Paying Canadian Employees in Crypto: Beware of Compliance Issues

Emerging companies often need to find creative ways to compensate their employees. One such route is to provide payment in cryptocurrency.

The perils of paying employees in crypto is revealed by a recent Canadian decision, Hou v Kinglory Inc., 2023 CanLii 124314, where two employees successfully claimed more than $100,000 each (in cash) because their employment contracts did not comply with Ontario’s Employment Standards Act (ESA).

Kinglory Inc. hired two employees, who each signed employment contracts which paid them a stated salary of $240,000, being $20,000 per month. The company paid each $10,000 per month in cash, with the other 50% of the salary being paid in Kinglory’s cryptocurrency. The employee’s successfully filed a complaint with the Ontario Ministry of Labour, arguing that the ESA rules require that wages be paid in legal tender in the form of cash, cheque or direct deposit.

In allowing their complaint, the Ontario Labour Relations Board held that “the employer has not established that Kinglory cryptocurrency constitutes legal tender.”

The Board’s ruling was based on the specific wording in the contracts, which referred to a dollar amount of salary. As a result, the Board said it was not an option for the employer to pay some of their wages in a manner other than cash, cheque or direct deposit.

One focus of the decision was the so-called imbalance of bargaining power between employers and employees – if the company practice of paying some of the contracted (dollar denominated) wages in crypto were accepted, then arguably there would have been a right to pay the employees entirely in crypt or any other asset. If this argument were accepted, the payment of wages protections in the ESA would be substantially eroded.

Takeaways for Companies

With cryptocurrency becoming more prevalent, this decision serves as an important reminder that companies need to focus on their compliance obligations under workplace laws. By engaging workers as employees, there are associated obligations under applicable Canadian provincial employment standards rules. Further, the precise language in a contract can be quite important – if the employer had actually stated that the salary was only half of the stated value, and had a separate perk or bonus of payment in crypto, there may not have been a compliance issue. Similar alternatives which may have been compliant might have included engaging the workers as consultants. In each case, in order to avoid legal and compliance concerns, each company will need to review the specific work, worker and applicable legislative rules.