I am attending VeeCon this week, which is taking place in Los Angeles from August 9 – 11. VeeCon, the idea of Gary Vaynerchuk, is described as a conference that is a mix between Davos and South by Southwest. Today, a panel discussion titled “Is It Time For Another Look at Blockchain?” The panel discussed how the blockchain can be used by brands to engage their community of customers through Web3 technologies. The employment lawyer in me started thinking about whether it would be legal for employers to pay employees in cryptocurrency. While the interest and attention on the blockchain, web3, and cryptocurrencies has waned over the last couple of years, I’m still bullish on the technology and believe it will be impacting employers in the next couple of year.s Here are five issues employers should understand about cryptocurrencies and the blockchain, and how it will likely impact the employment setting in the next few years:
1. What is a cryptocurrency and the blockchain?
Cryptocurrencies, such as Ethereum and Bitcoin, are virtual currencies that exits on the blockchain. A blockchain is a type of database, but by using blockchain technology it is much more secure than a standard database and allows many different people to access and record transactions at the same time. At the time of publishing this article, Bitcoin and Ethereum are the two largest cryptocurrencies (“crypto”) by market capitalization. More information about cryptos can be read here. A very detailed explanation about cryptos and how blockchains work can be read here.
2. Can employers pay wages in forms other than U.S. currency, such as in Bitcoin or Ethereum?
Paying employees in crypto could be used to attract talent or make payments to employees located around the world easier for a multinational company. But would it be legal? Under federal law, the Federal Labor Standards Act (“FLSA”) mandates “payments of the prescribed wages, including [minimum wage and] overtime compensation, in cash or negotiable instrument payable at par.” 29 CFR § 531.27(a). Presumably, one could make the case that a payment to an employee in crypto would be a payment “at par” as long as the conversion rate was equal to the applicable minimum wage rate or other required salary amounts to meet the definition of an exempt employee. Indeed, the Department of Labor has stated in the past that employers could combine the value of U.S. Dollars and foreign currency “in order to satisfy the minimum salary requirement for the application of the Fair Labor Standards Act (FLSA) executive, administrative, and professional exemption.” If crypto is accepted as a valid currency, it seems reasonable that crypto should be treated similarly to foreign currencies in this regard.
Under California law, Labor Code section 200(a) defines wages as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” There is no specification that wages must only be paid in U.S. Dollars. California courts have also held that wages are “not only the periodic monetary earnings of the employee but also the other benefits to which he is entitled as a part of his compensation.” Wise v. Southern Pacific Co. (1970). Wages can include money, room, board, clothing, vacation pay (a form of deferred compensation) and sick pay.
California Labor Code section 212 also prohibits employers from paying employees in “script, coupon, cards, or other thing redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.” This section was designed to make it illegal for employers to pay employees with a coupon that was only redeemable at the “company store”, a past practice documented in the song “Sixteen Tons” written by Merle Travis.
A California court explained, “The accepted purpose of Labor Code section 212 is to prevent employers from paying wages by giving orders … payable only in goods, or orders of an indefinite nature not payable on demand, but at some future time, or paychecks which cannot be honored because of the drawee’s insufficient funds.” Brown v. Superior Court (2011). However, since cryptocurrency is a form of “money,” and Labor Code section 212 does not specifically require U.S. currency, there is an argument that section 212 does not prohibit payment of wages in cryptocurrency. As set forth above, “wages” under California Labor Code section 200 can take many forms, not just fiat currency.
Until there is further guidance on this issue under the FLSA and California law, employers who are looking to pay employees in crypto could take a…