cannabis news site’s entire workforce and halt day-to-day operations.

Best Practices for Legal and Ethical Layoffs

Consider Alternative Cost-Saving Measures

Before proceeding with layoffs, companies should evaluate other cost-saving strategies. Consider salary reductions, reduced work hours, role reassignments, or voluntary separation programs before layoffs.

Ensure Layoffs Are Non-Discriminatory

Federal and state laws prohibit termination decisions based on protected characteristics, including race, gender, age, national origin, disability, or sexual orientation. Employers should establish clear, objective criteria for selecting employees for layoffs to prevent potential discrimination claims.

Implement a Hiring Freeze Before Layoffs

Pausing new hires before reducing staff can demonstrate a legitimate business necessity. They may also help mitigate legal risks related to wrongful termination claims.

Understand WARN Act Requirements

The Worker Adjustment and Retraining Notification (WARN) Act mandates that companies with 100 or more employees provide 60 days’ advance notice of mass layoffs or plant closures affecting at least 50 workers. Some states, including California, New York, New Jersey, and Illinois, have their own WARN laws with additional obligations. Consulting legal counsel is crucial to ensure compliance.

Review Employment Agreements and Policies

Companies should carefully examine contracts, stock option agreements, and collective bargaining agreements to determine any restrictions on layoffs and obligations related to severance, benefits, and final pay.

Protect Intellectual Property and Confidential Information

Exiting employees should be reminded of their responsibilities regarding the return of company equipment and proprietary information. Employers should reinforce confidentiality agreements, as well as non-competition and non-solicitation agreements (where applicable).

Develop Clear Layoff Criteria

When selecting employees for layoffs, employers should use objective, well-documented criteria such as role redundancy, location, or departmental restructuring. A thorough adverse impact analysis should be conducted to ensure that decisions do not disproportionately affect any protected group.

Assess the Risk of Retaliation Claims

Employees with pending legal claims, whistleblower complaints, or protected leave status (such as disability or pregnancy) could pose a higher risk of retaliation claims. Offering severance packages in exchange for a legal release may help mitigate litigation risks.

Evaluate Benefits Plan Implications

Significant workforce reductions can impact employer-sponsored benefits such as health insurance and disability plans. Employers must communicate benefit changes clearly and ensure compliance with COBRA continuation coverage requirements where applicable.

Maintaining Dignity and Compliance in Layoffs

Workforce reductions should be handled with transparency, fairness, and empathy. Employers must prioritize clear communication and provide support resources to affected employees. Additionally, legal consultation is essential to prevent disputes and ensure compliance with federal and state employment laws.

For cannabis operators facing workforce reductions, seeking experienced legal guidance can help mitigate risks and uphold ethical employment practices. Contact the Rudick Law Group for strategic counsel and legal review in navigating layoffs and employment law compliance.

Details
Date
January 31, 2025
Category
Insights
Reading Time
6 - 7 minutes
Author
RElated News
31
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