In a split decision, a three-judge panel of the Colorado Court of Appeals said that federal law trumps a state law that protects workers for engaging in lawful activities outside the workplace.
Colorado is one of 20 states and the District of Columbia that allows the use of medical pot. Voters in Colorado and Washington state both legalized the use of recreational marijuana last November
The federal government considers marijuana an illegal and dangerous narcotic. U.S. officials have said they are considering how to respond to the legalization moves.
The case, which follows similar decisions by courts in Washington and California, had been closely watched by employment lawyers for its implications not only for medical marijuana users but also recreational pot smokers.
Experts have said it may embolden companies seeking to fire employees found to have violated workplace policies against pot use outside of work, a right that a Colorado state task force earlier this year said employers continue to hold despite last year's vote by the state's residents to legalize recreational use of the drug.
The ruling stems from the case of Brandon Coats, who was rendered a quadriplegic from a car crash, and is a registered medical-marijuana card holder.
Coats was fired from his job at the Dish Network after testing positive for marijuana in a random test, even though there was no evidence that he was under the influence at work.
Coats sued to regain his job and a district court judge ruled the company was within its rights to terminate him. The appellate court on Thursday upheld that ruling.
COATS PLANS APPEAL
"(W)hile we agree that the general purpose of (the worker protection law) ... is to keep an employer's proverbial nose out of an employee's off-site off-hours business ... we can find no legislative intent to extend employment protections to those engaged in activities that violate federal law," Judge Janice Davidson wrote in the majority opinion.
Coats' lawyer, Michael Evans, told Reuters the ruling was disappointing but said he will appeal the decision to the state's highest court.
"If someone's going to pick a fight with the federal government, it will be the state supreme court and not the court of appeals," he said.
In a dissenting opinion, Judge John Webb said because the Colorado law makes no mention of either state or federal law, the statute is ambiguous and as such the courts should defer to state law.
"Narrowing the scope of employee protection by looking beyond state law to activities that are proscribed only at the federal law would limit this protection," he said.
University of Denver law professor Sam Kamin said the ruling is far from being the final word on the issue but for now it will likely apply to the recreational use of pot, which Colorado voters approved last fall.
The larger question, he said, is the looming showdown between states that allow either medical or recreational marijuana use, and the federal government which lists marijuana as an illegal narcotic.
"It's unclear what the import this (ruling) will have on the federal prohibition, but it needs to be resolved one way or another," he said.
Mason Tvert, spokesman for the Marijuana Policy Project, which advocates for legalization, said employment law surrounding off-work pot use will evolve to reflect changing societal attitudes.
"Culturally, it will occur even more quickly, as a majority of Americans now think marijuana should be legal for adults," he said.