Gig Regulation Is Here: What Karnataka's Law Means For Platform Strategy

The Karnataka Platform-Based Gig Workers (Social Security and Welfare) Ordinance, 2025 is the first enforceable attempt by a state government to regulate digital platform labour through statutory mandates.

It was notified on May 27, with compliance expected by August. The Ordinance imposes a welfare fee of 1% to 5% on the value of platform-mediated transactions. It also mandates worker registration with the state welfare board and introduces algorithmic transparency obligations.

This is not a policy suggestion. It is binding law with clear fiscal and operational consequences for platforms.

Until now, India's gig economy operated in a legal vacuum. It relied on flexible contracts, private codes of conduct and occasional labour department circulars. Karnataka's move changes that. It introduces enforceable rights and duties. The law does not classify gig workers as "employees".

But it places platforms under binding welfare obligations. This is distinct from voluntary schemes like Ayushman Bharat or private insurance tie-ups. It is a statutory welfare model funded through a transaction-based levy.

The 1% to 5% welfare fee is charged on gross transaction value. Not net profit. This makes it significant for platforms that run on thin margins. Passing the cost entirely to workers would undermine the law's intent. Absorbing the cost could damage business sustainability. That leaves a third option. Platforms may partially redistribute it across margins, consumer pricing and platform commissions. They are likely to revise commission slabs, service fees, and discounting policies.

But any change must be transparent. Otherwise, platforms may face claims under the Consumer Protection Act, 2019, especially around "unfair trade practices". Any alteration in a worker’s earnings model must also comply with Sections 16 and 19A of the Indian Contract Act, 1872. These sections address undue influence and voidability. Courts have often used them when interpreting one-sided digital contracts. Section 23, which relates to public policy, may also be invoked. Blanket changes could be challenged in court.

The Ordinance requires platforms to register each gig worker with the Karnataka Gig Workers Welfare Board. This is not a mere procedural task. It involves legal recognition and formalisation.

Platforms must link worker identity, onboarding data and banking details to a government portal. Aadhaar authentication is expected. This is not just data collection. It is legal structuring. Courts may interpret it as evidence of a quasi-employment relationship in future litigation.

All documentation — terms, rates and incentives — must be provided in accessible language. Kannada and English are preferred. The Supreme Court has consistently required informed consent in labour documentation, particularly for vulnerable workers.

The platform must collect and remit the fee to the state welfare fund. This will likely be done monthly or quarterly. To ensure compliance, platforms must build automated ledger systems.

These systems must calculate contributions and maintain audit trails. While the Ordinance does not mention a Payment and Welfare Fee Verification System by name, such a system is functionally necessary. It will help track compliance and satisfy future audits. Failure to remit may attract penalties and interest. These will be notified through delegated rules. Real-time reconciliation will be essential for legal defence and reputation management.

The Ordinance requires platforms to disclose how their algorithms assign tasks, rate workers, calculate incentives, or decide deactivation. This aligns with global trends promoting Explainable AI (XAI). Algorithms must be intelligible to those impacted by them.

Platforms may need to publish simple summaries and allow workers access to decision logs. Opaque systems that deny work or reduce income without explanation could face legal action. Courts may apply natural justice principles or interpret such practices as violations of livelihood rights. The Ordinance mandates disclosure. However, specific penalties for non-compliance are yet to be prescribed.

These will likely be detailed in delegated legislation. Setting up a grievance redressal mechanism is not yet mandatory. But it is a prudent safeguard. A neutral, well-documented grievance process can help pre-empt disputes.

Rajasthan passed a similar law in 2023. But it lacked enforcement teeth. The Code on Social Security, 2020 also recognises platform workers under Section 2(35). However, it has not been operationalised. Karnataka's Ordinance is the first law with real enforceability. Other states, including Maharashtra and Tamil Nadu, are expected to follow.

Legal and compliance teams should prepare for multi-state variations. They must build backend systems that can adapt to different rules, languages and timelines.

This is not just a legal compliance issue. It is a shift in governance. Labour regulation is expanding into the platform economy. It must now be factored into business models at the board level. There are also cultural implications. Worker management must be treated as a core part of platform strategy. Not just a backend process.

The era of unchecked scale is over. The next phase will be defined by structure. Karnataka's Ordinance is a signal. The rest of India is watching.

Rishabh Gandhi is an arbitration lawyer and a former judge. He heads a law firm, Rishabh Gandhi and Advocates.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.