Gig worker unions in Karnataka are seeking the immediate distribution of welfare benefits funded by the 2025 Act. While the law is in effect, major delivery platforms have challenged it in the High Court, leading to welfare fees being held in a court registry instead of the state's welfare fund. Investors should track this legal standoff as it carries potential financial and regulatory implications for platform companies.
Worker unions in Karnataka are increasing pressure on the state government to unlock welfare benefits for gig workers. Under the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Act, 2025, delivery and transport platforms are required to contribute at least 1% of their payouts to a welfare fund. Unions are now demanding that the state government move past the collection phase and begin distributing tangible support, such as health insurance, maternity benefits, and accident coverage, for the approximately seven lakh gig workers in the state.
While the demand for benefits is urgent, the actual distribution of funds is stalled due to a significant legal dispute. Major platform companies, including Zomato, Swiggy, Zepto, and Uber, have challenged the constitutional validity of the 2025 Act in the Karnataka High Court. The companies argue that the state legislation conflicts with the central Code on Social Security, 2020, a legal principle known as the doctrine of repugnancy. Because the central government's code also covers social security for gig workers, the platforms contend that the state's additional fee structure creates a double-compliance burden and is legally inconsistent with federal law.
The Karnataka High Court has not issued a stay on the Act, meaning the law remains operational for now. However, to balance the interests of both sides while the case is ongoing, the court has allowed companies to deposit the mandatory 1% welfare fee into the court registry instead of transferring it directly to the state's welfare fund. This means the money is being collected and secured but is effectively locked in a legal escrow, preventing the government from accessing the funds to pay out the benefits that the unions are demanding.
For investors, this situation represents a period of regulatory and financial uncertainty. Platform companies are currently making these deposits to remain compliant with court orders, but the final liability remains unsettled. If the courts eventually uphold the state Act, the money will likely be transferred to the government fund, and companies will continue the current payment model. Conversely, if the Act is struck down or modified significantly due to the conflict with central laws, it could lead to changes in operational costs or a refund of deposited amounts. Additionally, the state government has already operationalized a grievance redressal mechanism for gig workers as of May 1, 2026, indicating that regulatory infrastructure is moving forward despite the financial dispute.
Investors should monitor future High Court hearings for updates on the constitutionality of the Act. Any court direction regarding the release of funds from the registry or a final ruling on the conflict between state and central legislation will be the next major trigger for determining the long-term financial impact on these platform companies.