Web3 Compensation: Equity, Tokens, and Tax

“Crypto companies can offer salary plus equity plus token grants, a three-part structure traditional tech companies cannot match. Getting these packages right requires understanding the complex interplay of employment law, securities regulation, and tax compliance across multiple jurisdictions.”

Chanté Eliaszadeh · Principal Attorney, Astraea Counsel APC

By Chanté Eliaszadeh | January 26, 2026 | Updated September 6, 2026

Crypto companies face a unique challenge in talent acquisition: competing with well-funded tech giants while navigating an uncertain regulatory landscape. The solution? Creative compensation packages combining traditional equity with token grants. But getting these packages right requires understanding the complex interplay of employment law, securities regulation, and tax compliance across multiple jurisdictions.

This guide provides a practical roadmap for crypto founders structuring competitive compensation packages while managing legal and tax risks. Whether you’re making your first hire or scaling to a global team, understanding these fundamentals will help you attract top talent and avoid costly compliance mistakes.

The Web3 Compensation Advantage: Equity Plus Tokens

Traditional tech companies offer salary plus equity (stock options or RSUs). Crypto companies can go further: salary plus equity plus token grants. This three-part structure allows startups to:

Preserve cash by shifting compensation to equity and tokens
Compete with Big Tech by offering exponential upside potential
Align incentives between employees and protocol success
Attract crypto-native talent who prefer token exposure

Sample Compensation Packages (illustrative ranges from the firm’s experience):

Engineering Lead (Senior Level):

Base salary: $160,000-$200,000
Equity: 0.5%-1.0% (4-year vest, 1-year cliff)
Token grant: 25,000-50,000 tokens (4-year vest, 1-year cliff)

Product Manager (Mid-Level):

Base salary: $130,000-$160,000
Equity: 0.25%-0.5% (4-year vest, 1-year cliff)
Token grant: 15,000-30,000 tokens (4-year vest, 1-year cliff)

Marketing Manager:

Base salary: $100,000-$130,000
Equity: 0.1%-0.3% (4-year vest, 1-year cliff)
Token grant: 10,000-20,000 tokens (4-year vest, 1-year cliff)

The challenge? Each component has distinct legal and tax implications requiring careful structuring.

Employee vs. Contractor: Classification Matters

Before structuring compensation, determine whether you’re hiring an employee or engaging a contractor. Misclassification carries severe penalties: back taxes, penalties, interest, and potential liability for benefits.

IRS Common Law Test

The IRS applies a multifactor common-law test focusing on control, grouped under behavioral control, financial control, and the relationship of the parties:¹

Factors Indicating Employee Status:

Company controls when, where, and how work is performed
Company provides tools, equipment, and workspace
Work is performed on an ongoing basis (not project-specific)
Worker receives training from company
Worker cannot hire assistants or delegate work
Services are integral to company’s business

Factors Indicating Contractor Status:

Worker controls methods and timing of work
Worker uses own tools and equipment
Engagement is project-based with defined deliverables
Worker markets services to multiple clients
Worker bears risk of profit or loss
Worker can be replaced without company approval

Crypto-Specific Considerations:

Many crypto companies default to contractor arrangements for flexibility and reduced compliance burden. However, this approach carries risk:

Core team members working full-time on company business likely qualify as employees under the FLSA’s economic-reality test, the codification of which the Department of Labor proposed on February 27, 2026 to rescind and replace with its 2021 analysis²
Remote work doesn’t equal contractor status - the control test applies regardless of location¹
Token grants complicate classification - significant token allocations suggest employee-like relationship

California’s ABC Test (the State-Law Question)

For workers in California, the IRS common-law factors do not control the state-law classification question. For purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission wage orders, California applies the ABC test, codified at Labor Code § 2775 (added by AB 2257 in 2020, following AB 5’s 2019 codification of Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903); the IRS common-law test continues to govern federal employment-tax classification.¹³ A worker is presumed an employee unless the hiring entity proves all three prongs:

(A) The worker is free from the hiring entity’s control and direction in performing the work, both under contract and in fact;
(B) The worker performs work outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Because all three prongs must be satisfied, the ABC test is substantially harder to meet than the federal common-law or economic-realities tests, and prong B in particular is difficult for a crypto company to satisfy as to engineers, product, and protocol staff whose work is the company’s core business. California-based hires should be evaluated under § 2775 first. The ABC test is not universal: § 2775(b)(2)-(3) preserves the Labor Code’s express exceptions and returns any context in which the test is held inapplicable to the Borello standard, and Article 1.5 (commencing with § 2775) exempts listed occupations and bona fide business-to-business and professional-services relationships.³

Multi-State Implications

If you classify someone as an employee, you trigger obligations in their work location state:

Payroll tax withholding (state income tax, unemployment insurance)
Workers’ compensation insurance
State labor law compliance (meal breaks, overtime, final paycheck timing)
Wage payment requirements (frequency, method, pay stub details)

California employers face additional requirements:

Itemized wage statements with specific details
Meal and rest break compliance (or premium pay)
Strict final paycheck timing (Labor Code § 201: discharge requires final wages immediately; § 202: an employee without a written contract for a definite period who resigns is due final wages within 72 hours, or at the time of quitting if at least 72 hours’ notice was given)⁴
Broad definitions of “employee” favoring workers

Best Practice Recommendations

Default to employee classification for full-time, ongoing relationships
Reserve contractor status for discrete projects with defined scope
Document the relationship with clear agreements reflecting actual arrangement
Review periodically - relationships evolving from contractor to employee require reclassification
Consult employment counsel in each jurisdiction where workers are located

Equity Compensation: Stock Options and RSUs

Traditional equity compensation provides employees with ownership in the company entity (typically a C-Corp or Delaware corporation).

Stock Options vs. RSUs

Incentive Stock Options (ISOs):

Tax advantage: No tax on grant or vesting; capital gains on sale (if holding periods met)
Requirements: $100K annual vesting limit (I.R.C. § 422(d)(1)), exercise within 10 years, employee-only⁵
Best for: Early-stage companies with low 409A valuations

Non-Qualified Stock Options (NSOs):

Flexibility: No vesting limits, can grant to contractors and advisors
Tax treatment: Ordinary income on exercise (spread between FMV and strike price)⁶
Best for: Later-stage companies, non-employee grants

Restricted Stock Units (RSUs):

No purchase required: Shares delivered on settlement
Tax treatment: Ordinary income when the RSU settles and the shares are delivered, measured by their FMV at delivery⁷
Best for: Later-stage companies with established valuations

409A Valuations: The Hidden Cost

A stock option priced below fair market value (FMV) on the grant date falls outside § 409A’s exclusion for nonstatutory stock options and becomes deferred compensation subject to the statute’s inclusion and penalty rules. For stock that is not readily tradable, FMV means a value determined by the reasonable application of a reasonable valuation method, and an independent appraisal no more than 12 months before the grant is one of three methods presumed reasonable, which is why the “409A valuation” is standard practice, though a start-up may also rely on a good-faith written valuation by a qualified person.⁸

409A Valuation Costs:

Initial valuation: $5,000-$10,000 for early-stage companies (firm est.)
Complex situations: $10,000-$15,000+ (multiple share classes, recent financing, revenue) (firm est.)
Refresh frequency: Every 12 months or after a material event (funding round, significant business change)⁹

Material events that commonly trigger a new 409A (firm experience):

Equity financing round
Acquisition offer or term sheet
Significant revenue increase or business pivot
Secondary market transactions
Token launch or listing (potentially)

Penalty for non-compliance: If you grant options below FMV without proper 409A valuation, recipients face:

Immediate taxation on spread (even if not exercised)
20% additional tax¹⁰
Interest at the underpayment rate plus one percentage point

Practical Equity Structuring

Standard vesting terms:

4-year vesting with 1-year cliff (the market convention, in the firm’s experience)
Monthly vesting after cliff
Single-trigger acceleration on change of control (25%-50% common for early employees)
Double-trigger acceleration becoming more common (requires termination + acquisition)

Early exercise provisions: Allow employees to exercise unvested options and file an 83(b) election within 30 days of the transfer (I.R.C. § 83(b)),¹¹ converting future ordinary income to capital gains. Benefits employees if company value appreciates significantly, but carries risk if company fails (employee loses exercise price paid).

Token Grants and Vesting: The Crypto Component

Token grants provide employees with ownership in the protocol or network, distinct from equity in the company entity.

Structuring Token Compensation

Key decisions:

Grant size: Percentage of total token supply allocated to team
Vesting schedule: Alignment with equity vesting (typically 4 years)
Cliff period: 1-year cliff standard to reduce turnover risk
Acceleration: Conditions for accelerated vesting
Transferability: Lock-up periods and trading restrictions

Sample token vesting schedule:

Total grant: 40,000 tokens
Vesting period: 4 years
Cliff: 1 year (10,000 tokens vest on month 12)
Monthly vesting: 833.33 tokens/month for months 13-48

Token Grant Mechanics

Pre-launch tokens: Companies typically grant tokens before network launch using:

Token grant agreements promising future delivery
SAFT-like structures (though employment context differs from investment)
Restricted token agreements delivered to escrow or smart contract

Post-launch tokens: After token launch or generation event:

Tokens delivered to employee wallet (directly or through vesting contract)
Smart contract enforces vesting schedule
Employee has custody but cannot transfer until vested

Vesting enforcement methods:

Smart contract vesting: Tokens locked in contract, released programmatically
Company custody: Company holds tokens until vesting (less common, introduces counterparty risk)
Time-locked wallets: Multi-sig or time-lock enforces vesting schedule

Securities Law Considerations

Token grants to employees may be securities under the Howey test (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)),¹² triggering:

Potential securities law requirements:

Registration or exemption (typically Regulation D, Section 4(a)(2) exemption)¹³
Form D filing if relying on Regulation D (within 15 days after the first sale)¹⁴
State blue sky compliance (or relying on exemptions)
Accredited investor verification (if required by exemption)

Employee exemptions: SEC Rule 701 provides an exemption for compensatory issuances by non-reporting companies, but:¹⁵

Applies to securities the company issues under a written compensatory benefit plan or contract established by the company, its parents, or its majority-owned subsidiaries
Token status as security remains uncertain
May not cover protocol tokens distinct from company securities

Conservative approach:

Treat token grants as potential securities
Limit grants to accredited investors or rely on exemptions
Include securities legends and transfer restrictions
Consult securities counsel on structure

Tax Treatment of Token Compensation: What Employees Owe

Token compensation creates complex tax obligations that both employers and employees must understand.

Timing of Taxation

General rule: Tokens are taxed as ordinary income in the first taxable year in which the employee’s rights in them are transferable or are no longer subject to a substantial risk of forfeiture, whichever occurs earlier.¹⁶

Fair market value determination:

Listed tokens: Trading price on vesting date
Unlisted tokens: Valuation required (appraiser, comparable transactions)
Pre-functional tokens: Potentially no FMV until functionality exists (uncertain)

Example calculation:

Employee receives grant of 20,000 tokens
Vesting: 4 years with 1-year cliff
Year 1 cliff vesting: 5,000 tokens vest
Token FMV on vesting date: $2.50
Ordinary income recognized: 5,000 × $2.50 = $12,500
Employee tax liability (37% top rate): $4,625

The problem? Employee owes $4,625 in taxes but may not be able to sell tokens to cover tax (illiquidity, lock-ups, or lack of market).¹⁷

Withholding Obligations

Employer withholding requirements:

When tokens vest, the employer must withhold from the employee and pay its own employer-level taxes:

Federal income tax (W-4 withholding rates)
FICA taxes (Social Security 6.2%, Medicare 1.45%, each on both the employee and the employer)¹⁸
State income tax (varies by state)
Unemployment taxes (FUTA at 6.0% of the first $7,000 of wages, reduced by the credit for state unemployment contributions, plus the state’s own unemployment tax)¹⁹

Total withholding: typically ~30-40% of FMV on vesting (firm est.)

Withholding mechanics:

Cash withholding: Employee pays cash to cover taxes (burdensome)
Share withholding: Company withholds tokens to cover tax (sell tokens or use company cash)
Net settlement: Reduce token grant by withholding amount (most common)

Example - net settlement:

5,000 tokens vest at $2.50 FMV = $12,500 income
Assumed 35% total withholding = $4,375 tax
Company withholds: 1,750 tokens ($4,375 ÷ $2.50)
Employee receives: 3,250 tokens

Challenge: If token is illiquid, company must sell tokens or pay withholding from treasury, creating cash flow burden.

Capital Gains on Sale

After vesting and income recognition:

Employee’s tax basis = FMV on vesting date
Sale after >1 year holding = long-term capital gains (lower rates; 20% is the top rate on most net capital gain)²⁰
Sale within 1 year = short-term capital gains (ordinary income rates)

Example:

Employee receives 3,250 tokens (after withholding)
Tax basis: $2.50/token = $8,125 total basis
Sale 18 months later at $5.00/token = $16,250
Capital gain: $16,250 - $8,125 = $8,125
Tax (20% LTCG rate): $1,625

Estimated Tax Requirements

Employees receiving token compensation must make quarterly estimated tax payments if:

Tax owed after withholding is $1,000 or more for the year
Withholding doesn’t cover at least 90% of current year tax or 100% of prior year tax (110% if prior-year adjusted gross income exceeded $150,000)²¹

Practical guidance for employees:

Calculate expected vesting schedule and estimated FMV
Make quarterly estimated payments to avoid underpayment penalties
Consult tax advisor on state tax obligations (varies significantly)
Consider selling vested tokens to cover tax liability

Tax Reporting

Employer reporting obligations:

Form W-2: Report token income in Box 1 (wages), Box 3 (Social Security, up to the wage base limit), Box 5 (Medicare)²²
Form 1099-NEC (contractors): Report token payments as nonemployee compensation (box 1a on the current form)²³
Form 1099-DA (if the company acts as a broker): a broker that effects digital-asset sales for a customer files Form 1099-DA, which now generally takes the place of Form 1099-B for digital assets²⁴

Employee reporting:

Report token income on Form 1040 (already included in W-2)
Report token sales on Schedule D and Form 8949²⁵
Track basis carefully for each vesting event

International Hiring: EOR Services and Compliance

Crypto companies often hire globally to access talent and create distributed teams. International hiring introduces additional complexity:

Employer of Record (EOR) Services

Rather than establishing legal entities in each country, many crypto companies use EOR services:

How EOR works:

EOR becomes legal employer in foreign jurisdiction
EOR handles payroll, tax withholding, benefits, compliance
Company maintains day-to-day management and work direction
Company pays EOR fee (typically 10-15% of compensation, firm est.)

Choosing an EOR (what to ask):

Can it run token compensation through payroll, and in which countries?
Does it cover the countries where your hires sit, and at what per-employee cost?
How does it handle contractor-to-employee conversion?
What reporting does it give the company for its own tax and audit files?

EOR limitations:

EOR may not support token compensation (requires negotiation)
Some jurisdictions restrict or bar EOR arrangements or require a local entity; confirm with local counsel before hiring in, for example, China or India (firm experience)
IP assignment may require additional documentation
Less control over employee experience

Country-Specific Considerations

Common hiring jurisdictions for crypto:

United Kingdom:

Tokens provided to an employee are employment income (HMRC treats exchange tokens as money’s worth), and where they are readily convertible assets, which HMRC considers exchange tokens generally will be, the employer values them and runs them through PAYE and Class 1 National Insurance²⁶
Employer Class 1A National Insurance at 15% on benefits (2026 to 2027 rate)²⁷
EMI options at most qualifying companies (assets of £120 million or less and fewer than 500 full-time employees, outside excluded activities such as banking) carry no Income Tax or National Insurance for the employee where the shares are bought for at least the market value they had when the option was granted and the option is exercised within the 10 or 15 years the option agreement allows (similar to ISOs)²⁸
Crypto-friendly regulatory environment

Singapore:

Favorable rates: the top resident income tax rate is 24% from year of assessment 2024²⁹
No capital gains tax: gains from the sale of property, shares and financial instruments are generally not taxable, and profits from buying and selling shares or other financial instruments, including digital tokens, are generally viewed as personal investments; gains from trading in properties may be taxable³⁰
Strong crypto regulatory framework
Popular for Asian hiring

Germany:

Token grants are employment income (EStG § 19(1) no. 1: salaries, wages and other emoluments and benefits for employment), taxed at progressive rates up to 45% (EStG § 32a)³¹
Termination protections are strict; take local advice before any termination (firm experience)
Employee-friendly labor courts

Portugal:

Crypto-friendly tax regime: gains on crypto held for 365 days or more are excluded from IRS; shorter holdings are taxed, except where the consideration is itself crypto (art. 10(23), with basis rolling over), and losing Portuguese tax residency is treated as a disposal (art. 10(25)); neither exclusion applies where the taxpayer or the payer is resident outside the EU and EEA in a jurisdiction with no double-tax or tax-information-exchange agreement with Portugal (art. 10(24))³²
Token grants are Category A employment income, taxed at the progressive general rates that reach 48% (CIRS arts. 2, 68)³³
The non-habitual resident regime was revoked for new entrants by Lei n.º 82/2023; confirm current eligibility before promising it to a hire³⁴
Growing crypto hub

International Compliance Checklist

When hiring internationally:

Offer Letters and Employment Agreements: Essential Provisions

Comprehensive employment documentation protects both company and employee interests.

Offer Letter Structure

Key components:

Position and reporting structure
Start date and employment status (at-will, fixed-term)
Compensation breakdown:
- Base salary (payment frequency, currency)
- Equity grant details (type, amount, vesting, subject to board approval)
- Token grant terms (amount, vesting, subject to plan and separate agreement)
- Benefits overview (health, 401k, vacation)
Conditions precedent (background check, I-9 verification, non-compete review)
Contingencies (board approval of equity, plan adoption)
Expiration date (typically 5-7 days to accept)

Sample equity and token language:

Subject to approval by the Company’s Board of Directors, you will be granted an option to purchase 50,000 shares of the Company’s common stock at an exercise price equal to the fair market value as of the grant date, as determined by the Board. This option will be subject to the terms of the Company’s 2025 Equity Incentive Plan and a separate Stock Option Agreement, including a four-year vesting schedule with a one-year cliff.

Additionally, subject to adoption of the Company’s Token Grant Plan and Board approval, you will be granted 30,000 [TOKEN] tokens, subject to a four-year vesting schedule with a one-year cliff. The specific terms will be set forth in a separate Token Grant Agreement.

Employment Agreement Provisions

Comprehensive employment agreements should include:

1. Employment terms:

At-will employment statement (where enforceable)
Duties and reporting relationship
Location (remote work policies)
Hours and availability expectations

2. Compensation and benefits:

Base salary and review schedule
Equity and token grant incorporation by reference
Benefits eligibility
Expense reimbursement

3. Confidentiality obligations:

Broad definition of confidential information
Exceptions (publicly available, independently developed)
Return of materials on termination
Survival post-termination

4. Intellectual property assignment:

Work-for-hire provisions
Pre-existing IP exclusion
Moral rights waiver (if applicable)
Cooperation with patent prosecution

5. Non-competition and non-solicitation:

Geographic scope (limited to enforceable jurisdictions)
Duration (typically 12 months post-termination)
Customer and employee non-solicit
State-specific limitations

6. Termination provisions:

Notice requirements
Severance eligibility
Effect on equity and token vesting
Good leaver / bad leaver definitions
Post-termination obligations

7. Dispute resolution:

Choice of law (typically Delaware for corporation)
Arbitration clause (consideration of enforceability)
Fee allocation
Jury waiver

IP Assignment and Non-Competes: State Law Variations

Intellectual property and restrictive covenants are critical for protecting company interests, but enforceability varies dramatically by jurisdiction.

Intellectual Property Assignment

Work-for-hire doctrine: Under federal copyright law, works created by employees within the scope of employment are automatically owned by employer.³⁵ However:

Scope limitation: Only applies to work performed within employment duties
State law variations: Some states (California) limit IP assignment to work-related inventions
Patent rights: Assignable in law by an instrument in writing³⁶

California Labor Code § 2870:³⁷ California restricts employee IP assignment. Employers cannot require assignment of:

Inventions developed entirely on employee’s own time
Without using employer’s equipment, supplies, facilities, or trade secrets
That do not relate to employer’s business or R&D
That do not result from work performed for employer

Required notice: California employers must provide written notice of § 2870 limitations at the time the agreement is made.³⁸

Other states with similar laws: Delaware, Illinois, Minnesota, and Washington have comparable employee-invention statutes; the specifics vary, so check the statute of each state where you employ engineers.³⁹

Best practices:

Use broad IP assignment language while noting state law exceptions
Include pre-existing IP disclosure schedule
Require disclosure of inventions during employment
Document work-related nature of crypto protocol development

Non-Compete Agreements: Enforceability Landscape

Non-compete enforceability varies dramatically by state. The FTC’s 2024 Non-Compete Clause Rule never took effect: a district court set it aside, and on September 5, 2025 the Commission voted to dismiss its appeals and accede to the vacatur, so state law governs.⁴⁰

States generally prohibiting non-competes:

California: Void except for the statutory sale-of-business and owner-exit exceptions (Bus. & Prof. Code §§ 16600, 16601), and unenforceable regardless of where the contract was signed (§ 16600.5)⁴¹
North Dakota: Void with narrow exceptions (N.D. Cent. Code § 9-08-06)⁴²
Oklahoma: Void, except that a former employee may be barred from directly soliciting the former employer’s established customers (Okla. Stat. tit. 15, § 219A)⁴³
District of Columbia: Non-competes entered into on or after October 1, 2022 are void for covered employees earning below the District’s CPI-indexed “highly compensated” threshold ($162,164 for 2026, higher for medical specialists); they remain available for highly compensated employees at or above that threshold, subject to the statute’s exclusions (D.C. Code § 32-581.01 et seq.)⁴⁴

States with restrictions:

Colorado: As amended in 2022 and again in 2025, non-competes are void unless the worker’s earnings meet the “highly compensated workers” threshold the Division of Labor Standards and Statistics adjusts annually ($130,014 for 2026) and the covenant is for the protection of trade secrets and no broader than reasonably necessary to protect that interest (the exception does not reach a covenant restricting the practice of medicine, advanced practice registered nursing, or dentistry in Colorado, which stays void under subsection (2)(a) whatever the worker earns); separate carve-outs cover training-cost repayment, confidentiality provisions, and covenants tied to the sale of a business or an ownership share received as equity compensation, and every permitted covenant requires statutory advance notice (Colo. Rev. Stat. § 8-2-113)⁴⁵
Illinois: No covenant not to compete unless annualized earnings exceed $75,000, rising to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037, with a lower $45,000 threshold for non-solicits (Illinois Freedom to Work Act, 820 ILCS 90/10)⁴⁶
Massachusetts: Restricted period capped at 12 months from cessation of employment, or 2 years where the employee breached a fiduciary duty or unlawfully took employer property, physically or electronically, and the agreement must be supported by a garden leave clause or other mutually agreed consideration (Mass. Gen. Laws ch. 149, § 24L)⁴⁷
Oregon: Requires minimum compensation ($119,541 for 2026), limited to 12 months (ORS 653.295, for agreements entered on or after January 1, 2022; the pre-2022 cap was 18 months)⁴⁸
Washington: Today requires minimum compensation (an inflation-indexed earnings threshold, $126,858.83 for 2026), written disclosure, and a duration presumed unreasonable beyond eighteen months, but under 2026 legislation every noncompetition covenant becomes void and unenforceable on June 30, 2027, regardless of when it was signed, and employers must make reasonable efforts to provide written notice to affected workers by October 1, 2027 (Wash. Rev. Code § 49.62.020)⁴⁹

States generally enforcing (with reasonableness requirements):

Delaware: Enforces non-competes that are reasonable in geographic scope and duration, advance a legitimate economic interest, and survive a balancing of the equities; the Court of Chancery is reluctant to blue-pencil an overbroad covenant (important for DE corporations)⁵⁰
New York: Enforces a restraint only to the extent it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee⁵¹
Texas: Enforces a covenant ancillary to an otherwise enforceable agreement with reasonable limits on time, geography, and scope of activity (Tex. Bus. & Com. Code § 15.50)⁵²
Florida: Enforces only where the person seeking enforcement pleads and proves one or more legitimate business interests justifying the restraint and that the restraint is reasonably necessary to protect that interest; restraints over two years against a former employee are presumed unreasonable unless the covenant is predicated on trade secrets, for which the presumptions run to five and ten years (Fla. Stat. § 542.335(1)(b)-(e))⁵³

Reasonableness factors (enforcing jurisdictions):

Duration: 6-12 months generally reasonable; >2 years often excessive (firm experience)
Geography: Limited to areas where company operates or has customer relationships
Scope: Narrow to employee’s specific role and responsibilities
Consideration: Must receive something of value (continued employment often insufficient)

Alternative Protective Measures

Given limited non-compete enforceability, focus on alternatives:

Non-solicitation agreements:

Customer non-solicit: Generally enforceable if reasonable (12-24 months, in the firm’s experience)
Employee non-solicit: Protects against recruiting team members
Broader enforceability than non-competes in most states, but not in California, where Edwards invalidated a clause barring a departing employee from “soliciting” (which the agreement defined as performing professional services for) clients of the firm’s Los Angeles office, putting customer non-solicits at serious risk under § 16600⁵⁴

Non-disclosure agreements:

Enforceable across jurisdictions
Protect confidential information and trade secrets
Survives employment termination
Critical for crypto protocols with proprietary technology

Trade secret protection:

Identify and mark confidential materials
Implement information security measures
Limit access on need-to-know basis
Use federal and state trade secret laws (the Defend Trade Secrets Act, 18 U.S.C. § 1836, and state trade-secret statutes such as California’s Uniform Trade Secrets Act)⁵⁵

Garden leave provisions:

Pay employee to not work during notice period
Prevents joining competitor while receiving salary
More enforceable than non-competes
Costly but effective for key employees

Termination and Clawbacks: Good Leaver / Bad Leaver Provisions

Termination terms significantly impact equity and token value. Clear provisions prevent disputes and protect company interests.

Termination Categories

1. Voluntary resignation:

Employee initiates termination
Typically no severance
Unvested equity and tokens typically forfeited
Exercise period for vested options (typically 90 days)

2. Termination without cause:

Company terminates for business reasons
May include severance (negotiated)
Unvested equity and tokens typically forfeited (unless acceleration)
Extended exercise period increasingly common (1-year)

3. Termination for cause:

Serious misconduct (fraud, breach, criminal activity)
No severance
Unvested equity and tokens forfeited
Vested options may be cancelled (if agreement permits)
Potential clawback of vested tokens

4. Death or disability:

Typically accelerates partial vesting (12 months common)
Extended exercise period for vested options
Token grants may continue vesting or accelerate (per plan terms)

5. Change of control:

Acquisition or significant ownership change
May trigger acceleration (single or double-trigger)
Negotiated in offer letter for key employees

Good Leaver / Bad Leaver Framework

Common in startup context, particularly for token grants:

Good leaver:

Voluntary resignation (after minimum period)
Termination without cause
Death or disability
Constructive discharge

Good leaver treatment:

Retain vested tokens
Potential partial acceleration
Extended exercise period
No clawback of vested compensation

Bad leaver:

Termination for cause
Material breach of agreement
Competition with company
Resignation during critical period

Bad leaver treatment:

Forfeit unvested tokens
Potential clawback of vested tokens (if agreement permits)
Repurchase vested tokens at discount or cost
Shortened exercise period

Legal limitations on clawbacks:

Clawback provisions must comply with:

State wage laws: Cannot reclaim amounts qualifying as “wages” after earned
Bankruptcy considerations: Clawbacks within 90 days may be preferential transfers⁵⁶
Securities law: SEC Rule 10D-1 is an exchange-listing standard that mandates recovery of erroneously-awarded incentive compensation from executive officers of listed issuers following a financial restatement; it does not reach a private crypto startup’s token clawback, which falls outside Rule 10D-1’s scope⁵⁷
Contract formation: Adequate consideration required for post-grant clawback imposition

Best practice: Include clawback provisions in initial grant agreement, not retroactively imposed.

Severance Considerations

Typical severance packages (startup context, firm experience):

Early employees: 3-6 months base salary
Executives: 6-12 months base salary, partial equity acceleration
Standard employees: 1-3 months base salary (or none)

Severance conditioned on:

Release of claims
Non-disparagement
Cooperation with transition
Compliance with confidentiality and restrictive covenants
Return of company property

WARN Act compliance: The federal WARN Act (29 U.S.C. § 2101) applies only to employers with 100 or more employees, and its triggers are specific: a plant closing affecting 50+ employees at a single site, or a mass layoff of 500+ employees, or 50–499 employees if that group is at least 33% of the site’s workforce. (The plant-closing and mass-layoff counts exclude part-time employees and are measured over a 30-day period; employer coverage itself is 100 or more employees excluding part-timers, or 100 or more including part-timers who together work at least 4,000 hours a week. A bare 50-employee headcount is the plant-closing floor; on the mass-layoff side those 50 must also be at least 33% of the employees at the site, unless the layoff reaches 500.) California’s own WARN Act (Lab. Code § 1400 et seq.) is broader, generally covering establishments that employ or employed 75 or more persons in the preceding 12 months and layoffs of 50 or more employees in a 30-day period.⁵⁸ Where WARN applies, it requires:

60 days advance notice⁵⁹
Notice to employees, state, and local government
Penalties for non-compliance: back pay and benefits for each day of violation, up to 60 days⁶⁰

Compliance Checklist by Jurisdiction

California Employers

Delaware Corporations (Common Jurisdiction)

Adopt equity incentive plan by board resolution, with stockholder approval within 12 months of adoption where the plan will grant ISOs (8 Del. C. § 157(b); I.R.C. § 422(b)(1))⁶⁷
Conduct 409A valuation before issuing stock options
Issue equity grants only at or above 409A FMV
Maintain option exercise records and cap table
Comply with Delaware corporate formalities (annual franchise tax, registered agent)⁶⁸
Include Delaware choice of law in employment agreements
File UCC-1 if taking security interest in vested equity

Remote Employees (Multi-State)

Determine work location state and register as employer
Withhold state income tax in work location state
Obtain workers’ compensation insurance in work location state
Comply with work location state wage and hour laws
Review non-compete enforceability in work location state
Provide state-mandated benefits (paid leave, disability insurance)
Issue state-compliant wage statements
Follow work location state termination notice and final pay requirements

International Employees

Engage EOR or establish local entity in employee’s country
Comply with local employment law (contracts, notice periods, severance)
Provide mandatory benefits (pension, health insurance, parental leave)
Withhold local income tax and social contributions
Understand local tax treatment of equity and token grants
Assess GDPR compliance for EU employees (data processing, privacy notices)
Review IP assignment and non-compete enforceability under local law
Implement local payroll and reporting systems
Consider tax equalization for relocated employees

Token-Specific Compliance

Key Takeaways for Crypto Founders

Structuring compensation packages:

Use three-part structure (salary + equity + tokens) to compete for talent while preserving cash
Align equity and token vesting schedules (4-year vest, 1-year cliff) for simplicity
Obtain 409A valuation before granting stock options (budget $5K-$15K initially, firm est.)
Include acceleration provisions for key hires (25%-50% on change of control, firm experience)

Managing tax obligations:

Withhold taxes on token vesting (30-40% of FMV, firm est.)—plan for cash flow impact
Use net settlement to simplify withholding (reduce grant by tax amount)
Provide employees with tax guidance on estimated payments and basis tracking
Report token income on W-2 (employees) or 1099-NEC (contractors)

International hiring:

Use EOR services for small international teams
Budget 10-15% EOR fees on top of compensation
Understand local tax treatment of tokens (varies significantly by country)
Review IP assignment and non-compete enforceability (many countries restrict)

Protecting company interests:

Focus on non-disclosure and non-solicitation (broader enforceability than non-competes)
Use comprehensive IP assignment with pre-existing IP exclusions
Implement good leaver / bad leaver provisions for token grants
Include clawback provisions in initial grant agreements (not retroactive)

Avoiding compliance pitfalls:

Classify workers correctly (employee vs. contractor) - default to employee for core team
Register as employer in each state where employees work
Comply with California Labor Code requirements for California employees (no non-competes, itemized wage statements, expense reimbursement)
Provide mandatory notices (wage theft, IP assignment limitations)

Internal guidance:

DAO Employment Classification - Classifying DAO contributors as employees or contractors
Crypto Tax Lawyer’s Guide - Comprehensive tax planning for crypto transactions
Crypto Startup Legal Checklist - Essential legal tasks for launching a crypto company
Token Launch Legal Checklist - Securities, tax, and regulatory compliance for token offerings

Practice areas:

Corporate & Transactions - Entity formation, venture capital, equity compensation

External resources:

IRS Publication 15-B: Employer’s Tax Guide to Fringe Benefits
SEC Rule 701: Exemption for Compensatory Issuances
California Labor Code § 2870: Employee Inventions
Delaware General Corporation Law § 157: Rights and Options Respecting Stock

When to Seek Legal Counsel

Consult experienced employment and tax counsel when:

Hiring your first employee - Establish compliant compensation structure from the start
Granting token compensation - Navigate securities law and tax complexities
Making executive hires - Negotiate competitive packages with acceleration and severance
Hiring internationally - Comply with foreign employment and tax laws
Conducting layoffs - Ensure WARN Act compliance and minimize liability
Facing misclassification claims - Defend against employee vs. contractor disputes
Structuring acquisition compensation - Handle change of control acceleration and retention
Implementing equity plans - Draft compliant equity incentive and token grant plans

About the Author

Chanté Eliaszadeh represents crypto, AI, and fintech startups on corporate transactions, regulatory compliance, and employment matters. She helps founders structure competitive compensation packages while navigating the complex intersection of employment law, securities regulation, and tax compliance.

Schedule a consultation to discuss your Web3 hiring and compensation strategy.

This article provides general information only and does not constitute legal or tax advice. Employment law, securities regulation, and tax treatment vary significantly by jurisdiction and individual circumstances. Consult qualified legal and tax advisors for advice specific to your situation.

IRS, “Independent Contractor (Self-Employed) or Employee?” (behavioral control, financial control, and the relationship of the parties), https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee; IRS, Tax Topic No. 762, “Independent Contractor vs. Employee,” https://www.irs.gov/taxtopics/tc762. ↩ ↩² ↩³
29 C.F.R. § 795.105(b) (economic dependence as the ultimate inquiry), adopted by Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638 (Jan. 10, 2024); Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, 91 Fed. Reg. 9932 (proposed Feb. 27, 2026) (proposing to rescind the 2024 analysis in 29 C.F.R. part 795). The § 795.105 print is current through the August 25, 2026 Federal Register except for the three rules published that day at 91 Fed. Reg. 54794 and 54798, an OPM reduction-in-force correction (5 C.F.R. parts 316, 330, 351, 353 and 430), an OPM suitability-action-appeals correction (5 C.F.R. part 731), and an FAA restricted-areas amendment (14 C.F.R. part 73), none of which touches part 795. PDF PDF PDF PDF PDF PDF ↩
Cal. Lab. Code § 2775(a)(1), (b)(1) (added by Stats. 2020, ch. 38 (AB 2257)); Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018); Stats. 2019, ch. 296 (AB 5) (adding former Lab. Code § 2750.3 to codify Dynamex); Stats. 2020, ch. 38 (AB 2257) (repealing former § 2750.3 and adding Article 1.5, commencing with § 2775, whose exemptions include bona fide business-to-business contracting relationships); Cal. Lab. Code § 2775(b)(2)-(3) (express statutory exceptions preserved; Borello governs where the three-part test is held inapplicable). PDF PDF PDF PDF ↩ ↩²
Cal. Lab. Code § 201(a) (wages due and payable immediately on discharge); Cal. Lab. Code § 202(a) (an employee not having a written contract for a definite period who quits is due wages not later than 72 hours thereafter, or at the time of quitting where the employee gave 72 hours’ previous notice). PDF PDF ↩ ↩²
I.R.C. § 422(d)(1), 26 U.S.C. § 422(d)(1) ($100,000 annual limit on the aggregate fair market value of stock with respect to which incentive stock options are exercisable for the first time during any calendar year); id. § 422(b)(3) (option by its terms not exercisable after the expiration of 10 years from the date of grant); id. § 422(a)(2), (b) (option granted for a reason connected with the individual’s employment, the individual having been an employee of the granting corporation or a parent or subsidiary at all times from grant until three months before exercise). PDF ↩
26 U.S.C. § 83(a); Treas. Reg. § 1.83-7(a), 26 C.F.R. § 1.83-7(a) (an option without a readily ascertainable fair market value at grant is taxed under § 83(a) when it is exercised or otherwise disposed of). PDF PDF ↩
26 U.S.C. § 83(a) (property transferred in connection with the performance of services, here the shares delivered on settlement of a restricted stock unit); 26 U.S.C. § 83(i)(7) (section 83 does not otherwise apply to restricted stock units); IRS, Publication 15-B, Employer’s Tax Guide to Fringe Benefits (2026) (stock received upon settlement of the RSU), https://www.irs.gov/pub/irs-pdf/p15b.pdf. PDF ↩
I.R.C. § 409A(a)(1)(A)-(B), 26 U.S.C. § 409A(a)(1)(A)-(B); Treas. Reg. § 1.409A-1(b)(5)(i)(A), (C), 26 C.F.R. § 1.409A-1(b)(5)(i)(A), (C) (a nonstatutory stock option does not provide for a deferral of compensation if, among other conditions, the exercise price may never be less than the fair market value of the underlying stock on the grant date; an option whose exercise price is or could become less than that value generally will provide for a deferral of compensation); Treas. Reg. § 1.409A-1(b)(5)(iv)(B)(1)-(2), 26 C.F.R. § 1.409A-1(b)(5)(iv)(B)(1)-(2) (for stock not readily tradable, fair market value is a value determined by the reasonable application of a reasonable valuation method; an independent appraisal within 12 months, a formula valuation, or a good-faith written valuation of a start-up’s illiquid stock by a qualified person is presumed reasonable). PDF PDF ↩
Treas. Reg. § 1.409A-1(b)(5)(iv)(B)(1), 26 C.F.R. § 1.409A-1(b)(5)(iv)(B)(1) (a previously calculated value is not reasonable as of a later date if the calculation fails to reflect information that may materially affect the value or was made more than 12 months earlier); id. § 1.409A-1(b)(5)(iv)(B)(2)(i) (an independent appraisal no more than 12 months before the grant is presumed reasonable). PDF ↩
I.R.C. § 409A(a)(1)(B)(i)(I)-(II), (ii), 26 U.S.C. § 409A(a)(1)(B)(i)(I)-(II), (ii) (additional tax equal to 20 percent of the compensation required to be included in gross income, plus interest at the underpayment rate plus 1 percentage point). PDF ↩
I.R.C. § 83(b)(2), 26 U.S.C. § 83(b)(2) (election made not later than 30 days after the date of the transfer); Treas. Reg. § 1.83-2(b), 26 C.F.R. § 1.83-2(b). PDF PDF ↩
SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). PDF ↩
Securities Act § 4(a)(2), 15 U.S.C. § 77d(a)(2) (exempting “transactions by an issuer not involving any public offering”); 17 C.F.R. § 230.506 (Rule 506 of Regulation D). PDF PDF ↩
17 C.F.R. § 230.503(a) (Form D notice filed no later than 15 calendar days after the first sale of securities in the offering). PDF ↩
17 C.F.R. § 230.701(b)-(d) (Rule 701: available to issuers not subject to Exchange Act reporting and not registered or required to be registered as investment companies, for securities issued under a written compensatory benefit plan or compensation contract established by the issuer, its parents, or its majority-owned subsidiaries, subject to the amount limits in paragraph (d)); SEC, Concept Release on Compensatory Securities Offerings and Sales, Release No. 33-10521 (July 18, 2018), https://www.sec.gov/files/rules/concept/2018/33-10521.pdf. PDF ↩
I.R.C. § 83(a), 26 U.S.C. § 83(a) (property transferred in connection with the performance of services is included in gross income in the first taxable year in which the rights are transferable or not subject to a substantial risk of forfeiture); IRS Notice 2014-21, 2014-16 I.R.B. 938, Q&A-11 (virtual currency paid by an employer as remuneration for services constitutes wages for employment tax purposes), https://www.irs.gov/pub/irs-drop/n-14-21.pdf. PDF ↩
26 U.S.C. § 1(j)(2)(A)-(D) (37 percent top marginal rate). PDF ↩
I.R.C. § 3101(a), (b)(1), 26 U.S.C. § 3101(a), (b)(1) (employee tax of 6.2 percent and 1.45 percent of wages); I.R.C. § 3111(a)-(b), 26 U.S.C. § 3111(a)-(b) (employer tax at the same rates). PDF PDF ↩
I.R.C. § 3301, 26 U.S.C. § 3301 (6.0 percent of total wages, as defined in § 3306(b)); I.R.C. § 3306(b)(1), 26 U.S.C. § 3306(b)(1) ($7,000 wage base); I.R.C. § 3302(a)(1), 26 U.S.C. § 3302(a)(1) (credit against the § 3301 tax for contributions to a certified state unemployment fund). PDF PDF PDF ↩
IRS, Tax Topic No. 409, “Capital Gains and Losses” (an asset held more than one year before disposition generally produces long-term gain or loss; the 20% rate applies above the 15% threshold), https://www.irs.gov/taxtopics/tc409; I.R.C. § 1(h)(1)(D), 26 U.S.C. § 1(h)(1)(D) (20 percent rate on adjusted net capital gain above the 15-percent bracket). PDF ↩
I.R.C. § 6654(d)(1)(B), (d)(1)(C)(i), (e)(1), 26 U.S.C. § 6654(d)(1)(B), (d)(1)(C)(i), (e)(1). PDF ↩
I.R.C. § 6051(a), 26 U.S.C. § 6051(a); IRS Notice 2014-21, Q&A-11, https://www.irs.gov/pub/irs-drop/n-14-21.pdf; IRS, Publication 15-B, Employer’s Tax Guide to Fringe Benefits (2026) (compensation from a nonstatutory stock option is reported on Form W-2 in boxes 1, 3 (up to the social security wage base limit), and 5), https://www.irs.gov/pub/irs-pdf/p15b.pdf. PDF ↩
IRS, Instructions for Forms 1099-MISC and 1099-NEC (2026) (nonemployee compensation of $2,000 or more reported in box 1a of Form 1099-NEC), https://www.irs.gov/pub/irs-pdf/i1099mec.pdf. ↩
IRS, Instructions for Form 1099-DA (2026), https://www.irs.gov/instructions/i1099da (“General Instructions”: for each sale a broker has effected for customers after 2025 of digital assets, the broker must complete Form 1099-DA); IRS, Instructions for Form 1099-B (2026), https://www.irs.gov/instructions/i1099b (“Digital assets”: for each digital asset sale a broker has effected for a customer in 2026, the broker must complete Form 1099-DA). ↩
IRS, Instructions for Form 8949 (file Form 8949 with the Schedule D for the return), https://www.irs.gov/pub/irs-pdf/i8949.pdf. ↩
HMRC, Cryptoassets Manual, CRYPTO42100, “Income Tax: exchange tokens provided in the form of Readily Convertible Assets (RCAs)” (an employer providing employment income in the form of a readily convertible asset must value it and operate PAYE); HMRC, Cryptoassets Manual, CRYPTO42050, “Income Tax: paying employees in cryptoassets” (HMRC considers exchange tokens to count as money’s worth and therefore to be employment income subject to Income Tax and National Insurance), https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto42050, https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto42100. ↩
GOV.UK, “National Insurance rates and categories” (employer Class 1A rate on expenses and benefits of 15% from 6 April 2026 to 5 April 2027), https://www.gov.uk/national-insurance-rates-letters. ↩
GOV.UK, “Tax and Employee Share Schemes: Enterprise Management Incentives (EMI)” (most companies with assets of £120 million or less and fewer than 500 full-time employees may offer EMI options, but companies in excluded activities such as banking may not; the employee pays no Income Tax or National Insurance on buying the shares for at least the market value they had at grant, provided the option is exercised within the 10 or 15 years the option agreement allows), https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis. ↩
IRAS, “Individual Income Tax rates” (the highest personal income tax rate is 24% from year of assessment 2024), https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates. ↩
IRAS, “Sale of property/shares/financial instruments gains” (gains from the sale of property, shares and financial instruments in Singapore are generally not taxable, and profits from buying and selling shares or other financial instruments, including digital tokens, are generally viewed as personal investments; gains from “trading in properties” may be taxable), https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments. ↩
Einkommensteuergesetz (EStG) § 19(1) no. 1 (income from dependent work includes salaries, wages, gratuities and other emoluments and benefits for employment), https://www.gesetze-im-internet.de/estg/__19.html; EStG § 32a(1) (top marginal rate of 45 percent), https://www.gesetze-im-internet.de/estg/__32a.html. ↩
Código do IRS (CIRS) art. 10(1)(k) (onerous disposal of crypto-assets that are not securities is a capital gain), art. 10(22) (gains and losses on crypto-assets held for a period of 365 days or more are excluded), art. 10(23) (no taxation where the consideration takes the form of crypto-assets, the assets received taking the acquisition value of those delivered), art. 10(24) (the two exclusions do not apply where the taxpayer or the payer is not resident in an EU or EEA state or in a jurisdiction with a double-tax or tax-information-exchange agreement with Portugal), and art. 10(25) (loss of Portuguese tax residency is treated as an onerous disposal), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs10.aspx. ↩
CIRS art. 2(1)(a), (2), (3)(b) (rendimentos da categoria A: all remuneration from dependent work, including accessory remuneration, meaning all rights, benefits or advantages earned in connection with work that constitute an economic advantage for the beneficiary), art. 2(3)(b)(7)-(8) (gains from option, subscription or attribution plans over securities or equivalent rights, even of a notional nature, created for employees), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs2.aspx; CIRS art. 68(1) (general rates, reaching 48 percent above €86,634), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs68.aspx. ↩
Código do IRS (CIRS) art. 16(8)-(12) (the non-habitual resident provisions, each marked “Revogado” by Lei n.º 82/2023, de 29 de dezembro), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx. ↩
17 U.S.C. § 101 (a “work made for hire” includes a work prepared by an employee within the scope of employment); 17 U.S.C. § 201(b) (in the case of a work made for hire, the employer is considered the author, and owns all of the rights comprised in the copyright unless the parties have expressly agreed otherwise in a written instrument signed by them). PDF PDF ↩
35 U.S.C. § 261 (applications for patent, patents, or any interest therein are assignable in law by an instrument in writing). PDF ↩
Cal. Lab. Code § 2870(a). PDF ↩
Cal. Lab. Code § 2872 (an employer requiring an invention-assignment provision must, at the time the agreement is made, provide written notification that the agreement does not apply to an invention qualifying under § 2870). PDF ↩ ↩²
See, e.g., 19 Del. C. § 805; 765 ILCS 1060/2(1); Minn. Stat. § 181.78, subd. 1; Wash. Rev. Code § 49.44.140(1). PDF PDF PDF PDF ↩
Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024); Ryan, LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024) (holding the rule unlawful and setting it aside under the APA, so that it shall not be enforced or otherwise take effect on September 4, 2024, or thereafter); FTC, “Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule” (Sept. 5, 2025) (dismissing its appeals in Ryan, LLC v. FTC, No. 24-10951 (5th Cir.), and Properties of the Villages v. FTC, No. 24-13102 (11th Cir.), by a 3-1 vote), https://www.ftc.gov/news-events/news/press-releases/2025/09/federal-trade-commission-files-accede-vacatur-non-compete-clause-rule. PDF PDF ↩
Cal. Bus. & Prof. Code § 16600(a)-(b)(1); Cal. Bus. & Prof. Code § 16600.5(a); Cal. Bus. & Prof. Code § 16601; Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008). PDF PDF PDF PDF ↩
N.D. Cent. Code § 9-08-06. PDF ↩
Okla. Stat. tit. 15, § 219A(A). PDF ↩
D.C. Code § 32-581.01 (definitions, including “highly compensated employee”); D.C. Code § 32-581.02(a)(1)-(2); D.C. Department of Employment Services, Office of Wage-Hour, Public Notice, “District of Columbia Prohibition on Non-Compete Clauses” (restriction applies to employees earning less than $162,164 and medical specialists earning less than $270,274), https://does.dc.gov/sites/default/files/dc/sites/does/publication/attachments/2026%20Ban%20on%20Non-Compete%20Clauses.pdf. PDF PDF ↩
Colo. Rev. Stat. § 8-2-113(2)(a)-(b), (2)(c)(II), (4)(a); see also § 8-2-113(3) (covenants excepted from subsection (2), including a covenant tied to the purchase and sale of a business or an ownership share received as equity compensation); Colorado Department of Labor and Employment, 2026 Publication and Yearly Calculation of Adjusted Labor Compensation (PAY CALC) Order, 7 CCR 1103-14 (highly compensated threshold $130,014 annually for 2026), https://cdle.colorado.gov/sites/cdle/files/adopted_2026_pay_calc_order_7_ccr_1103-14_12.8.25.pdf. PDF ↩
820 ILCS 90/10(a)-(b) (no covenant not to compete unless the employee’s actual or expected annualized earnings exceed $75,000, rising to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037; no covenant not to solicit unless they exceed $45,000, rising to $47,500 in 2027, $50,000 in 2032, and $52,500 in 2037). PDF ↩
Mass. Gen. Laws ch. 149, § 24L(b)(iv), (vii) (restricted period not to exceed 12 months from cessation of employment, extendable to 2 years where the employee breached a fiduciary duty or unlawfully took, physically or electronically, employer property; agreement must be supported by a garden leave clause or other mutually agreed consideration specified in the agreement). PDF ↩
Or. Rev. Stat. § 653.295(1)(e), (3); Oregon Bureau of Labor and Industries, “Noncompetition Agreements” (minimum amount to exceed: $116,427 for 2025 and $119,541 for 2026), https://www.oregon.gov/boli/employers/pages/noncompetition-agreements.aspx. PDF ↩
Wash. Rev. Code § 49.62.020 (version effective until June 30, 2027) (covenant void unless annualized earnings exceed $100,000, adjusted annually under § 49.62.040); Wash. Rev. Code § 49.62.020 (version effective June 30, 2027, enacted by 2026 c 149, § 4) (“all noncompetition covenants are void and unenforceable regardless of when the parties entered into the noncompetition covenant,” with employers required to make reasonable efforts to provide written notice to affected workers by October 1, 2027); Wash. Rev. Code § 49.62.040 (repealed effective June 30, 2027); Washington Department of Labor & Industries, “Non-Compete Agreements” (2026 employee threshold $126,858.83), https://lni.wa.gov/workers-rights/workplace-policies/non-compete-agreements. PDF PDF PDF PDF ↩
Kodiak Building Partners, LLC v. Adams, 2022 Del. Ch. LEXIS 288, at *7-8 (Del. Ch. Oct. 6, 2022) (Delaware courts review noncompete and nonsolicit provisions to ensure they are reasonable in geographic scope and temporal duration, advance a legitimate economic interest of the enforcing party, and survive a balancing of the equities, and are hesitant to blue-pencil overbroad covenants). PDF ↩
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (1999). PDF ↩
Tex. Bus. & Com. Code § 15.50(a). PDF ↩
Fla. Stat. § 542.335(1)(b)-(e). PDF ↩
Cal. Bus. & Prof. Code § 16600(b)(1) (section read broadly, in accordance with Edwards, to void any noncompete clause in an employment contract that does not satisfy an exception in this chapter, “no matter how narrowly tailored”); Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008) (holding invalid under § 16600 an agreement barring a former employee from soliciting clients of the firm’s Los Angeles office). PDF PDF ↩
18 U.S.C. § 1836(b)(1); Cal. Civ. Code § 3426.1(d) (defining “trade secret” for the California Uniform Trade Secrets Act, Civ. Code §§ 3426-3426.11). PDF PDF ↩
11 U.S.C. § 547(b)(4)(A). PDF ↩
17 C.F.R. § 240.10D-1(b)(1) (recovery policy requirements for listed issuers following an accounting restatement). PDF ↩
29 U.S.C. § 2101(a)(1)-(3); 20 C.F.R. § 639.3(a)(1)(i)-(ii), (b), (c)(1); Cal. Lab. Code § 1400 (short title); Cal. Lab. Code § 1400.5(a) (“Covered establishment”: 75 or more persons within the preceding 12 months), (d) (“Mass layoff”: 50 or more employees at a covered establishment during any 30-day period). PDF PDF PDF PDF ↩
29 U.S.C. § 2102(a); Cal. Lab. Code § 1401(a) (version effective until January 1, 2027; the version effective January 1, 2027 carries the same 60-day requirement). PDF PDF PDF ↩
29 U.S.C. § 2104(a)(1). PDF ↩
Cal. Lab. Code § 2810.5(a)(1), (b). PDF ↩
Cal. Lab. Code § 226(a). PDF ↩
Cal. Lab. Code § 512(a); Cal. Lab. Code § 226.7(b)-(c) (version effective until January 1, 2027) (an employer shall not require an employee to work during a mandated meal, rest, or recovery period, and shall pay one additional hour of pay at the regular rate for each workday a period is not provided). PDF PDF PDF ↩
Cal. Lab. Code § 2802(a). PDF ↩
Cal. Lab. Code § 246. PDF ↩
Cal. Civ. Code § 1798.140(d)(1)(A)-(C). PDF ↩
8 Del. C. § 157(a), (b) (subject to any provisions in the certificate of incorporation, a corporation may create and issue rights or options; they are issued in the numbers, at the times, and for the consideration set forth in a board resolution, on terms stated in the certificate of incorporation or in a board resolution); I.R.C. § 422(b)(1), 26 U.S.C. § 422(b)(1) (an incentive stock option must be granted under a plan approved by the stockholders of the granting corporation within 12 months before or after the date the plan is adopted). PDF PDF ↩
8 Del. C. § 132(a) (every corporation shall have and maintain a registered agent in Delaware); 8 Del. C. § 501(a) (every corporation incorporated under Delaware law, other than an exempt corporation and the other corporations the section excepts, pays an annual franchise tax); 8 Del. C. § 502(a) (annual franchise tax report due on or before March 1). PDF PDF PDF ↩

“Crypto companies can offer salary plus equity plus token grants, a three-part structure traditional tech companies cannot match. Getting these packages right requires understanding the complex interplay of employment law, securities regulation, and tax compliance across multiple jurisdictions.”

Chanté Eliaszadeh · Principal Attorney, Astraea Counsel APC

By Chanté Eliaszadeh | January 26, 2026 | Updated September 6, 2026

The Web3 Compensation Advantage: Equity Plus Tokens

Traditional tech companies offer salary plus equity (stock options or RSUs). Crypto companies can go further: salary plus equity plus token grants. This three-part structure allows startups to:

Preserve cash by shifting compensation to equity and tokens
Compete with Big Tech by offering exponential upside potential
Align incentives between employees and protocol success
Attract crypto-native talent who prefer token exposure

Sample Compensation Packages (illustrative ranges from the firm’s experience):

Engineering Lead (Senior Level):

Base salary: $160,000-$200,000
Equity: 0.5%-1.0% (4-year vest, 1-year cliff)
Token grant: 25,000-50,000 tokens (4-year vest, 1-year cliff)

Product Manager (Mid-Level):

Base salary: $130,000-$160,000
Equity: 0.25%-0.5% (4-year vest, 1-year cliff)
Token grant: 15,000-30,000 tokens (4-year vest, 1-year cliff)

Marketing Manager:

Base salary: $100,000-$130,000
Equity: 0.1%-0.3% (4-year vest, 1-year cliff)
Token grant: 10,000-20,000 tokens (4-year vest, 1-year cliff)

The challenge? Each component has distinct legal and tax implications requiring careful structuring.

Employee vs. Contractor: Classification Matters

IRS Common Law Test

The IRS applies a multifactor common-law test focusing on control, grouped under behavioral control, financial control, and the relationship of the parties:¹

Factors Indicating Employee Status:

Company controls when, where, and how work is performed
Company provides tools, equipment, and workspace
Work is performed on an ongoing basis (not project-specific)
Worker receives training from company
Worker cannot hire assistants or delegate work
Services are integral to company’s business

Factors Indicating Contractor Status:

Worker controls methods and timing of work
Worker uses own tools and equipment
Engagement is project-based with defined deliverables
Worker markets services to multiple clients
Worker bears risk of profit or loss
Worker can be replaced without company approval

Crypto-Specific Considerations:

Many crypto companies default to contractor arrangements for flexibility and reduced compliance burden. However, this approach carries risk:

Core team members working full-time on company business likely qualify as employees under the FLSA’s economic-reality test, the codification of which the Department of Labor proposed on February 27, 2026 to rescind and replace with its 2021 analysis²
Remote work doesn’t equal contractor status - the control test applies regardless of location¹
Token grants complicate classification - significant token allocations suggest employee-like relationship

California’s ABC Test (the State-Law Question)

(A) The worker is free from the hiring entity’s control and direction in performing the work, both under contract and in fact;
(B) The worker performs work outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Multi-State Implications

If you classify someone as an employee, you trigger obligations in their work location state:

Payroll tax withholding (state income tax, unemployment insurance)
Workers’ compensation insurance
State labor law compliance (meal breaks, overtime, final paycheck timing)
Wage payment requirements (frequency, method, pay stub details)

California employers face additional requirements:

Itemized wage statements with specific details
Meal and rest break compliance (or premium pay)
Strict final paycheck timing (Labor Code § 201: discharge requires final wages immediately; § 202: an employee without a written contract for a definite period who resigns is due final wages within 72 hours, or at the time of quitting if at least 72 hours’ notice was given)⁴
Broad definitions of “employee” favoring workers

Best Practice Recommendations

Default to employee classification for full-time, ongoing relationships
Reserve contractor status for discrete projects with defined scope
Document the relationship with clear agreements reflecting actual arrangement
Review periodically - relationships evolving from contractor to employee require reclassification
Consult employment counsel in each jurisdiction where workers are located

Equity Compensation: Stock Options and RSUs

Traditional equity compensation provides employees with ownership in the company entity (typically a C-Corp or Delaware corporation).

Stock Options vs. RSUs

Incentive Stock Options (ISOs):

Tax advantage: No tax on grant or vesting; capital gains on sale (if holding periods met)
Requirements: $100K annual vesting limit (I.R.C. § 422(d)(1)), exercise within 10 years, employee-only⁵
Best for: Early-stage companies with low 409A valuations

Non-Qualified Stock Options (NSOs):

Flexibility: No vesting limits, can grant to contractors and advisors
Tax treatment: Ordinary income on exercise (spread between FMV and strike price)⁶
Best for: Later-stage companies, non-employee grants

Restricted Stock Units (RSUs):

No purchase required: Shares delivered on settlement
Tax treatment: Ordinary income when the RSU settles and the shares are delivered, measured by their FMV at delivery⁷
Best for: Later-stage companies with established valuations

409A Valuations: The Hidden Cost

409A Valuation Costs:

Initial valuation: $5,000-$10,000 for early-stage companies (firm est.)
Complex situations: $10,000-$15,000+ (multiple share classes, recent financing, revenue) (firm est.)
Refresh frequency: Every 12 months or after a material event (funding round, significant business change)⁹

Material events that commonly trigger a new 409A (firm experience):

Equity financing round
Acquisition offer or term sheet
Significant revenue increase or business pivot
Secondary market transactions
Token launch or listing (potentially)

Penalty for non-compliance: If you grant options below FMV without proper 409A valuation, recipients face:

Immediate taxation on spread (even if not exercised)
20% additional tax¹⁰
Interest at the underpayment rate plus one percentage point

Practical Equity Structuring

Standard vesting terms:

4-year vesting with 1-year cliff (the market convention, in the firm’s experience)
Monthly vesting after cliff
Single-trigger acceleration on change of control (25%-50% common for early employees)
Double-trigger acceleration becoming more common (requires termination + acquisition)

Token Grants and Vesting: The Crypto Component

Token grants provide employees with ownership in the protocol or network, distinct from equity in the company entity.

Structuring Token Compensation

Key decisions:

Grant size: Percentage of total token supply allocated to team
Vesting schedule: Alignment with equity vesting (typically 4 years)
Cliff period: 1-year cliff standard to reduce turnover risk
Acceleration: Conditions for accelerated vesting
Transferability: Lock-up periods and trading restrictions

Sample token vesting schedule:

Total grant: 40,000 tokens
Vesting period: 4 years
Cliff: 1 year (10,000 tokens vest on month 12)
Monthly vesting: 833.33 tokens/month for months 13-48

Token Grant Mechanics

Pre-launch tokens: Companies typically grant tokens before network launch using:

Token grant agreements promising future delivery
SAFT-like structures (though employment context differs from investment)
Restricted token agreements delivered to escrow or smart contract

Post-launch tokens: After token launch or generation event:

Tokens delivered to employee wallet (directly or through vesting contract)
Smart contract enforces vesting schedule
Employee has custody but cannot transfer until vested

Vesting enforcement methods:

Smart contract vesting: Tokens locked in contract, released programmatically
Company custody: Company holds tokens until vesting (less common, introduces counterparty risk)
Time-locked wallets: Multi-sig or time-lock enforces vesting schedule

Securities Law Considerations

Token grants to employees may be securities under the Howey test (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)),¹² triggering:

Potential securities law requirements:

Registration or exemption (typically Regulation D, Section 4(a)(2) exemption)¹³
Form D filing if relying on Regulation D (within 15 days after the first sale)¹⁴
State blue sky compliance (or relying on exemptions)
Accredited investor verification (if required by exemption)

Employee exemptions: SEC Rule 701 provides an exemption for compensatory issuances by non-reporting companies, but:¹⁵

Applies to securities the company issues under a written compensatory benefit plan or contract established by the company, its parents, or its majority-owned subsidiaries
Token status as security remains uncertain
May not cover protocol tokens distinct from company securities

Conservative approach:

Treat token grants as potential securities
Limit grants to accredited investors or rely on exemptions
Include securities legends and transfer restrictions
Consult securities counsel on structure

Tax Treatment of Token Compensation: What Employees Owe

Token compensation creates complex tax obligations that both employers and employees must understand.

Timing of Taxation

Fair market value determination:

Listed tokens: Trading price on vesting date
Unlisted tokens: Valuation required (appraiser, comparable transactions)
Pre-functional tokens: Potentially no FMV until functionality exists (uncertain)

Example calculation:

Employee receives grant of 20,000 tokens
Vesting: 4 years with 1-year cliff
Year 1 cliff vesting: 5,000 tokens vest
Token FMV on vesting date: $2.50
Ordinary income recognized: 5,000 × $2.50 = $12,500
Employee tax liability (37% top rate): $4,625

The problem? Employee owes $4,625 in taxes but may not be able to sell tokens to cover tax (illiquidity, lock-ups, or lack of market).¹⁷

Withholding Obligations

Employer withholding requirements:

When tokens vest, the employer must withhold from the employee and pay its own employer-level taxes:

Federal income tax (W-4 withholding rates)
FICA taxes (Social Security 6.2%, Medicare 1.45%, each on both the employee and the employer)¹⁸
State income tax (varies by state)
Unemployment taxes (FUTA at 6.0% of the first $7,000 of wages, reduced by the credit for state unemployment contributions, plus the state’s own unemployment tax)¹⁹

Total withholding: typically ~30-40% of FMV on vesting (firm est.)

Withholding mechanics:

Cash withholding: Employee pays cash to cover taxes (burdensome)
Share withholding: Company withholds tokens to cover tax (sell tokens or use company cash)
Net settlement: Reduce token grant by withholding amount (most common)

Example - net settlement:

5,000 tokens vest at $2.50 FMV = $12,500 income
Assumed 35% total withholding = $4,375 tax
Company withholds: 1,750 tokens ($4,375 ÷ $2.50)
Employee receives: 3,250 tokens

Challenge: If token is illiquid, company must sell tokens or pay withholding from treasury, creating cash flow burden.

Capital Gains on Sale

After vesting and income recognition:

Employee’s tax basis = FMV on vesting date
Sale after >1 year holding = long-term capital gains (lower rates; 20% is the top rate on most net capital gain)²⁰
Sale within 1 year = short-term capital gains (ordinary income rates)

Example:

Employee receives 3,250 tokens (after withholding)
Tax basis: $2.50/token = $8,125 total basis
Sale 18 months later at $5.00/token = $16,250
Capital gain: $16,250 - $8,125 = $8,125
Tax (20% LTCG rate): $1,625

Estimated Tax Requirements

Employees receiving token compensation must make quarterly estimated tax payments if:

Tax owed after withholding is $1,000 or more for the year
Withholding doesn’t cover at least 90% of current year tax or 100% of prior year tax (110% if prior-year adjusted gross income exceeded $150,000)²¹

Practical guidance for employees:

Calculate expected vesting schedule and estimated FMV
Make quarterly estimated payments to avoid underpayment penalties
Consult tax advisor on state tax obligations (varies significantly)
Consider selling vested tokens to cover tax liability

Tax Reporting

Employer reporting obligations:

Form W-2: Report token income in Box 1 (wages), Box 3 (Social Security, up to the wage base limit), Box 5 (Medicare)²²
Form 1099-NEC (contractors): Report token payments as nonemployee compensation (box 1a on the current form)²³
Form 1099-DA (if the company acts as a broker): a broker that effects digital-asset sales for a customer files Form 1099-DA, which now generally takes the place of Form 1099-B for digital assets²⁴

Employee reporting:

Report token income on Form 1040 (already included in W-2)
Report token sales on Schedule D and Form 8949²⁵
Track basis carefully for each vesting event

International Hiring: EOR Services and Compliance

Crypto companies often hire globally to access talent and create distributed teams. International hiring introduces additional complexity:

Employer of Record (EOR) Services

Rather than establishing legal entities in each country, many crypto companies use EOR services:

How EOR works:

EOR becomes legal employer in foreign jurisdiction
EOR handles payroll, tax withholding, benefits, compliance
Company maintains day-to-day management and work direction
Company pays EOR fee (typically 10-15% of compensation, firm est.)

Choosing an EOR (what to ask):

Can it run token compensation through payroll, and in which countries?
Does it cover the countries where your hires sit, and at what per-employee cost?
How does it handle contractor-to-employee conversion?
What reporting does it give the company for its own tax and audit files?

EOR limitations:

EOR may not support token compensation (requires negotiation)
Some jurisdictions restrict or bar EOR arrangements or require a local entity; confirm with local counsel before hiring in, for example, China or India (firm experience)
IP assignment may require additional documentation
Less control over employee experience

Country-Specific Considerations

Common hiring jurisdictions for crypto:

United Kingdom:

Tokens provided to an employee are employment income (HMRC treats exchange tokens as money’s worth), and where they are readily convertible assets, which HMRC considers exchange tokens generally will be, the employer values them and runs them through PAYE and Class 1 National Insurance²⁶
Employer Class 1A National Insurance at 15% on benefits (2026 to 2027 rate)²⁷
EMI options at most qualifying companies (assets of £120 million or less and fewer than 500 full-time employees, outside excluded activities such as banking) carry no Income Tax or National Insurance for the employee where the shares are bought for at least the market value they had when the option was granted and the option is exercised within the 10 or 15 years the option agreement allows (similar to ISOs)²⁸
Crypto-friendly regulatory environment

Singapore:

Favorable rates: the top resident income tax rate is 24% from year of assessment 2024²⁹
No capital gains tax: gains from the sale of property, shares and financial instruments are generally not taxable, and profits from buying and selling shares or other financial instruments, including digital tokens, are generally viewed as personal investments; gains from trading in properties may be taxable³⁰
Strong crypto regulatory framework
Popular for Asian hiring

Germany:

Token grants are employment income (EStG § 19(1) no. 1: salaries, wages and other emoluments and benefits for employment), taxed at progressive rates up to 45% (EStG § 32a)³¹
Termination protections are strict; take local advice before any termination (firm experience)
Employee-friendly labor courts

Portugal:

Crypto-friendly tax regime: gains on crypto held for 365 days or more are excluded from IRS; shorter holdings are taxed, except where the consideration is itself crypto (art. 10(23), with basis rolling over), and losing Portuguese tax residency is treated as a disposal (art. 10(25)); neither exclusion applies where the taxpayer or the payer is resident outside the EU and EEA in a jurisdiction with no double-tax or tax-information-exchange agreement with Portugal (art. 10(24))³²
Token grants are Category A employment income, taxed at the progressive general rates that reach 48% (CIRS arts. 2, 68)³³
The non-habitual resident regime was revoked for new entrants by Lei n.º 82/2023; confirm current eligibility before promising it to a hire³⁴
Growing crypto hub

International Compliance Checklist

When hiring internationally:

Offer Letters and Employment Agreements: Essential Provisions

Comprehensive employment documentation protects both company and employee interests.

Offer Letter Structure

Key components:

Position and reporting structure
Start date and employment status (at-will, fixed-term)
Compensation breakdown:
- Base salary (payment frequency, currency)
- Equity grant details (type, amount, vesting, subject to board approval)
- Token grant terms (amount, vesting, subject to plan and separate agreement)
- Benefits overview (health, 401k, vacation)
Conditions precedent (background check, I-9 verification, non-compete review)
Contingencies (board approval of equity, plan adoption)
Expiration date (typically 5-7 days to accept)

Sample equity and token language:

Subject to approval by the Company’s Board of Directors, you will be granted an option to purchase 50,000 shares of the Company’s common stock at an exercise price equal to the fair market value as of the grant date, as determined by the Board. This option will be subject to the terms of the Company’s 2025 Equity Incentive Plan and a separate Stock Option Agreement, including a four-year vesting schedule with a one-year cliff.

Additionally, subject to adoption of the Company’s Token Grant Plan and Board approval, you will be granted 30,000 [TOKEN] tokens, subject to a four-year vesting schedule with a one-year cliff. The specific terms will be set forth in a separate Token Grant Agreement.

Employment Agreement Provisions

Comprehensive employment agreements should include:

1. Employment terms:

At-will employment statement (where enforceable)
Duties and reporting relationship
Location (remote work policies)
Hours and availability expectations

2. Compensation and benefits:

Base salary and review schedule
Equity and token grant incorporation by reference
Benefits eligibility
Expense reimbursement

3. Confidentiality obligations:

Broad definition of confidential information
Exceptions (publicly available, independently developed)
Return of materials on termination
Survival post-termination

4. Intellectual property assignment:

Work-for-hire provisions
Pre-existing IP exclusion
Moral rights waiver (if applicable)
Cooperation with patent prosecution

5. Non-competition and non-solicitation:

Geographic scope (limited to enforceable jurisdictions)
Duration (typically 12 months post-termination)
Customer and employee non-solicit
State-specific limitations

6. Termination provisions:

Notice requirements
Severance eligibility
Effect on equity and token vesting
Good leaver / bad leaver definitions
Post-termination obligations

7. Dispute resolution:

Choice of law (typically Delaware for corporation)
Arbitration clause (consideration of enforceability)
Fee allocation
Jury waiver

IP Assignment and Non-Competes: State Law Variations

Intellectual property and restrictive covenants are critical for protecting company interests, but enforceability varies dramatically by jurisdiction.

Intellectual Property Assignment

Work-for-hire doctrine: Under federal copyright law, works created by employees within the scope of employment are automatically owned by employer.³⁵ However:

Scope limitation: Only applies to work performed within employment duties
State law variations: Some states (California) limit IP assignment to work-related inventions
Patent rights: Assignable in law by an instrument in writing³⁶

California Labor Code § 2870:³⁷ California restricts employee IP assignment. Employers cannot require assignment of:

Inventions developed entirely on employee’s own time
Without using employer’s equipment, supplies, facilities, or trade secrets
That do not relate to employer’s business or R&D
That do not result from work performed for employer

Required notice: California employers must provide written notice of § 2870 limitations at the time the agreement is made.³⁸

Best practices:

Use broad IP assignment language while noting state law exceptions
Include pre-existing IP disclosure schedule
Require disclosure of inventions during employment
Document work-related nature of crypto protocol development

Non-Compete Agreements: Enforceability Landscape

States generally prohibiting non-competes:

California: Void except for the statutory sale-of-business and owner-exit exceptions (Bus. & Prof. Code §§ 16600, 16601), and unenforceable regardless of where the contract was signed (§ 16600.5)⁴¹
North Dakota: Void with narrow exceptions (N.D. Cent. Code § 9-08-06)⁴²
Oklahoma: Void, except that a former employee may be barred from directly soliciting the former employer’s established customers (Okla. Stat. tit. 15, § 219A)⁴³
District of Columbia: Non-competes entered into on or after October 1, 2022 are void for covered employees earning below the District’s CPI-indexed “highly compensated” threshold ($162,164 for 2026, higher for medical specialists); they remain available for highly compensated employees at or above that threshold, subject to the statute’s exclusions (D.C. Code § 32-581.01 et seq.)⁴⁴

States with restrictions:

Colorado: As amended in 2022 and again in 2025, non-competes are void unless the worker’s earnings meet the “highly compensated workers” threshold the Division of Labor Standards and Statistics adjusts annually ($130,014 for 2026) and the covenant is for the protection of trade secrets and no broader than reasonably necessary to protect that interest (the exception does not reach a covenant restricting the practice of medicine, advanced practice registered nursing, or dentistry in Colorado, which stays void under subsection (2)(a) whatever the worker earns); separate carve-outs cover training-cost repayment, confidentiality provisions, and covenants tied to the sale of a business or an ownership share received as equity compensation, and every permitted covenant requires statutory advance notice (Colo. Rev. Stat. § 8-2-113)⁴⁵
Illinois: No covenant not to compete unless annualized earnings exceed $75,000, rising to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037, with a lower $45,000 threshold for non-solicits (Illinois Freedom to Work Act, 820 ILCS 90/10)⁴⁶
Massachusetts: Restricted period capped at 12 months from cessation of employment, or 2 years where the employee breached a fiduciary duty or unlawfully took employer property, physically or electronically, and the agreement must be supported by a garden leave clause or other mutually agreed consideration (Mass. Gen. Laws ch. 149, § 24L)⁴⁷
Oregon: Requires minimum compensation ($119,541 for 2026), limited to 12 months (ORS 653.295, for agreements entered on or after January 1, 2022; the pre-2022 cap was 18 months)⁴⁸
Washington: Today requires minimum compensation (an inflation-indexed earnings threshold, $126,858.83 for 2026), written disclosure, and a duration presumed unreasonable beyond eighteen months, but under 2026 legislation every noncompetition covenant becomes void and unenforceable on June 30, 2027, regardless of when it was signed, and employers must make reasonable efforts to provide written notice to affected workers by October 1, 2027 (Wash. Rev. Code § 49.62.020)⁴⁹

States generally enforcing (with reasonableness requirements):

Delaware: Enforces non-competes that are reasonable in geographic scope and duration, advance a legitimate economic interest, and survive a balancing of the equities; the Court of Chancery is reluctant to blue-pencil an overbroad covenant (important for DE corporations)⁵⁰
New York: Enforces a restraint only to the extent it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee⁵¹
Texas: Enforces a covenant ancillary to an otherwise enforceable agreement with reasonable limits on time, geography, and scope of activity (Tex. Bus. & Com. Code § 15.50)⁵²
Florida: Enforces only where the person seeking enforcement pleads and proves one or more legitimate business interests justifying the restraint and that the restraint is reasonably necessary to protect that interest; restraints over two years against a former employee are presumed unreasonable unless the covenant is predicated on trade secrets, for which the presumptions run to five and ten years (Fla. Stat. § 542.335(1)(b)-(e))⁵³

Reasonableness factors (enforcing jurisdictions):

Duration: 6-12 months generally reasonable; >2 years often excessive (firm experience)
Geography: Limited to areas where company operates or has customer relationships
Scope: Narrow to employee’s specific role and responsibilities
Consideration: Must receive something of value (continued employment often insufficient)

Alternative Protective Measures

Given limited non-compete enforceability, focus on alternatives:

Non-solicitation agreements:

Customer non-solicit: Generally enforceable if reasonable (12-24 months, in the firm’s experience)
Employee non-solicit: Protects against recruiting team members
Broader enforceability than non-competes in most states, but not in California, where Edwards invalidated a clause barring a departing employee from “soliciting” (which the agreement defined as performing professional services for) clients of the firm’s Los Angeles office, putting customer non-solicits at serious risk under § 16600⁵⁴

Non-disclosure agreements:

Enforceable across jurisdictions
Protect confidential information and trade secrets
Survives employment termination
Critical for crypto protocols with proprietary technology

Trade secret protection:

Identify and mark confidential materials
Implement information security measures
Limit access on need-to-know basis
Use federal and state trade secret laws (the Defend Trade Secrets Act, 18 U.S.C. § 1836, and state trade-secret statutes such as California’s Uniform Trade Secrets Act)⁵⁵

Garden leave provisions:

Pay employee to not work during notice period
Prevents joining competitor while receiving salary
More enforceable than non-competes
Costly but effective for key employees

Termination and Clawbacks: Good Leaver / Bad Leaver Provisions

Termination terms significantly impact equity and token value. Clear provisions prevent disputes and protect company interests.

Termination Categories

1. Voluntary resignation:

Employee initiates termination
Typically no severance
Unvested equity and tokens typically forfeited
Exercise period for vested options (typically 90 days)

2. Termination without cause:

Company terminates for business reasons
May include severance (negotiated)
Unvested equity and tokens typically forfeited (unless acceleration)
Extended exercise period increasingly common (1-year)

3. Termination for cause:

Serious misconduct (fraud, breach, criminal activity)
No severance
Unvested equity and tokens forfeited
Vested options may be cancelled (if agreement permits)
Potential clawback of vested tokens

4. Death or disability:

Typically accelerates partial vesting (12 months common)
Extended exercise period for vested options
Token grants may continue vesting or accelerate (per plan terms)

5. Change of control:

Acquisition or significant ownership change
May trigger acceleration (single or double-trigger)
Negotiated in offer letter for key employees

Good Leaver / Bad Leaver Framework

Common in startup context, particularly for token grants:

Good leaver:

Voluntary resignation (after minimum period)
Termination without cause
Death or disability
Constructive discharge

Good leaver treatment:

Retain vested tokens
Potential partial acceleration
Extended exercise period
No clawback of vested compensation

Bad leaver:

Termination for cause
Material breach of agreement
Competition with company
Resignation during critical period

Bad leaver treatment:

Forfeit unvested tokens
Potential clawback of vested tokens (if agreement permits)
Repurchase vested tokens at discount or cost
Shortened exercise period

Legal limitations on clawbacks:

Clawback provisions must comply with:

State wage laws: Cannot reclaim amounts qualifying as “wages” after earned
Bankruptcy considerations: Clawbacks within 90 days may be preferential transfers⁵⁶
Securities law: SEC Rule 10D-1 is an exchange-listing standard that mandates recovery of erroneously-awarded incentive compensation from executive officers of listed issuers following a financial restatement; it does not reach a private crypto startup’s token clawback, which falls outside Rule 10D-1’s scope⁵⁷
Contract formation: Adequate consideration required for post-grant clawback imposition

Best practice: Include clawback provisions in initial grant agreement, not retroactively imposed.

Severance Considerations

Typical severance packages (startup context, firm experience):

Early employees: 3-6 months base salary
Executives: 6-12 months base salary, partial equity acceleration
Standard employees: 1-3 months base salary (or none)

Severance conditioned on:

Release of claims
Non-disparagement
Cooperation with transition
Compliance with confidentiality and restrictive covenants
Return of company property

60 days advance notice⁵⁹
Notice to employees, state, and local government
Penalties for non-compliance: back pay and benefits for each day of violation, up to 60 days⁶⁰

Compliance Checklist by Jurisdiction

California Employers

Delaware Corporations (Common Jurisdiction)

Adopt equity incentive plan by board resolution, with stockholder approval within 12 months of adoption where the plan will grant ISOs (8 Del. C. § 157(b); I.R.C. § 422(b)(1))⁶⁷
Conduct 409A valuation before issuing stock options
Issue equity grants only at or above 409A FMV
Maintain option exercise records and cap table
Comply with Delaware corporate formalities (annual franchise tax, registered agent)⁶⁸
Include Delaware choice of law in employment agreements
File UCC-1 if taking security interest in vested equity

Remote Employees (Multi-State)

Determine work location state and register as employer
Withhold state income tax in work location state
Obtain workers’ compensation insurance in work location state
Comply with work location state wage and hour laws
Review non-compete enforceability in work location state
Provide state-mandated benefits (paid leave, disability insurance)
Issue state-compliant wage statements
Follow work location state termination notice and final pay requirements

International Employees

Engage EOR or establish local entity in employee’s country
Comply with local employment law (contracts, notice periods, severance)
Provide mandatory benefits (pension, health insurance, parental leave)
Withhold local income tax and social contributions
Understand local tax treatment of equity and token grants
Assess GDPR compliance for EU employees (data processing, privacy notices)
Review IP assignment and non-compete enforceability under local law
Implement local payroll and reporting systems
Consider tax equalization for relocated employees

Token-Specific Compliance

Key Takeaways for Crypto Founders

Structuring compensation packages:

Use three-part structure (salary + equity + tokens) to compete for talent while preserving cash
Align equity and token vesting schedules (4-year vest, 1-year cliff) for simplicity
Obtain 409A valuation before granting stock options (budget $5K-$15K initially, firm est.)
Include acceleration provisions for key hires (25%-50% on change of control, firm experience)

Managing tax obligations:

Withhold taxes on token vesting (30-40% of FMV, firm est.)—plan for cash flow impact
Use net settlement to simplify withholding (reduce grant by tax amount)
Provide employees with tax guidance on estimated payments and basis tracking
Report token income on W-2 (employees) or 1099-NEC (contractors)

International hiring:

Use EOR services for small international teams
Budget 10-15% EOR fees on top of compensation
Understand local tax treatment of tokens (varies significantly by country)
Review IP assignment and non-compete enforceability (many countries restrict)

Protecting company interests:

Focus on non-disclosure and non-solicitation (broader enforceability than non-competes)
Use comprehensive IP assignment with pre-existing IP exclusions
Implement good leaver / bad leaver provisions for token grants
Include clawback provisions in initial grant agreements (not retroactive)

Avoiding compliance pitfalls:

Classify workers correctly (employee vs. contractor) - default to employee for core team
Register as employer in each state where employees work
Comply with California Labor Code requirements for California employees (no non-competes, itemized wage statements, expense reimbursement)
Provide mandatory notices (wage theft, IP assignment limitations)

Internal guidance:

DAO Employment Classification - Classifying DAO contributors as employees or contractors
Crypto Tax Lawyer’s Guide - Comprehensive tax planning for crypto transactions
Crypto Startup Legal Checklist - Essential legal tasks for launching a crypto company
Token Launch Legal Checklist - Securities, tax, and regulatory compliance for token offerings

Practice areas:

Corporate & Transactions - Entity formation, venture capital, equity compensation

External resources:

IRS Publication 15-B: Employer’s Tax Guide to Fringe Benefits
SEC Rule 701: Exemption for Compensatory Issuances
California Labor Code § 2870: Employee Inventions
Delaware General Corporation Law § 157: Rights and Options Respecting Stock

When to Seek Legal Counsel

Consult experienced employment and tax counsel when:

Hiring your first employee - Establish compliant compensation structure from the start
Granting token compensation - Navigate securities law and tax complexities
Making executive hires - Negotiate competitive packages with acceleration and severance
Hiring internationally - Comply with foreign employment and tax laws
Conducting layoffs - Ensure WARN Act compliance and minimize liability
Facing misclassification claims - Defend against employee vs. contractor disputes
Structuring acquisition compensation - Handle change of control acceleration and retention
Implementing equity plans - Draft compliant equity incentive and token grant plans

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IRS, “Independent Contractor (Self-Employed) or Employee?” (behavioral control, financial control, and the relationship of the parties), https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee; IRS, Tax Topic No. 762, “Independent Contractor vs. Employee,” https://www.irs.gov/taxtopics/tc762. ↩ ↩² ↩³
29 C.F.R. § 795.105(b) (economic dependence as the ultimate inquiry), adopted by Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638 (Jan. 10, 2024); Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, 91 Fed. Reg. 9932 (proposed Feb. 27, 2026) (proposing to rescind the 2024 analysis in 29 C.F.R. part 795). The § 795.105 print is current through the August 25, 2026 Federal Register except for the three rules published that day at 91 Fed. Reg. 54794 and 54798, an OPM reduction-in-force correction (5 C.F.R. parts 316, 330, 351, 353 and 430), an OPM suitability-action-appeals correction (5 C.F.R. part 731), and an FAA restricted-areas amendment (14 C.F.R. part 73), none of which touches part 795. PDF PDF PDF PDF PDF PDF ↩
Cal. Lab. Code § 2775(a)(1), (b)(1) (added by Stats. 2020, ch. 38 (AB 2257)); Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018); Stats. 2019, ch. 296 (AB 5) (adding former Lab. Code § 2750.3 to codify Dynamex); Stats. 2020, ch. 38 (AB 2257) (repealing former § 2750.3 and adding Article 1.5, commencing with § 2775, whose exemptions include bona fide business-to-business contracting relationships); Cal. Lab. Code § 2775(b)(2)-(3) (express statutory exceptions preserved; Borello governs where the three-part test is held inapplicable). PDF PDF PDF PDF ↩ ↩²
Cal. Lab. Code § 201(a) (wages due and payable immediately on discharge); Cal. Lab. Code § 202(a) (an employee not having a written contract for a definite period who quits is due wages not later than 72 hours thereafter, or at the time of quitting where the employee gave 72 hours’ previous notice). PDF PDF ↩ ↩²
I.R.C. § 422(d)(1), 26 U.S.C. § 422(d)(1) ($100,000 annual limit on the aggregate fair market value of stock with respect to which incentive stock options are exercisable for the first time during any calendar year); id. § 422(b)(3) (option by its terms not exercisable after the expiration of 10 years from the date of grant); id. § 422(a)(2), (b) (option granted for a reason connected with the individual’s employment, the individual having been an employee of the granting corporation or a parent or subsidiary at all times from grant until three months before exercise). PDF ↩
26 U.S.C. § 83(a); Treas. Reg. § 1.83-7(a), 26 C.F.R. § 1.83-7(a) (an option without a readily ascertainable fair market value at grant is taxed under § 83(a) when it is exercised or otherwise disposed of). PDF PDF ↩
26 U.S.C. § 83(a) (property transferred in connection with the performance of services, here the shares delivered on settlement of a restricted stock unit); 26 U.S.C. § 83(i)(7) (section 83 does not otherwise apply to restricted stock units); IRS, Publication 15-B, Employer’s Tax Guide to Fringe Benefits (2026) (stock received upon settlement of the RSU), https://www.irs.gov/pub/irs-pdf/p15b.pdf. PDF ↩
I.R.C. § 409A(a)(1)(A)-(B), 26 U.S.C. § 409A(a)(1)(A)-(B); Treas. Reg. § 1.409A-1(b)(5)(i)(A), (C), 26 C.F.R. § 1.409A-1(b)(5)(i)(A), (C) (a nonstatutory stock option does not provide for a deferral of compensation if, among other conditions, the exercise price may never be less than the fair market value of the underlying stock on the grant date; an option whose exercise price is or could become less than that value generally will provide for a deferral of compensation); Treas. Reg. § 1.409A-1(b)(5)(iv)(B)(1)-(2), 26 C.F.R. § 1.409A-1(b)(5)(iv)(B)(1)-(2) (for stock not readily tradable, fair market value is a value determined by the reasonable application of a reasonable valuation method; an independent appraisal within 12 months, a formula valuation, or a good-faith written valuation of a start-up’s illiquid stock by a qualified person is presumed reasonable). PDF PDF ↩
Treas. Reg. § 1.409A-1(b)(5)(iv)(B)(1), 26 C.F.R. § 1.409A-1(b)(5)(iv)(B)(1) (a previously calculated value is not reasonable as of a later date if the calculation fails to reflect information that may materially affect the value or was made more than 12 months earlier); id. § 1.409A-1(b)(5)(iv)(B)(2)(i) (an independent appraisal no more than 12 months before the grant is presumed reasonable). PDF ↩
I.R.C. § 409A(a)(1)(B)(i)(I)-(II), (ii), 26 U.S.C. § 409A(a)(1)(B)(i)(I)-(II), (ii) (additional tax equal to 20 percent of the compensation required to be included in gross income, plus interest at the underpayment rate plus 1 percentage point). PDF ↩
I.R.C. § 83(b)(2), 26 U.S.C. § 83(b)(2) (election made not later than 30 days after the date of the transfer); Treas. Reg. § 1.83-2(b), 26 C.F.R. § 1.83-2(b). PDF PDF ↩
SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). PDF ↩
Securities Act § 4(a)(2), 15 U.S.C. § 77d(a)(2) (exempting “transactions by an issuer not involving any public offering”); 17 C.F.R. § 230.506 (Rule 506 of Regulation D). PDF PDF ↩
17 C.F.R. § 230.503(a) (Form D notice filed no later than 15 calendar days after the first sale of securities in the offering). PDF ↩
17 C.F.R. § 230.701(b)-(d) (Rule 701: available to issuers not subject to Exchange Act reporting and not registered or required to be registered as investment companies, for securities issued under a written compensatory benefit plan or compensation contract established by the issuer, its parents, or its majority-owned subsidiaries, subject to the amount limits in paragraph (d)); SEC, Concept Release on Compensatory Securities Offerings and Sales, Release No. 33-10521 (July 18, 2018), https://www.sec.gov/files/rules/concept/2018/33-10521.pdf. PDF ↩
I.R.C. § 83(a), 26 U.S.C. § 83(a) (property transferred in connection with the performance of services is included in gross income in the first taxable year in which the rights are transferable or not subject to a substantial risk of forfeiture); IRS Notice 2014-21, 2014-16 I.R.B. 938, Q&A-11 (virtual currency paid by an employer as remuneration for services constitutes wages for employment tax purposes), https://www.irs.gov/pub/irs-drop/n-14-21.pdf. PDF ↩
26 U.S.C. § 1(j)(2)(A)-(D) (37 percent top marginal rate). PDF ↩
I.R.C. § 3101(a), (b)(1), 26 U.S.C. § 3101(a), (b)(1) (employee tax of 6.2 percent and 1.45 percent of wages); I.R.C. § 3111(a)-(b), 26 U.S.C. § 3111(a)-(b) (employer tax at the same rates). PDF PDF ↩
I.R.C. § 3301, 26 U.S.C. § 3301 (6.0 percent of total wages, as defined in § 3306(b)); I.R.C. § 3306(b)(1), 26 U.S.C. § 3306(b)(1) ($7,000 wage base); I.R.C. § 3302(a)(1), 26 U.S.C. § 3302(a)(1) (credit against the § 3301 tax for contributions to a certified state unemployment fund). PDF PDF PDF ↩
IRS, Tax Topic No. 409, “Capital Gains and Losses” (an asset held more than one year before disposition generally produces long-term gain or loss; the 20% rate applies above the 15% threshold), https://www.irs.gov/taxtopics/tc409; I.R.C. § 1(h)(1)(D), 26 U.S.C. § 1(h)(1)(D) (20 percent rate on adjusted net capital gain above the 15-percent bracket). PDF ↩
I.R.C. § 6654(d)(1)(B), (d)(1)(C)(i), (e)(1), 26 U.S.C. § 6654(d)(1)(B), (d)(1)(C)(i), (e)(1). PDF ↩
I.R.C. § 6051(a), 26 U.S.C. § 6051(a); IRS Notice 2014-21, Q&A-11, https://www.irs.gov/pub/irs-drop/n-14-21.pdf; IRS, Publication 15-B, Employer’s Tax Guide to Fringe Benefits (2026) (compensation from a nonstatutory stock option is reported on Form W-2 in boxes 1, 3 (up to the social security wage base limit), and 5), https://www.irs.gov/pub/irs-pdf/p15b.pdf. PDF ↩
IRS, Instructions for Forms 1099-MISC and 1099-NEC (2026) (nonemployee compensation of $2,000 or more reported in box 1a of Form 1099-NEC), https://www.irs.gov/pub/irs-pdf/i1099mec.pdf. ↩
IRS, Instructions for Form 1099-DA (2026), https://www.irs.gov/instructions/i1099da (“General Instructions”: for each sale a broker has effected for customers after 2025 of digital assets, the broker must complete Form 1099-DA); IRS, Instructions for Form 1099-B (2026), https://www.irs.gov/instructions/i1099b (“Digital assets”: for each digital asset sale a broker has effected for a customer in 2026, the broker must complete Form 1099-DA). ↩
IRS, Instructions for Form 8949 (file Form 8949 with the Schedule D for the return), https://www.irs.gov/pub/irs-pdf/i8949.pdf. ↩
HMRC, Cryptoassets Manual, CRYPTO42100, “Income Tax: exchange tokens provided in the form of Readily Convertible Assets (RCAs)” (an employer providing employment income in the form of a readily convertible asset must value it and operate PAYE); HMRC, Cryptoassets Manual, CRYPTO42050, “Income Tax: paying employees in cryptoassets” (HMRC considers exchange tokens to count as money’s worth and therefore to be employment income subject to Income Tax and National Insurance), https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto42050, https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto42100. ↩
GOV.UK, “National Insurance rates and categories” (employer Class 1A rate on expenses and benefits of 15% from 6 April 2026 to 5 April 2027), https://www.gov.uk/national-insurance-rates-letters. ↩
GOV.UK, “Tax and Employee Share Schemes: Enterprise Management Incentives (EMI)” (most companies with assets of £120 million or less and fewer than 500 full-time employees may offer EMI options, but companies in excluded activities such as banking may not; the employee pays no Income Tax or National Insurance on buying the shares for at least the market value they had at grant, provided the option is exercised within the 10 or 15 years the option agreement allows), https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis. ↩
IRAS, “Individual Income Tax rates” (the highest personal income tax rate is 24% from year of assessment 2024), https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates. ↩
IRAS, “Sale of property/shares/financial instruments gains” (gains from the sale of property, shares and financial instruments in Singapore are generally not taxable, and profits from buying and selling shares or other financial instruments, including digital tokens, are generally viewed as personal investments; gains from “trading in properties” may be taxable), https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments. ↩
Einkommensteuergesetz (EStG) § 19(1) no. 1 (income from dependent work includes salaries, wages, gratuities and other emoluments and benefits for employment), https://www.gesetze-im-internet.de/estg/__19.html; EStG § 32a(1) (top marginal rate of 45 percent), https://www.gesetze-im-internet.de/estg/__32a.html. ↩
Código do IRS (CIRS) art. 10(1)(k) (onerous disposal of crypto-assets that are not securities is a capital gain), art. 10(22) (gains and losses on crypto-assets held for a period of 365 days or more are excluded), art. 10(23) (no taxation where the consideration takes the form of crypto-assets, the assets received taking the acquisition value of those delivered), art. 10(24) (the two exclusions do not apply where the taxpayer or the payer is not resident in an EU or EEA state or in a jurisdiction with a double-tax or tax-information-exchange agreement with Portugal), and art. 10(25) (loss of Portuguese tax residency is treated as an onerous disposal), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs10.aspx. ↩
CIRS art. 2(1)(a), (2), (3)(b) (rendimentos da categoria A: all remuneration from dependent work, including accessory remuneration, meaning all rights, benefits or advantages earned in connection with work that constitute an economic advantage for the beneficiary), art. 2(3)(b)(7)-(8) (gains from option, subscription or attribution plans over securities or equivalent rights, even of a notional nature, created for employees), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs2.aspx; CIRS art. 68(1) (general rates, reaching 48 percent above €86,634), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs68.aspx. ↩
Código do IRS (CIRS) art. 16(8)-(12) (the non-habitual resident provisions, each marked “Revogado” by Lei n.º 82/2023, de 29 de dezembro), https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx. ↩
17 U.S.C. § 101 (a “work made for hire” includes a work prepared by an employee within the scope of employment); 17 U.S.C. § 201(b) (in the case of a work made for hire, the employer is considered the author, and owns all of the rights comprised in the copyright unless the parties have expressly agreed otherwise in a written instrument signed by them). PDF PDF ↩
35 U.S.C. § 261 (applications for patent, patents, or any interest therein are assignable in law by an instrument in writing). PDF ↩
Cal. Lab. Code § 2870(a). PDF ↩
Cal. Lab. Code § 2872 (an employer requiring an invention-assignment provision must, at the time the agreement is made, provide written notification that the agreement does not apply to an invention qualifying under § 2870). PDF ↩ ↩²
See, e.g., 19 Del. C. § 805; 765 ILCS 1060/2(1); Minn. Stat. § 181.78, subd. 1; Wash. Rev. Code § 49.44.140(1). PDF PDF PDF PDF ↩
Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024); Ryan, LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024) (holding the rule unlawful and setting it aside under the APA, so that it shall not be enforced or otherwise take effect on September 4, 2024, or thereafter); FTC, “Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule” (Sept. 5, 2025) (dismissing its appeals in Ryan, LLC v. FTC, No. 24-10951 (5th Cir.), and Properties of the Villages v. FTC, No. 24-13102 (11th Cir.), by a 3-1 vote), https://www.ftc.gov/news-events/news/press-releases/2025/09/federal-trade-commission-files-accede-vacatur-non-compete-clause-rule. PDF PDF ↩
Cal. Bus. & Prof. Code § 16600(a)-(b)(1); Cal. Bus. & Prof. Code § 16600.5(a); Cal. Bus. & Prof. Code § 16601; Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008). PDF PDF PDF PDF ↩
N.D. Cent. Code § 9-08-06. PDF ↩
Okla. Stat. tit. 15, § 219A(A). PDF ↩
D.C. Code § 32-581.01 (definitions, including “highly compensated employee”); D.C. Code § 32-581.02(a)(1)-(2); D.C. Department of Employment Services, Office of Wage-Hour, Public Notice, “District of Columbia Prohibition on Non-Compete Clauses” (restriction applies to employees earning less than $162,164 and medical specialists earning less than $270,274), https://does.dc.gov/sites/default/files/dc/sites/does/publication/attachments/2026%20Ban%20on%20Non-Compete%20Clauses.pdf. PDF PDF ↩
Colo. Rev. Stat. § 8-2-113(2)(a)-(b), (2)(c)(II), (4)(a); see also § 8-2-113(3) (covenants excepted from subsection (2), including a covenant tied to the purchase and sale of a business or an ownership share received as equity compensation); Colorado Department of Labor and Employment, 2026 Publication and Yearly Calculation of Adjusted Labor Compensation (PAY CALC) Order, 7 CCR 1103-14 (highly compensated threshold $130,014 annually for 2026), https://cdle.colorado.gov/sites/cdle/files/adopted_2026_pay_calc_order_7_ccr_1103-14_12.8.25.pdf. PDF ↩
820 ILCS 90/10(a)-(b) (no covenant not to compete unless the employee’s actual or expected annualized earnings exceed $75,000, rising to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037; no covenant not to solicit unless they exceed $45,000, rising to $47,500 in 2027, $50,000 in 2032, and $52,500 in 2037). PDF ↩
Mass. Gen. Laws ch. 149, § 24L(b)(iv), (vii) (restricted period not to exceed 12 months from cessation of employment, extendable to 2 years where the employee breached a fiduciary duty or unlawfully took, physically or electronically, employer property; agreement must be supported by a garden leave clause or other mutually agreed consideration specified in the agreement). PDF ↩
Or. Rev. Stat. § 653.295(1)(e), (3); Oregon Bureau of Labor and Industries, “Noncompetition Agreements” (minimum amount to exceed: $116,427 for 2025 and $119,541 for 2026), https://www.oregon.gov/boli/employers/pages/noncompetition-agreements.aspx. PDF ↩
Wash. Rev. Code § 49.62.020 (version effective until June 30, 2027) (covenant void unless annualized earnings exceed $100,000, adjusted annually under § 49.62.040); Wash. Rev. Code § 49.62.020 (version effective June 30, 2027, enacted by 2026 c 149, § 4) (“all noncompetition covenants are void and unenforceable regardless of when the parties entered into the noncompetition covenant,” with employers required to make reasonable efforts to provide written notice to affected workers by October 1, 2027); Wash. Rev. Code § 49.62.040 (repealed effective June 30, 2027); Washington Department of Labor & Industries, “Non-Compete Agreements” (2026 employee threshold $126,858.83), https://lni.wa.gov/workers-rights/workplace-policies/non-compete-agreements. PDF PDF PDF PDF ↩
Kodiak Building Partners, LLC v. Adams, 2022 Del. Ch. LEXIS 288, at *7-8 (Del. Ch. Oct. 6, 2022) (Delaware courts review noncompete and nonsolicit provisions to ensure they are reasonable in geographic scope and temporal duration, advance a legitimate economic interest of the enforcing party, and survive a balancing of the equities, and are hesitant to blue-pencil overbroad covenants). PDF ↩
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (1999). PDF ↩
Tex. Bus. & Com. Code § 15.50(a). PDF ↩
Fla. Stat. § 542.335(1)(b)-(e). PDF ↩
Cal. Bus. & Prof. Code § 16600(b)(1) (section read broadly, in accordance with Edwards, to void any noncompete clause in an employment contract that does not satisfy an exception in this chapter, “no matter how narrowly tailored”); Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008) (holding invalid under § 16600 an agreement barring a former employee from soliciting clients of the firm’s Los Angeles office). PDF PDF ↩
18 U.S.C. § 1836(b)(1); Cal. Civ. Code § 3426.1(d) (defining “trade secret” for the California Uniform Trade Secrets Act, Civ. Code §§ 3426-3426.11). PDF PDF ↩
11 U.S.C. § 547(b)(4)(A). PDF ↩
17 C.F.R. § 240.10D-1(b)(1) (recovery policy requirements for listed issuers following an accounting restatement). PDF ↩
29 U.S.C. § 2101(a)(1)-(3); 20 C.F.R. § 639.3(a)(1)(i)-(ii), (b), (c)(1); Cal. Lab. Code § 1400 (short title); Cal. Lab. Code § 1400.5(a) (“Covered establishment”: 75 or more persons within the preceding 12 months), (d) (“Mass layoff”: 50 or more employees at a covered establishment during any 30-day period). PDF PDF PDF PDF ↩
29 U.S.C. § 2102(a); Cal. Lab. Code § 1401(a) (version effective until January 1, 2027; the version effective January 1, 2027 carries the same 60-day requirement). PDF PDF PDF ↩
29 U.S.C. § 2104(a)(1). PDF ↩
Cal. Lab. Code § 2810.5(a)(1), (b). PDF ↩
Cal. Lab. Code § 226(a). PDF ↩
Cal. Lab. Code § 512(a); Cal. Lab. Code § 226.7(b)-(c) (version effective until January 1, 2027) (an employer shall not require an employee to work during a mandated meal, rest, or recovery period, and shall pay one additional hour of pay at the regular rate for each workday a period is not provided). PDF PDF PDF ↩
Cal. Lab. Code § 2802(a). PDF ↩
Cal. Lab. Code § 246. PDF ↩
Cal. Civ. Code § 1798.140(d)(1)(A)-(C). PDF ↩
8 Del. C. § 157(a), (b) (subject to any provisions in the certificate of incorporation, a corporation may create and issue rights or options; they are issued in the numbers, at the times, and for the consideration set forth in a board resolution, on terms stated in the certificate of incorporation or in a board resolution); I.R.C. § 422(b)(1), 26 U.S.C. § 422(b)(1) (an incentive stock option must be granted under a plan approved by the stockholders of the granting corporation within 12 months before or after the date the plan is adopted). PDF PDF ↩
8 Del. C. § 132(a) (every corporation shall have and maintain a registered agent in Delaware); 8 Del. C. § 501(a) (every corporation incorporated under Delaware law, other than an exempt corporation and the other corporations the section excepts, pays an annual franchise tax); 8 Del. C. § 502(a) (annual franchise tax report due on or before March 1). PDF PDF PDF ↩

Web3 Employment & Crypto Compensation: Equity, Tokens, and Tax

The Web3 Compensation Advantage: Equity Plus Tokens

Employee vs. Contractor: Classification Matters

IRS Common Law Test

California’s ABC Test (the State-Law Question)

Multi-State Implications

Best Practice Recommendations

Equity Compensation: Stock Options and RSUs

Stock Options vs. RSUs

409A Valuations: The Hidden Cost

Practical Equity Structuring

Token Grants and Vesting: The Crypto Component

Structuring Token Compensation

Token Grant Mechanics

Securities Law Considerations

Tax Treatment of Token Compensation: What Employees Owe

Timing of Taxation

Withholding Obligations

Capital Gains on Sale

Estimated Tax Requirements

Tax Reporting

International Hiring: EOR Services and Compliance

Employer of Record (EOR) Services

Country-Specific Considerations

International Compliance Checklist

Offer Letters and Employment Agreements: Essential Provisions

Offer Letter Structure

Employment Agreement Provisions

IP Assignment and Non-Competes: State Law Variations

Intellectual Property Assignment

Non-Compete Agreements: Enforceability Landscape

Alternative Protective Measures

Termination and Clawbacks: Good Leaver / Bad Leaver Provisions

Termination Categories

Good Leaver / Bad Leaver Framework

Severance Considerations

Compliance Checklist by Jurisdiction

California Employers

Delaware Corporations (Common Jurisdiction)

Remote Employees (Multi-State)

International Employees

Token-Specific Compliance

Key Takeaways for Crypto Founders

Related Resources

When to Seek Legal Counsel

Footnotes

Stay Informed on Digital Asset Law

Chanté Eliaszadeh

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Web3 Employment & Crypto Compensation: Equity, Tokens, and Tax

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Equity Compensation: Stock Options and RSUs

Stock Options vs. RSUs

409A Valuations: The Hidden Cost

Practical Equity Structuring

Token Grants and Vesting: The Crypto Component

Structuring Token Compensation

Token Grant Mechanics

Securities Law Considerations

Tax Treatment of Token Compensation: What Employees Owe

Timing of Taxation

Withholding Obligations

Capital Gains on Sale

Estimated Tax Requirements

Tax Reporting

International Hiring: EOR Services and Compliance

Employer of Record (EOR) Services

Country-Specific Considerations

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