How Web3 Practitioners Can Properly Execute Labor Service Contracts with Companies | Mankun Law Firm Legal Education

The higher the income, the greater the risk.

Unless you have concurrently worked on multiple Web3 projects, you cannot be considered an outstanding Web3 digital nomad!

In the world of Web3, employment is no longer confined to a single full-time job with standard nine-to-five hours. Many “slash youth” have transformed into “multi-threaded workers” engaged in multiple projects simultaneously, navigating among different Web3 projects on a daily basis. This ability to “multiply one’s professional presence” not only broadens the possibilities for career development but also serves as an effective strategy to hedge against the risk of unemployment associated with relying on a single full-time position.

Current Status of Web3 Workers: Multi-Project Participation Becomes the Norm

According to data from the Intropia Web3 Talent Survey, more than 80% of Web3 practitioners are simultaneously active in multiple projects. The distribution of roles also reflects the unique characteristics of Web3: 31% of practitioners engage as freelancers or part-timers, 20% serve as full-time contributors to decentralized autonomous organizations (DAOs), and 15% are DAO investors. This phenomenon highlights the decentralization and flexibility inherent in the Web3 sector.

Source: Intropia Web3 Talent Survey

The distinctive feature of the distributed work model in Web3 lies in its independence from physical office locations and traditional employment relationships. Workers may reside in different countries and join multiple projects through distributed collaboration. Meanwhile, many Web3 projects seek to reduce costs by adopting flexible staffing arrangements, such as part-time engagements and outsourcing, particularly during bear markets or periods of market downturn. While this model creates more flexible employment opportunities, it also complicates employment relationships, especially with respect to employee protection, confidentiality obligations, ownership of intellectual property rights, and dispute resolution.

The global nature of Web3 is gradually reshaping the traditional landscape of employment relationships, particularly where workers participate in multiple projects in a distributed manner, rendering the definition of traditional employment relationships increasingly ambiguous. In this context, the employment relationships of Web3 workers are no longer limited to conventional labor contracts, but involve more complex part-time agreements and issues concerning the application of cross-border laws.

New Employment Relationships in Web3: Cross-Border Elements Give Rise to Complex Issues

In fact, due to the globalization and distributed nature of Web3 projects, both full-time and part-time Web3 practitioners face more complex employment relationship issues. Because Web3 projects span multiple jurisdictions, the regulatory framework governing employment relationships is far less clear and transparent than in traditional industries, particularly regarding the selection of contracting entities and the applicable law. This imposes higher compliance requirements on workers.

If you choose to join a Web3 project on a full-time basis, the selection of the contracting entity will directly affect how the subsequent relationship is handled:

1. Domestic Labor Contract

When entering into contracts with domestic companies, individuals generally face traditional and direct employment relationships, and the legal procedures are relatively standardized. Full-time employees in China can benefit from clear labor protection measures, particularly by obtaining legal remedies promptly through labor arbitration and other mechanisms in the event of disputes. Nevertheless, employees should still pay close attention to additional clauses in the agreement; for example, some Web3 enterprises may include provisions related to intellectual property rights and non-compete restrictions, which need to be clearly defined to avoid potential conflicts of interest in the future.

In addition, some Web3 projects establish their project entities abroad while setting up shell companies in China, primarily for the purpose of signing contracts with domestic employees and making social insurance and housing fund contributions. In such cases, workers who sign contracts with the domestic entity also need to assess the quality of the project, because if the project engages in a rug pull, the domestic company can simply deregister, leaving the workers with significant unresolved issues and losses.

2. Full-Time Employment Agreements with Foreign Entities

When contracting with a foreign entity, the agreement is typically governed by the laws of the jurisdiction where the company is registered, which means that employees must handle disputes on a cross-border basis. Even if the legal terms are clear and the applicable law is specified, the actual enforcement process may involve high cross-border litigation costs and lengthy timelines, especially when conflicts of laws between different countries are involved, making the resolution process protracted and complex. Therefore, employees should pay particular attention to the clauses on governing law and dispute resolution when signing agreements, to avoid difficulties in safeguarding their rights and interests due to issues of legal jurisdiction.

Against this complex backdrop of full-time employment contracting, the situation for part-time workers is often more challenging. Because part-time personnel usually serve multiple Web3 projects simultaneously, the dispersion of project entities and the flexibility of engagement agreements result in greater uncertainty in their legal relationships.

3. Domestic Part-Time Engagement Agreements

When choosing to enter into part-time agreements with domestic companies, Web3 practitioners typically face a part-time agreement akin to a civil contract, rather than a formal labor contract. The legal effect of such an agreement is not entirely equivalent to that of a full-time employee’s labor contract; therefore, part-time workers cannot enjoy the comprehensive protections afforded by traditional labor law.

To mitigate the risks of project changes or early termination, part-time workers need to pay special attention to breach-of-contract clauses and compensation arrangements in the contract. Even without the protective provisions granted by labor law, clear liquidated damages and compensation clauses can still provide certain financial safeguards for employees in the event of contract termination or project adjustments. In addition, employees should clearly define the scope of work and confidentiality obligations to ensure that their intellectual property rights and data are not misused.

4. Freelancer Agreements with Foreign Entities

Compared with domestic arrangements, the complexities of engaging as a part-time worker with foreign project entities are more pronounced. First, due to the decentralized and distributed structure of Web3 projects, part-time personnel may not have a clear understanding of the project’s actual location, or may even be unable to confirm the identity of the contracting entity. This ambiguity creates uncertainty regarding the applicable law—should a dispute arise, employees may find that the agreement does not specify the governing law, or that the laws of the country where the project is located do not confer jurisdiction. In such circumstances, the cost for part-time workers to enforce their rights will increase substantially, and they may even be unable to obtain legal support.

Furthermore, part-time practitioners contracting with foreign projects may also face issues of cross-border enforcement and conflicts of laws. The legal systems of certain countries have not yet established a complete regulatory framework for the Web3 industry, and some do not even recognize the legality of crypto asset-related businesses. Therefore, in the event of a dispute, even if the agreement is theoretically legally binding, the actual enforcement process remains fraught with obstacles. Accordingly, overseas part-time workers should thoroughly understand the governing law clauses and dispute resolution mechanisms in the agreement before signing, so as to mitigate potential legal risks to the greatest extent possible.

Mankun Lawyers’ Recommendation: The higher the potential returns, the greater the risks.

As Web3 work arrangements become increasingly common, part-time and cross-border collaborations have become the norm for many Web3 practitioners. Particularly while pursuing multiple income streams and flexibility, legal risks in various employment relationships are also increasing. To help Web3 workers balance returns and risks, Mankun Law Firm offers the following recommendations:

Clarify the contracting parties and governing law clauses

Whether full-time or part-time, before signing a contract with a Web3 project, one should first clearly confirm the contracting parties and the applicable law clauses in the contract, especially for cross-border agreements. When signing, clarify the project entity’s place of registration and the law governing the contract, so that in the event of a dispute, the scope of applicable law can be effectively defined, reducing the complexity of future litigation.

Pay attention to contract details and breach-of-contract clauses

Particularly for domestic part-time workers, the contracts signed are typically civil-law agreements of various types, including potential labor-service, cooperation, service, or outsourcing agreements, which may not be protected by labor law. Therefore, ensuring that the contract contains clear breach-of-contract clauses and compensation arrangements can provide part-time workers with basic financial protection in the event of project changes or contract termination. Avoid signing non-compete clauses with excessive restrictions, as they may affect future collaborations on other projects.

Conduct self-assessment of conflicts of interest

Workers engaged in multiple projects often face the risk of conflicts of interest, especially when switching between projects within the same field, where a more prudent assessment of the relationships and potential conflicts between projects is required. Reasonably assess the economic benefits and legal risks associated with multiple projects to ensure that short-term gains do not compromise long-term career development, and communicate with employers as necessary to reach transparent non-compete or confidentiality agreements.

Prioritize lawful channels and compliant projects

When selecting overseas projects for collaboration, special attention should be paid to the project’s compliance and the legal framework of its place of registration. Some regions lack a sound regulatory system for the Web3 and crypto assets industries, which may bring risks such as project instability or non-recognition by law. Therefore, it is advisable to choose projects in countries or regions with stable legal frameworks to reduce the difficulty of legal enforcement and potential risks.

Preserve evidence and contract records

In Web3 work arrangements, many agreements are often reached through online or informal channels. To avoid potential future disputes, practitioners are advised to retain all work communications, contract documents, and project records to ensure sufficient evidentiary support in the event of a dispute, thereby avoiding any adverse impact on the protection of their legitimate rights and interests due to lack of evidence.

Of course, in addition to employment relationships, Web3 workers, whether full-time or part-time, also need to pay attention to other compliance issues, such as the reliability of the project, whether their role may trigger compliance red lines, tax reporting implications of receiving salaries in crypto assets, and subsequent labor disputes. Mankun Law Firm has written extensively on these issues, providing Web3 workers with comprehensive and practical approaches for identification and solutions. The articles are listed below for your reference ↓

Mankun Exclusive Interview | Must-Read for Employment: Senior Headhunters Reveal the Golden Rules for Job Hunting in Web3

Mankun Research: What Questions Are Web3 Job Seekers Asking When They Consult Lawyers?

For Newcomers Working in Web3: Which Companies Should You Avoid? | Mankun Legal Education

Lawyer Q&A: I Received an Offer from a Web3 Company. Can I Accept the Position? | Mankun Legal Education

Guide to High-Paying Employment in Web3 (Part 1): What Legal Issues Concern 99% of Crypto Industry Workers? | Mankun Legal Education

Mankun lawyers have long welcomed job-related consultations from Web3 professionals. Through consultation and dialogue, we aim to guide participants toward more compliant engagement in Web3, thereby promoting the positive development of the industry as a whole. If needed, please feel free to add Mankun customer service for consultation: Mankunlaw.

/ END.

How Web3 Practitioners Can Properly Execute Labor Service Contracts with Companies | Mankun Law Firm Legal Education

Further reading