As the mass adoption of cryptocurrencies and their underlying technologies looms, Fisher Phillips aims to set the legal framework for the best interpretation of interaction with these wonderful technologies must be established. It is in the spirit of this that Fisher Phillips, one of America’s leading employment and labor law firms recently launched its cryptocurrency and blockchain task force. We reached out to Phillip Bauknight the task force chair for further insight.
Here is what he had to say.
Congratulations on creating a cryptocurrency task force! What’s next for Fisher Phillips?
Thank you. Our goal with the Cryptocurrency and Blockchain Taskforce is to provide guidance to our clients on the business practicalities of utilizing cryptocurrencies in their business and employment-related operations, as well as serving as a resource and sounding board to explain and discuss various blockchain technology business use cases. In addition to helping clients navigate the day-to-date impact and use of cryptocurrency and blockchain technologies in the workplace, our team offers interactive “Introduction to Blockchain/Cryptocurrency” training for both management and C-Suite members, is familiar with the nuances of permissioned vs. permissionless blockchains and can help employers evaluate which type of blockchain may make the most sense for their operations.
Because this technology isn’t going away anytime soon, there are many developing workplace law issues that are starting to spring up or will soon arise. The Taskforce’s mission is to stay on top of these developing issues and work to provide trusted guidance, counsel, and support to our clients as they work to navigate this rapidly developing and ever-changing landscape.
What are the implications of the creation of this task force?
While these revolutionary and disruptive technologies are being adopted at a rapid pace, a key area where cryptocurrency and blockchain technologies have been overlooked is how they can impact the workplace. Fisher Phillips’ Cryptocurrency and Blockchain Taskforce is uniquely positioned to help employers by providing advice and resources as they begin to integrate cutting-edge strategies to their day-to-day operations. We are excited to serve employers as a trusted partner in successfully navigating this largely uncharted terrain.
What are the various related and non-related fields that the new task force will cover?
We are the first national workplace law firm to dedicate a Taskforce solely to the interests of employers and the many labor and employment issues arising from cryptocurrency and blockchain technologies. We bring together attorneys from a variety of practice groups – wage and hour law, international law, data security and workplace privacy, corporate compliance, employee benefits, and tax, and more – to ensure we cover our client’s interests from every angle when it comes to digital assets and blockchain capabilities.
Our Taskforce can also provide guidance on the business practicalities of utilizing developing blockchain technology in the various aspects of workplace law, including Human Resources, data privacy, employment contracts, restrictive covenants, and a variety of other employment-specific issues.
Why have cryptocurrencies and their underlying technologies become so important to America’s future?
Employers are increasingly operating in a world where businesses and workplace operations are becoming technology-driven and data-intensive. We rely on technology in nearly every aspect of our daily lives. From a workplace perspective, employers rely upon technology to securely collect, store, and process data, manage their transactions and payments to workers and other businesses and traverse a litany of other challenges present in the modern workplace.
The existence and continuing development of cryptocurrency and blockchain technologies can radically alter the way many companies do business in various areas including Human Resources, contracts, employee and client payments, international operations, restrictive covenants, and benefits.
Do you think the American workforce holds the key to the mass adoption of cryptocurrencies and their underlying technologies? Please, can you tell us the reasons for your answer?
The key to the continued adoption of cryptocurrency and blockchain technology in both the workforce and the overall public is time. Ten years ago, the concept of cryptocurrency was largely incomprehensible to the average person. Now it’s almost impossible to find someone who hasn’t at least heard of Bitcoin, cryptocurrency, or blockchain technology. The critical ingredient to the mass adoption of any revolutionary technology like cryptocurrency and blockchain technology is time. If you stop to look around, the technology is already being significantly utilized on an early adopter level outside the immediate crypto community. For example:
- Mobile payment services let users buy Bitcoin on their platforms.
- Some of the largest Fortune 500 companies in the world accept bitcoin as payment.
- Some of the largest Fortune 500 companies in the world are developing digital currency and blockchain strategies and product roadmaps.
- Some of the largest credit card companies in the world are letting customers buy and make purchases with Bitcoin and use cryptocurrency to settle payments.
- Some of the largest banks in the country are either going to let clients buy digital assets or will before the end of this year.
- One of the largest restaurant brands in America recently gave away $100,000 in Bitcoin.
- Certain ride-sharing platforms will soon let passengers pay in Bitcoin.
- Several Ivy league endowments are allocating a portion of their resources to buying alternative investments, such as Bitcoin.
All signs indicate that the push forward into further adoption and use of these technologies will continue. It just needs time.
What are your thoughts on the emergence of NFTs?
I think NFTs have significant potential to be useful in the employment space and am excited about their continued development. We will be releasing a legal alert later this summer or early fall discussing NFTs and their potential impact in workplace law. Stay tuned!
Can you give us a practical scenario on how you think the mass adoption of cryptocurrencies and their allied technologies will occur?
As a brief summary, the technology is here and is being used, implemented, and further developed daily. From cryptocurrency, to smart contracts, to NFTs, and Defi, to gaming, the use cases for the public and the workplace are truly unlimited. There was a time when people were leery of putting their credit card into the internet to make purchases (or even using the internet for that matter), resistant to audio books and podcasts, uncomfortable using digital wallets, and believed that streaming tv was a fad that could never replace cable tv. Now all of these technologies are a way of life. Cryptocurrency and blockchain technology can do the same and the likelihood of success appears promising. Time is what’s required for mass adoption because the technology is here to stay, and more use cases are being developed all the time.
Please, can you give us further insight into the challenges that American employers face and how cryptocurrencies and their underlying technologies have been able to solve them?
At a high level, employers face challenges related to risk, costs, efficiency, data security, and contracts disputes, among various other issues that can arise when operating a workplace. A few examples of the potential benefits of this technology in the workplace include:
- Utilizing blockchain technology to simplify the HR process, generate cost and time savings, and manage risk management concerns.
- There has been a significant increase in cybercrimes against organizations, with those carrying out cyberattacks often demanding cryptocurrency in return for the freedom of an organization’s information. Blockchain technology can provide various data security benefits.
- Smart contract adoption can positively impact an employer’s business operations, reduce risk, and provide an abundance of other efficiency-related benefits – both now and in the future.
- Payment in cryptocurrency can also help with talent acquisition and operating an international workforce, among other potential benefits.
What are the various risks associated with the use of cryptocurrencies?
From an employment perspective, it’s probably best to break this question down in some more detail:
- As it relates to payment of crypto to employees, employers need to be mindful that the Fair Labor Standards Act requires wages to be paid in “cash or negotiable instrument payable at par.” Cryptocurrency is neither. While the more popular cryptocurrencies can easily and immediately be sold for cash, this fact may not matter to the U.S. Department of Labor. Employers should also be mindful that some states require wages to be paid in U.S. currency which could impact the ability to pay employees in cryptocurrency.
- Cryptocurrencies also have an inherent volatility and a worker who is disgruntled about being paid right before a dip, pullback, or a flash crash is a potential risk for wage disputes. In addition, if any employer decides to pay employees in cryptocurrency, the employer must decide whether to pay workers in their normal currency, with a designated portion of their wages being automatically converted to their selected cryptocurrency and sent to their wallet; or in the cryptocurrency itself. There are also tax- and administrative-related payroll issues that need to be considered if employers decide to pay employees in crypto without the use of a third-party service dedicated to processing payroll in cryptocurrency.
- From a smart contract perspective, challenges related to implementation include:
- While automated contracts are powerful, they are only as smart as their code. If the code is flawed or the data they’re fed is inaccurate, the result will not be as intended.
- Once executed, these contracts are non-reversible; there’s no ability for ad hoc decisions on late fees or full performance standards.
- As it relates to contract terms, parties cannot leave ambiguous terms or unaddressed possibilities, even though many person-to-person negotiations do not consider every possible scenario.
- From a blockchain perspective, employers will need to consider whether a permissioned or permissionless blockchain makes the most sense for their operations, especially if they would envision use of the blockchain for the storage, use, and transmission of confidential, private, or proprietary information.
This is only a high-level summary providing a few examples, but our Taskforce has the ability to provide guidance to employers on these issues and help them evaluate potential challenges, use case, and courses of action.
How did you get interested in cryptocurrencies and their allied technologies?
One of my favorite quotes is that “information determines the destination.” As a result, I am always striving to learn and increase my knowledge as I believe that the more information you have, the better equipped you are to solve problems and overcome challenges because you have more vantage points to evaluate any particular challenge. Some time ago in my personal journey, I discovered blockchain technology and cryptocurrency and it fascinated me as a technology that could change the world and how society operates on a business, financial, entertainment, and personal level. The more I learned, the more I read, and the more I learned, the more I read. I haven’t stopped since.
Please, can you give us further insight into how the US Internal Revenue Service (IRS) perceives cryptocurrencies and the various issues related to taxation?
While I cannot give advice on the Internal Revenue Code and am not a tax attorney, I can say that the IRS deems cryptocurrency to be property for income tax purposes. This means that direct payments of cryptocurrency to employees are viewed by the IRS as non-cash wages, which have different reporting and withholding requirements than cash payments. Employers will need to take this into consideration as it relates to their reporting and withholding requirements should they decide to pay employees in cryptocurrency.
Please, can you tell us more about the various privacy-related issues that cryptocurrencies present?
Although many blockchains, such as Bitcoin and Ethereum, are digital public ledgers that record transactions, there is a misconception that parties to a transaction can remain fully anonymous. Crypto transactions, however, are pseudonymous. They are not private. Careful analysis of the blockchain can reveal information about both the sender and recipient, which can be used to track transactions.
Essentially, although tracing a transaction on a public blockchain, such as Bitcoin, to a specific person is difficult, it is not impossible.
How do you think smart contract-enabled cryptocurrencies can improve productivity in the workplace?
Smart contracts have an abundance of use cases in the employment space. For example, employees could record their time or completed tasks into a blockchain, which can then trigger smart contract conditions to automatically pay the employees, which is must faster than traditional bank transfers, or direct deposits which can be time-consuming and costly.
As another example, smart contracts can be used to facilitate international payments, whether to another business or an international employee, without having to absorb the multiple costs. Currently, charges such as wire fees and exchange rates, levied by centralized entities such as banks and other trusted intermediaries, are required to facilitate such payments.
In addition, smart contracts can also be programmed to follow specific Human Resources processes, such as those involving corporate and personal data, pay, benefits, rewards, and their restrictions.
As one last example, once employees satisfy a requirement, such as completing security clearance requirements or harassment training, the smart contract could immediately and automatically activate their employee status and company access, while immutably and transparently recording the data.
If you had three wishes and a genie that could make them come true, what would they be for the cryptocurrency space?
I don’t think wishes are necessary. The implementation and continued development is already being done. Patience, time, and education are what’s required.