Employed in the Metaverse

Can employers pay their employees in #crypto?

In March 2021, Decentral Games proudly announced through Twitter that it became the first in-world employer in the metaverse. Metaverse, an augmented virtual-reality universe, works with the help of blockchain functions, Non-Fungible Tokens (NFTs), and cryptocurrencies. As claimed by DG, for the purposes of this piece, we will assume that workers in the metaverse are employees, and my focus will be on whether the remuneration that DG employees are receiving in this digitized platform constitutes legal wages under U.S. federal or state law. Additionally, while DG would have players and hosts joining from all around the world, my analysis is limited to the wage and hour laws as applicable to U.S. employees.

DG is the first metaverse poker platform, which is hiring real people to act as virtual assistants in its world of virtual-reality games. Real human beings, who are hired to work in four-hour daily shifts at DG’s Tominoya Casino, engage with users and players as digital avatars to greet them and help first-timers try their luck at games such as blackjack, digital roulette, backgammon, and slot; something that previously only bots were engaged for. According to DG Founder, Miles Anthony, by March 2021, the casino had already “on-boarded 20 part-time greeters and a full-time manager to run the show.” Anthony also remarked that the presence of actual people, interacting with players playing with “real money” involving “financial stakes” is what helps “[boost] table game engagement and improv[e] player retention,” which the casino’s first full-time floor manager “GLHF” agrees with. GLHF is responsible for supervising DG hosts’ guest interactions and performances, which include responsibilities such as “explain[ing] simple tasks [to the players] such as placing a bet or spinning a roulette wheel and complex ones such as loading crypto into their metaverse wallets.”

How Are Employees Paid?

These hosts (DG employees) are reportedly making $500 per month in digital tokens for their four-hour daily shifts. The tokens that these employees receive at the end of each month are called $DG token, which is either $MANA, the “native token” of Decentraland, or $DAI, a stablecoin cryptocurrency, both of which run on the Ethereum blockchain. It is also quite easy to buy $MANA in Decentraland — to purchase either a piece of land, collectibles, or assets — through cryptocurrency exchanges using real money in USD, which players usually do to earn further rewards and tokens.  

This gives rise to the question of the nature of the remuneration being received by DG employees, with the uncertainties attributed to the value and rate of cryptocurrency and its transfer and use on other platforms.

Is This a “Wage”?

Payment of employees in crypto raises concerns under the Fair Labor Standards Act (FLSA).

According to Reuters reporting, the U.S. Department of Labor’s Office of Public Affairs issued an official statement on the question in April 2022. Relying on 29 C.F.R § 531.27, the DOL explained that under the FLSA, “wage payments may be in cash or negotiable instrument payable at par (e.g., payment by check).” But “cryptocurrency” would appear to be neither cash nor a negotiable instrument because this FLSA terminology “has long been interpreted to include only fiat currencies — monies backed by a governmental authority.” Since $DG tokens can be regarded as non-fiat currencies, they are most likely to “fall outside the FLSA’s definition of ‘cash and negotiable instrument.’”

Similarly, in a press release in January 2022, New York City Mayor, Eric Adams, clarified his responses to a tweet from November 2021 where he had stated that after being sworn in, his first three paychecks would be in cryptocurrency. He clarified in January that according to the DOL regulations, New York City cannot pay its employees in crypto, but that anyone paid in U.S. dollars can convert their money into virtual currency by using a cryptocurrency exchange.

However, still, there remains some ambiguity. Although not interpreting the FLSA, the Internal Revenue Service (IRS) in its FAQs for taxpayers who hold virtual currency as a capital asset answered yes, when asked if the virtual currency paid by an employer as renumeration for services constitute wages for employment tax purposes. The IRS stated that the medium in which remuneration is paid is not relevant to whether the remuneration constitutes wages.

Finally, in determining whether what DG employees are being paid constitutes a legal form of wage, state and local laws need also be considered. For instance, the California Labor Code does not allow employers to pay wages to their employees “with any order, check, or other instrument ‘unless it is negotiable and payable in cash, on demand, without discount at some established place of business in the state.’” Similarly, according to the Illinois Wage Payment and Collection Act, wages should be paid in lawful money of the United States and must be paid “by check, redeemable upon demand and without discount at a bank or other financial institution readily available to the employee, by deposit of funds in an account in a bank or other financial institution designated by the employee, or by a payroll card.” Additionally, Maryland law also requires payment of wages in U.S. currency or via “check that ‘on demand is convertible at face value into United States currency.’”

Hence, as the above discussion suggests, employers who pay their employees in non-fiat currency may well be violating federal and state wage and hour laws (although the IRS will consider such payments to be wages for employment tax purposes). It should also be noted, finally, that, unlike the FLSA’s limitation on permissible forms of wage payments, the DOL does not limit the permissible forms of payment of bonuses and other incentive compensation to “cash or negotiable instruments.” Thus, such discretionary forms of payments to employees likely can be made in cryptocurrency even if regular and overtime wages cannot be.