The Legal Battle That Could Reshape India’s Gig Economy

“…the amount is not being demanded by the state as a charity. It is demanded in terms of promulgation of a legislation… Therefore… the amount of the second quarter shall be deposited with this court within three weeks from today.”

With these observations, the Karnataka High Court refused to stay the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Act, 2025 earlier this week, directing platform aggregators to deposit the disputed welfare contribution with the court registry while the constitutional challenge proceeds.

The interim order marked the latest chapter in what could become one of the most consequential legal battles over India’s gig economy. At stake is not merely a 1% welfare contribution but a larger question: Can states build and enforce their own social security framework for gig workers before the Centre operationalises its own?

The dispute stems from the Karnataka Platform-Based Gig Workers Act, which came into force last year after months of stakeholder consultations. Earlier this year, the state began implementing the law by constituting the Welfare Board, notifying the welfare contribution, and issuing compliance notices to platform companies.

In response, the Internet and Mobile Association of India (IAMAI), along with Eternal, Swiggy, Zepto, Urban Company, and Meesho’s logistics arm Valmo, moved the Karnataka HC, challenging not only the Act but also the accompanying Rules, the constitution of the Welfare Board, the welfare contribution notification and the subsequent compliance notices.

The companies contend that Karnataka’s legislation occupies a field already covered by the Centre’s Code on Social Security, 2020, which recognises gig and platform workers and empowers the Union government to frame welfare schemes for them. According to the petitioners, the state law is “repugnant” to the central legislation and is therefore “unconstitutional”.

During the hearing, Justice M. Nagaprasanna acknowledged that the case raises an important constitutional question. While observing that Parliament had already legislated in the area, the HC also questioned if a state could nevertheless improve upon the Centre’s welfare framework.

“On a peripheral examination, it does look like it runs repugnant. The field is occupied by the Government of India. But if that’s only a foundation and the state can improve upon the welfare of the gig workers… whether it’s permissible or not?” the court observed, according to Live Law. 

At the same time, it questioned the platforms’ resistance to the welfare contribution, observing that gig workers deserve stronger social protection if the funds ultimately reach them.”… Don’t these delivery boys deserve something like this?”

Queries sent by Inc42 to IAMAI, Swiggy, Zepto, Zomato, Urban Company, and Valmo remained unanswered till the time of publication. 

Code On Social Security Vs Karnataka’s Law

To understand the dispute, it is important to examine how Karnataka’s law differs from the Centre’s framework.

The Code on Social Security, 2020, marked India’s first attempt to formally recognise gig workers and platform workers within the country’s social security architecture. It empowers the Centre to frame welfare schemes covering life and disability cover, accident insurance, health and maternity benefits, old-age protection and other social security measures. 

The Code also requires aggregators to contribute between 1% and 2% of their annual turnover towards gig worker welfare, subject to an overall cap linked to payouts made to workers. However, while the Code establishes the legal framework, the Centre is yet to operationalise dedicated welfare schemes for gig workers.

Karnataka’s Platform-Based Gig Workers Act adopts a different approach. Instead of waiting for the Centre to roll out its welfare framework, the law established a state-level Welfare Board and Welfare Fund, mandated the registration of workers and platforms, and provided for grievance redressal and other worker protection measures.

The most significant departure, however, lies in the funding mechanism. Instead of linking contributions to an aggregator’s annual turnover, Karnataka has opted for a transaction-based welfare contribution ranging from 1% to 5% of the amount paid to a gig worker. 

For now, the state has fixed the contribution at 1% for food delivery and ride-hailing platforms, subject to transaction-wise caps, with payments to be made every quarter.

The Constitutional Question

The dispute, however, extends far beyond the 1% welfare contribution. At its core lies a constitutional question – Can Karnataka’s gig worker welfare framework coexist along with the Centre’s Code on Social Security, 2020, or does it impermissibly overlap with the central law?

The answer is likely to come from Article 254 of the Constitution, which governs inconsistencies between central and state laws on subjects in the Concurrent List.

According to Sohini Mandal, founder of Nilaya Legal, the key issue is if the Code on Social Security provides an exhaustive framework for gig workers or merely lays the foundation on which states can build.

“If the Court concludes that the Code on Social Security and the rules thereunder provide an exhaustive scheme for gig workers, the doctrine of “occupied field” would apply. However, since the Karnataka law specifically references the Code, including under Section 20(5), it can also be argued that it merely supplements the central law and is therefore not repugnant,” she said

Labour and social security fall under the Concurrent List, allowing both the Centre and states to legislate on the subject. While Rajasthan has already enacted a dedicated law for gig workers and Telangana has proposed a similar framework, Karnataka is the first state to move beyond legislation by constituting a Welfare Board, notifying a welfare contribution, and issuing compliance notices to platform companies. 

This makes the present case the first major judicial test of whether a state-level gig worker welfare regime can coexist with the Centre’s Code on Social Security. 

Legal experts, however, say the litigation also highlights a broader policy vacuum. Although the Code on Social Security, 2020, recognises gig and platform workers and envisages welfare schemes for them, the Centre is yet to operationalise those provisions.

Mayank Arora, a Delhi-based lawyer and partner at Chambers of Bharat Chugh, said Karnataka’s legislation was an attempt to fill this gap rather than wait for a national framework.

“The central government said there will be a scheme made for gig workers… But the scheme still has not come. Karnataka went ahead and created something. They passed their own Act for the welfare of gig and platform workers,” he said.

According to Arora, the dispute escalated only after Karnataka moved from legislation to implementation. Beyond the 1% levy, he said the bigger concern for businesses is the possibility of multiple states adopting similar contribution mechanisms before the Centre rolls out a uniform framework.

For companies operating across India, this could eventually mean complying with different welfare boards, contribution mechanisms, and regulatory requirements across states.

The Profitability Dilemma

The legal battle is not only about who has the authority to regulate gig worker welfare but also about who ultimately bears the cost.

Food delivery and ride-hailing businesses continue to operate on razor-thin margins, while quick commerce players such as Blinkit, Instamart and Zepto remain locked in an expensive race to expand dark store networks, strengthen logistics, and acquire customers. 

Against this backdrop, the additional statutory contribution has emerged as a fresh cost that platforms argue could materially affect their path to profitability. For the platforms, the concern extends beyond the headline 1% levy. They argue that the cumulative impact of the contribution across millions of transactions could materially increase operating costs. 

Appearing for the petitioners before the Karnataka HC, senior advocate Dhyan Chinnappa argued that requiring companies to deposit the welfare contribution with the court, instead of furnishing a bank guarantee, would adversely affect their profit-and-loss statements. Even a seemingly modest levy, he argued, becomes significant when multiplied across millions of transactions.

Drawing a parallel with Amazon’s early years, Chinnappa submitted, “When Amazon started aggregation, it did not make a single rupee for the first 10-15 years. It lost money on every single order. That is the case with every aggregator until a certain point when they possibly can make money.”

The HC, however, appeared unconvinced. Rejecting the request to furnish an unconditional bank guarantee, Justice Nagaprasanna observed that the welfare contribution is being demanded under a validly enacted law and not “as a charity”.

The Cost Of Social Security 

Beyond the constitutional questions and legal interpretations, the litigation has also reignited a broader debate over who should bear the cost of extending social security to India’s gig workforce.

Platform companies have long maintained that delivery partners and drivers are independent contractors who value flexibility over traditional employment. They argue that imposing employer-like obligations on them could fundamentally alter the economics of a business model that continues to operate on thin margins.

Gig worker unions, meanwhile, have criticised the legal challenge, arguing that it delays welfare protections for workers who have long remained outside the formal social security net.

Alok Prasanna Kumar, cofounder of the Vidhi Centre for Legal Policy, who was involved in drafting the Karnataka Platform-Based Gig Workers Act and its accompanying rules, argued that the litigation is driven less by constitutional concerns than by the financial implications of the welfare contribution. 

“This is not a constitutional challenge. This is pure and simple a business issue for the companies,” he said.

Prasanna also rejected suggestions that platforms were caught off guard by the legislation, noting that they participated in stakeholder consultations for months before the law came into force. “They can’t now come and say we had no idea this was happening.”

According to him, the dispute ultimately boils down to who should pay for gig worker welfare. “Their fundamental business model is being affected by this. You cannot say, “I will run a profitable business by exploiting workers and violating all the laws and depriving people of basic human dignity”.”

The Karnataka HC’s final ruling will decide more than the fate of one state law. It could clarify the extent to which the states can design and enforce their own gig worker welfare frameworks alongside the Centre’s Code on Social Security. 

With several states already exploring or enacting similar legislation, the judgment could also influence whether they introduce their own welfare contribution mechanisms for platform companies.

Whatever the outcome, the case is likely to set an important precedent for how India balances platform innovation with social security obligations for the rapidly growing gig economy. The Karnataka government has been directed to file its statement of objections by July 30, while the matter is listed for further hearing on August 14.

Edited by Vinaykumar Rai
Creatives by Varshita Srivastava

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