Remote work, free collaboration, encrypted payments...the working model of the Web3 industry makes the definition of "working people" blurred.
In traditional industries, whether you are a formal employee or a temporary employee is often determined by the contract. However, in Web3, many practitioners have "freelancer" contracts but live the life of formal employees:
Need to adhere to fixed working hours
Managed by the company, receive monthly salary and performance bonus
Participate in team meetings and abide by corporate culture
To make matters more complicated, contributors in Web3 decentralized organizations (DAOs) have neither contracts nor company HR connections, but still work for the project over the long term and rely on token rewards for income.
So, from a legal perspective, how is the working model of Web3 defined? Are you a regular employee or a temporary worker? What responsibilities will be involved in different identities?
If you have the same question, then listen to what Attorney Mankiw has to say.
Traditional employment vs Web3 employment
In the traditional labor market, the employment relationship between enterprises and individuals is usually clearly defined by law.
First, labor relations are the most common form in the traditional labor market . Enterprises and employees sign formal labor contracts, and employers are required to bear wages, social security, bonuses, paid vacations and other benefits, and fulfill responsibilities stipulated in labor laws, such as stable employment terms and dismissal compensation; employees are required to abide by company regulations, perform job duties, and enjoy legally protected rights and interests, such as minimum wages, working hours restrictions, and labor dispute arbitration.
In contrast, labor relations are more flexible. Individuals establish cooperation with enterprises by undertaking tasks or projects, and usually sign a labor agreement, which specifies the remuneration and delivery requirements of the cooperation. The contractor is not subject to the daily management of the enterprise, does not enjoy the protection of labor laws, and does not need to follow the internal assessment or promotion mechanism of the enterprise. The responsibility of the enterprise is limited to paying the agreed remuneration according to the agreement, without having to bear additional social security, welfare or long-term employment obligations.
In contrast, 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 status is relatively rare in the current labor market, and there are only a few Web3 companies that still use traditional management models. These companies are usually local registered legal persons, sign formal labor contracts with employees, implement a fixed working hours system, and provide statutory social security, fixed salaries and additional performance rewards. Employees must obey corporate management and fulfill contractual obligations, which is no different from the employment relationship of 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 only provide offers or verbal employment commitments. Although the work content, working hours, and job responsibilities of these personnel are no different from those of full-time employees in traditional companies, they cannot enjoy the protections stipulated by the labor law, such as social security, annual leave, or severance pay, because they have not signed a formal labor contract. In addition, the salaries of most freelancers are often paid in USDT or other crypto assets, which has a high risk of performance. Once the company unilaterally terminates the cooperation, the rights and interests of freelancers are relatively weak.
Contributor
This identity usually exists in the community of DAO or some Web3 projects, and is mainly responsible for community governance and content production, and is less related to technical development. Taking DAO contributors as an example, the core team often publishes tasks in the collaboration group or platform, and the contributors confirm to accept the tasks and feedback the results, and then the treasury distributes token rewards or task incentives. This type of work model has no formal contract and no fixed salary. The compensation of contributors depends entirely on the funding pool status and governance mechanism of the project. If the DAO adjusts the incentive rules or faces financial problems, contributors may face the risk of a sharp drop in income or even working for free.
In addition, since DAO is not a legal entity in the traditional sense, contributors have almost no legal recourse for labor rights protection and dispute resolution.
Faced with the confusion of this employment model, Web3 workers need to clarify their own identities and the legal responsibilities they may bear.
The Responsibilities of Web3 Workers
In the Web3 industry, many people appear to be freelancers, but in fact they have the responsibilities of formal employees; DAO contributors 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 occur in the project.
But in fact, in legal practice, the identification of a worker’s status does not only depend on the contract, but also on the actual working relationship. In other words, even if a worker signs a freelance agreement, a “de facto labor relationship” may be formed. In particular, the following three characteristics appear:
Need to adhere to fixed working hours
Continue to accept company management and report to superiors
Receive a fixed salary rather than being paid on a project basis
In some jurisdictions, once a "de facto employee" is formed, the company may need to bear the corresponding social security and labor protection responsibilities. For example, according to Article 10 of China's 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) (Fa Shi [2010] No. 12), if an individual is managed and checked on by the company for a long time, and receives a fixed salary, even if there is no labor contract, it may constitute a de facto labor relationship, and the company needs to bear social security and other responsibilities. In addition, many countries and regions in the European Union, such as Spain and France, and California in the United States, also have relevant laws and cases that determine freelancers as formal employees.
Compared to freelancers, contributors have a more special identity.
Contributors usually do not sign any contracts or agreements with Web3 projects or DAOs, but receive token rewards through task incentive mechanisms. On the surface, this means that contributors have no employment responsibilities, but in some cases, contributors may bear responsibilities that are even greater than corporate employees.
In some jurisdictions, the governance of a DAO may be considered as a de facto business operation. In particular, when contributors are deeply involved in the core affairs of the DAO (such as financial management and protocol development), hold governance tokens and influence key decisions, or represent the DAO externally, they may be identified as actual project members and even bear the legal responsibilities of "partners" or "board members". Once a DAO involves compliance risks, such as illegal financing and securities law violations, contributors may need to bear legal responsibilities.
In the CFTC's enforcement action against Ooki DAO in 2022, the CFTC believed that Ooki DAO's governance token holders actually exercised management functions by voting to decide project operations, which met the legal characteristics of a "general partner". At the same time, in the United States, according to the Uniform Partnership Act (UPA), if DAO governors are identified as general partners, they may be subject to unlimited liability for DAO's debts and compliance issues.
However, although some jurisdictions recognize "de facto labor relations", this does not mean that Web3 workers can enjoy all the rights and interests of formal employees. A large number of facts in the industry show that the uncertainty of the status of freelancers and contributors makes it difficult for them to obtain the benefits guaranteed by the labor contract, and they may also bear additional risks in compliance issues.
Attorney Mankiw's Summary
The employment model of the Web3 industry brings flexibility, but also complicates the identification and legal responsibilities of practitioners. Whether working full-time as a freelancer or participating in Web3 projects as a contributor, the role of a worker is often not as simple as "performing tasks", but may involve greater compliance risks.
From the perspective of legal practice, "no contract" does not mean "no responsibility". Therefore, for Web3 practitioners, when choosing a cooperation model, they should not only pay attention to salary, but also need to be clear about their legal identity and responsibility boundaries. When facing compliance risks, labor disputes or regulatory investigations, clarifying one's own rights and responsibilities will be the key to protecting personal interests.
At the same time, identity is only one compliance issue in Web3 labor employment. Once you are exposed to or even involved in it, more labor-related problems will follow. In the past, Mankiw Law Firm has received a large number of Web3 labor employment consultations, from pure employment issues to project compliance. As a result, Mankiw Law Firm has specially launched Web3 labor employment consulting services, where senior lawyers in the industry can answer your questions and help you clarify responsibilities and avoid risks.
