After someone mentioned a clue in the CE discord, I realized it’s related to smart object slots.
So to reproduce it you have to have a dedicated server with the setting that makes characters persist in the world when logged out (this is why I couldn’t reproduce it in the devkit)
The steps are:
- Use a smart object like a Bed
- Log out while locked into the smart object slot
- Log back in and get out of the slot
- Equip a tool
- Swing the tool
- Try to jump
The result is what’s shown in the above video, essentially what’s happening is some of the restrictions applied to the character when inside the smart slot will persist and don’t get properly cleared after logging back in.
(it’s why I couldn’t even change weapons the very first time as there’s a player weapon change disabled sof on them)
Bottom line, it’s been most likely happening to players who logged out “sleeping” in their beds 
- In the meantime, don’t do that people!