Man Kuenpufa | Web3 migrant workers, precautions for signing employment contracts

Remote work, free collaboration, encryption payment… The working mode of the Web3 industry has blurred the definition of “workers”. In traditional industries, whether you are a formal employee of the company or a temporary worker is often determined by the contract. However, in Web3, many practitioners, although holding contracts as “freelancers”, are living the life of formal employees: Need to adhere to fixed working hours, be managed by the company, receive monthly salary and performance bonuses, participate in team meetings, and comply with corporate culture More complicated is that contributors in Web3 decentralized autonomous organizations (DAOs) do not have contracts or company HR support, but still work long-term for projects and rely on token rewards for income. So, on a legal level, how is the working mode of Web3 defined? Are you a formal employee or a temporary worker? What responsibilities are involved in different identities? If you have the same question, then listen to Lawyer Mankun’s explanation. Traditional Employment vs Web3 Employment In the traditional labor market, the employment relationship between enterprises and individuals is usually clearly defined by law. First, the employment relationship is the most common form in the traditional labor market. Enterprises and employees sign formal labor contracts, and employers need to bear the responsibilities of wages, social security, bonuses, paid leave, etc., and fulfill the responsibilities stipulated by labor laws, such as stable employment periods, severance compensation, etc.; employees need to comply with company regulations, fulfill their job responsibilities, and enjoy legal protection of rights, such as minimum wage, working hour limits, and labor dispute arbitration. In contrast, labor relations are more flexible. Individuals establish cooperation with enterprises in the form of contracting tasks or projects, usually signing a service agreement that clearly defines the remuneration and delivery requirements of the cooperation. Contractors are not subject to the daily management of the enterprise, do not enjoy labor law protection, and do not need to follow the enterprise’s internal assessment or promotion mechanisms. The enterprise’s responsibility is limited to paying the agreed remuneration according to the agreement, without taking on additional social security, benefits, or long-term employment obligations. On the contrary, in the Web3 industry, due to the characteristics of remote work and decentralized collaboration, the boundaries of employment relationships are more blurred. Currently, the identities of Web3 practitioners are mainly divided into three types: Employee This identity is relatively rare in the current labor market, only existing in a few Web3 companies that still use traditional management models. These companies are usually locally registered legal entities, sign formal labor contracts with employees, implement fixed working hours system, and provide statutory social security, fixed salaries, and additional performance rewards. Employees are required to obey the company’s management, fulfill contract obligations, and their employment relationship is no different from traditional companies. Freelancer It is the most common form of employment in the Web3 industry. Many Web3 companies prefer to sign freelance agreements with full-time employees, or even just offer letters or verbal employment commitments. Although the job content, working hours, and responsibilities of these personnel are no different from those of traditional full-time employees, since they have not signed a formal labor contract, they cannot enjoy the protections provided by labor laws, such as social security, annual leave, or severance pay. In addition, the remuneration of most freelancers is often paid in USDT or other encryption assets, with a higher performance risk. Once the company unilaterally terminates the cooperation, the protection of the rights and interests of freelancers is relatively weak. Contributor This identity generally exists in the communities of DAOs or some Web3 projects, mainly responsible for community governance and content production, with less involvement in technical development. Taking DAO contributors as an example, the core team often posts tasks in collaboration groups or platforms, contributors confirm receipt of tasks and provide feedback on results, followed by distribution of token rewards or task incentives from the treasury. This working mode does not have formal contracts or fixed salaries; contributors’ rewards depend entirely on the project’s fund pool status and governance mechanism. If a DAO adjusts incentive rules or faces financial issues, contributors may face the risk of a sharp reduction in income or even working without pay. In addition, as DAO is not a traditional legal entity, contributors have almost no legal recourse in terms of labor rights protection and dispute resolution. Faced with the chaos of this employment model, Web3 workers need to clarify their own identities and the legal responsibilities they may undertake. The responsibility of Web3 laborers In the Web3 industry, many people appear to be freelancers on the surface, but in fact they bear the responsibilities of formal employees; contributors to DAO may seem to be just bounty hunters, but in some cases, they may also be identified as core personnel of the project. This identity confusion not only affects the legal rights of practitioners, but may also affect the allocation of responsibilities when compliance issues arise in the project. However, in legal practice, the determination of the worker’s identity depends not only on the contract, but also on the actual working relationship. In other words, even if the worker signs a freelance agreement, it is possible to form an “actual labor relationship.” Especially when the following three characteristics appear: Need to comply with fixed working hours to continuously accept company management, report to superiors, and receive fixed salaries, rather than being paid based on specific projects. In some jurisdictions, once a “de facto employee” is formed, the company may need to assume corresponding social security and labor protection responsibilities. For example, according to Article 10 of the Chinese Labor Law and the Supreme People’s Court’s “Interpretation on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (III)” (Judicial Interpretation [2010] No. 12), if an individual is long-term managed by the company, attendance is taken, and receives a fixed salary, even without a labor contract, it may constitute a de facto labor relationship, and the company needs to assume social security and other responsibilities. In addition, the European Union, such as Spain, France, and the state of California in the United States, as well as other countries and regions, have relevant laws and cases that classify freelancers as formal employees. Contributors have a more special identity compared to freelancers. Contributors typically do not sign any contracts or agreements with Web3 projects or DAOs, but instead receive token rewards through a task incentive mechanism. On the surface, this means that contributors do not have employment responsibilities, but in some cases, contributors may bear even greater responsibilities than corporate employees. In certain jurisdictions, the governance of a DAO may be deemed as de facto enterprise operation. Especially when contributors are deeply involved in core DAO affairs (such as financial management, protocol development), hold governance tokens and influence key decisions, or represent the DAO externally, they may be identified as actual project members, and even assume legal responsibilities as ‘partners’ or ‘board members’. Once the DAO is involved in compliance risks, such as illegal financing, securities law violations, contributors may need to bear legal responsibilities. In 2022, the U.S. CFTC took enforcement action against Ooki DAO, where the CFTC considered that the governance token holders of Ooki DAO exercised management functions in practice by voting on project operations, thereby meeting the legal characteristics of a “General Partner.” At the same time, in the United States, under the Uniform Partnership Act (UPA), if DAO governors are identified as general partners, they may be required to bear unlimited liability for the debts and compliance issues of the DAO. However, despite some jurisdictions recognizing ‘de facto employment relationships’, this does not mean that Web3 laborers can enjoy all the rights of formal employees. A significant number of cases in the industry show that the uncertainty of freelancers’ and contributors’ status makes it difficult for them to obtain the benefits guaranteed by employment contracts and may expose them to additional risks in compliance issues. Summary by Manquen Lawyer The employment model of the Web3 industry brings flexibility, but also complicates the identification of practitioners’ identities and legal responsibilities. Whether working full-time as a freelancer or participating in Web3 projects as a contributor, the role of workers is often more than just “performing tasks,” and may involve greater compliance risks. From a legal perspective, ‘no contract’ does not mean ‘no responsibility.’ Therefore, for Web3 practitioners, when choosing a cooperation model, they need to focus not only on salary but also on understanding their legal identity and responsibility boundaries. When facing compliance risks, labor disputes, or regulatory investigations, clarifying one’s own rights and responsibilities will be key to protecting personal interests. At the same time, identity is just a compliance issue for Web3 labor employment. Once you come into contact with or even participate, more labor-related difficulties will follow. In the past, Manquen Law Firm has received a large number of consultations on Web3 labor employment, from pure employment issues to project compliance. There is nothing you can’t think of and no question that everyone doesn’t ask. Therefore, Manquen Law Firm has specially launched Web3 labor employment consulting services, with industry senior lawyers answering your questions and helping you clarify responsibilities and avoid risks.

/ END. This article is written by: Iris, Lawyer Liu Honglin