Smart Labor Contracts – A Vision for the Future 

What I am about to describe is currently not possible in most jurisdictions due to legal and regulatory reasons. However, this does not mean we should not explore the potential of the idea for future use.

What if I employment contracts could be automated in smart contracts and executed autonomously? Would this result in any benefits for the workforce? Would workers be more or less protected? What are the potential implications for the employers?

Labor Contracts

Labor contracts are legal documents formalizing the relationship between employer and employee. These contracts, signed by both parties stipulate the conditions of the agreement in terms of commitments from both parties, including the duration of the engagement, responsibilities of the employee, working hours, financial compensation, and termination conditions.

Traditionally, labor contracts are documents prepared with the involvement of lawyers or are based on lawyer prepared templates. Enforcement and verification of contract conditions are performed manually. For example, for me to get paid on time, someone has to manually transfer money into my account. Okay, this can be automated, but I have no way of enforcing this, without taking legal action.

Smart Labor Contract

Blockchain technology provides the means to execute smart contracts in a secure and transparent environment. The following figure shows a hypothetical architecture for a smart contract-based employment platform:

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Employers are connected to Employees via a computerized employment platform. The platform uses an underlying blockchain to manage labor contracts of different types in smart contracts, including the example shown here (long-term, short-term and hourly freelance contracts).

When a new contract is first created on the blockchain, it is generated from a template by a smart contract that acts as a factory contract. The factory contract receives some basic parameters from the employment platform. This way of creating a contract is the equivalent of filling in lawyer provided template contracts.

A payment smart contract, also deployed on the blockchain, may be used to automate salary payments between the employers and employees. To this end, both parties are issued with a cryptocurrency wallet.

Advantages

The main advantages resulting from implementing labor contracts in smart contracts are related to automation. The automated payment system ensures contract conditions are enforced, as long as sufficient funds are available, protecting employees and contractors.

Additional automation is possible by integrating the smart contracts with external systems, such as hour tracking systems, social security system (interfacing with public authority APIs), compensation schemes, IT system user management, and physical access control.

This benefits both, employees and employers. It is easy to see how automated payment and transparent social security integration protects employees.

From an employer’s point of view, automatic revocation of access to installations and IT systems on contract termination provides added security. Both sides can benefit from integration with systems, such as hour tracking.

Not yet a Legal Instrument

As stated above, smart contracts are currently not accepted as legal contracts in most jurisdictions. However, this should not stop us from considering them as automation tools used in combination with traditional labor contracts.

 

 

 

 

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Dr. Stefan Beyer
Dr. Stefan Beyer is editor-at-large at BlockTelegraph and a Blockchain consultant and smart contract auditor. He graduated from the University of Manchester in 2001 with a degree in Computer Science and obtained a Ph.D. in 2004 from the same university with the title “Dynamic Configuration of Embedded Operating Systems”. Since then he has worked in computer science research in distributed systems, fault tolerance, ubiquitous computing and cyber security. He is currently working as head of research and development for a medium-sized cyber security company in Spain.

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