Poovayya & Co

India’s gig economy is driven by app-based platforms in sectors such as ride sharing, food delivery, logistics, and e-commerce and has rapidly grown over the past decade, offering flexibility but also precariousness. As gig workers (intentionally) fall outside traditional employment protections, Indian states have in the recent past begun legislating to fill this void. Telangana and Karnataka have both introduced draft bills to regulate the rights, welfare, and social security of gig and platform workers and the Government of Karnataka has passed the Karnataka Platform Based Gig Workers (Social Security and Welfare) Ordinance, 2025, (the “Karnataka Ordinance”) with the Governor’s assent. This article examines and compares the key features of these legislative efforts, analysing their potential impact on companies, gig workers, aggregators, and the broader labour ecosystem. Overview of the Telangana Draft Bill (2025) The Telangana Gig and Platform Workers (Registration, Social Security and Welfare) Bill, 2025 (the “Telangana Bill”) seeks to provide social security measures, employment and service conditions, safety, health and welfare measures for gig and platform workers. Key features include: Comprehensive Scope: The Telangana Bill covers all aggregators, platforms, and gig workers operating in or providing services in Telangana, regardless of their headquarters or the worker’s work duration. Establishment of a Welfare Board: A Telangana Gig and Platform Workers Welfare Board is to be constituted, comprising state officials, platform representatives, gig workers, and civil society actors. This Board is intended to oversee the registration of workers, manage a welfare fund, and implement social security schemes. Welfare Fund and Fee: A dedicated Social Security and Welfare Fund will be financed through a ‘Welfare Fund Fee’ of 1–2% of each transaction, payable by platforms. The fund can also receive grants from the Government and private donations. Mandatory Registration: Aggregators must register within 45 days of the Telangana Bill’s commencement and share periodic data on workers. Workers, in turn, receive a unique ID applicable across platforms. Worker Rights and Protections: The Telangana Bill provides for: (i) right to fair pay and timely disbursals; (ii) access to social security subject to a minimum transaction threshold; (iii) seven-day notice for terminations unless there is a safety concern; and (iv) transparency in algorithmic decision making and protection from algorithmic discrimination. Grievance Redressal and Dispute Resolution: A dedicated Grievance Redressal Officer and appellate authority are envisioned. Platforms with over 100 workers must set up an Internal Dispute Resolution Committee. Penaltiesband Compliance: Non-compliance can attract fines or imprisonment. Repeat offences are not compoundable beyond three instances. This legislation reflects Telangana’s intent to create a robust, data driven, and inclusive welfare architecture for the platform economy. From the perspective of gig platform companies, the Telangana Bill introduces the following additional costs and compliance requirements: The Telangana Bill mandates that all aggregators register with the designated Welfare Board within 45 days of commencement and submit worker-related data on a regular basis. It introduces a financial obligation in the form of a Welfare Fund Fee, requiring aggregators to contribute 1–2% of the value of each transaction. Platforms engaging more than 100 workers will be required to establish internal dispute resolution mechanisms to address worker grievances effectively. Further, aggregators must implement key operational safeguards, including fair pay practices, clearly defined termination protocols with minimum notice periods, and transparency in algorithmic decision-making. Non-compliance with these obligations may result in significant penalties, including imprisonment and restricted access to compounding for repeat offences. Karnataka’s Ordinance (2025): An Aligned but Distinct Approach The Government of Karnataka has passed the Karnataka Ordinance with the Governor’s assent and the Karnataka Ordinance shares several similarities with Telangana Bill but also includes distinctive features: Registration and Identification: Like the Telangana Bill, the Karnataka Ordinance mandates the registration of gig workers and assigns them unique IDs. Aggregators must also register with the Karnataka Gig Workers Welfare Board. Welfare Fund and Cess: Karnataka introduces a welfare cess between 1% and 5% on every transaction or payout, a more expansive range than Telangana’s capped 2% fee. This is aimed at ensuring adequate contributions to the welfare fund. Similar to the Telangana Bill the fund can also receive grants from the Government and private donations. Worker Portability: A standout provision in the Karnataka Ordinance is portability of benefits, allowing workers to retain social security entitlements even when switching platforms. This protects against fragmentation of welfare coverage. Contract Clarity and Data Rights: Contracts must be clear and accessible, with changes permitted only with 14 days’ notice. Platforms must disclose how data and automated systems impact workers’ conditions and earnings, similar to the transparency obligation in the Telangana Bill. Occupational Health and Income Security: Karnataka mandates weekly payouts and enforces safety standards. It also prohibits adverse action based on ratings alone. Grievance Redressal and Dispute Resolution: A Grievance Redressal System and platform specific dispute committees (for platforms with more than 50 workers) are compulsory. From the perspective of gig platform companies, the Karnataka Ordinance introduces the following additional costs and compliance requirements: The Karnataka Ordinance introduces a range of compliance obligations and cost implications that are more stringent than those under the Telangana framework. Most notably, it imposes a higher financial burden in the form of a welfare cess ranging from 1% to 5% on each transaction or payout, exceeding the 2% cap prescribed in Telangana. Companies are required to mandatorily register both aggregators and gig workers with the state’s Welfare Board, with each worker to be assigned a unique identification number. The Karnataka Ordinance also lowers the compliance threshold for establishing internal dispute resolution mechanisms, making it mandatory for platforms engaging more than 50 workers compared to 100 in Telangana. Further, companies must revise existing contracts to ensure greater clarity and transparency, particularly in algorithmic processes, and are required to provide a minimum of 14 days’ notice for any contractual modifications. Additional obligations include mandating weekly payouts, enforcing safety standards, and prohibiting adverse actions based solely on worker ratings. Comparative Analysis Both the Telangana Bill and Karnataka Ordinance share a common intent: to bring platform-based gig workers under a formal social security framework without altering their legal classification as independent contractors. However, their approaches differ in both scope and detail. Welfare Contributions and Financial Architecture: The Telangana Bill mandates a Welfare Fund Fee between 1% and 2% of each payout made to gig workers, collected quarterly by platforms and deposited into a State administered welfare fund. The Karnataka Ordinance, in contrast, adopts a broader approach by imposing a welfare cess ranging from 1% to 5%, resulting in a significantly higher potential cost burden for platforms. While this entails a larger financial outlay for companies operating in Karnataka, it also allows the State greater flexibility to design and deliver more robust social security measures for gig workers as the sector grows. Transparency and Algorithmic Accountability: On transparency, the Telangana Bill mandates that aggregators provide information in simple language regarding automated monitoring systems, including their influence on wages, ratings, and access to work. It also requires that workers be protected from algorithmic discrimination. The Karnataka Ordinance mirrors this concern by requiring platforms to disclose contract terms, data usage policies, and the effects of automated systems on working conditions, with mandatory 14-day notice for contract changes. In both cases, the emphasis is on algorithmic transparency. Worker Protections and Termination Safeguards: The Telangana Bill explicitly incorporates safeguards against arbitrary termination, requiring a seven-day prior notice and a valid reason unless there is an immediate threat to consumer safety. The Karnataka Ordinance is less prescriptive in its termination provisions compared to Telangana but requires fair and transparent contract terms, and explicitly prohibits adverse action based solely on worker ratings. While this offers platforms greater flexibility in structuring disengagement protocols, it still imposes constraints that require clear justification and documentation for any termination decisions. This difference suggests Telangana offers more specific procedural protections, while Karnataka allows broader interpretation within contractual frameworks. Grievance Redressal and Dispute Mechanisms: Both states require a two-tier grievance redressal mechanism. Telangana mandates the appointment of a Grievance Redressal Officer and requires platforms employing over 100 workers to establish an Internal Dispute Resolution Committee. In contrast, Karnataka lowers this threshold to 50 workers, thereby expanding the number of platforms that must set up such committees. For companies, this translates into an earlier compliance trigger and increased operational responsibilities in Karnataka. The time bound nature of dispute resolution (30 days) is common to both, reinforcing procedural accountability. Portability and Continuity of Benefits: A notable innovation in the Karnataka Ordinance is the inclusion of benefit portability, allowing workers to retain accumulated social security entitlements even when switching between platforms. The Telangana Bill is silent on this front. Karnataka’s recognition of platform fluidity and its effort to create seamless benefit continuity is particularly suited to the realities of gig work, where multi-platform participation is common. However, this provision introduces additional compliance costs for companies, as platforms will be required to track contributions, coordinate data sharing across platforms, and ensure continuity of benefits necessitating upgrades to HR, payroll, and data systems. In sum, while both the Telangana Bill and Karnataka Ordinance demonstrate strong efforts to regulate the gig economy, their differing approaches have direct implications for companies operating in these States. Conclusion The Telangana Bill and the Karnataka Ordinance signals a paradigm shift in the regulatory treatment of India’s gig economy. They offer institutional recognition to a growing workforce that has long operated in legal grey zones, and attempt to craft a nuanced, inclusive, and tech forward framework for their welfare. While questions remain around implementation logistics and alignment with national regulations, the Telangana Bill and the Karnataka Ordinance establish important precedents that companies must prepare to navigate. If implemented clearly and consistently, they could become models for other States and eventually a national framework, requiring companies to proactively adapt their policies and operations to remain in compliance. Siddhartha George, Partner: [email protected] Bilal Lateefi, Principal Associate: [email protected] Disclaimer: The information provided in this document is solely for general interest and information and is not intended to constitute legal advice and therefore should not be relied upon in any manner. The sending/sharing of this document does not create an attorney-client relationship between Poovayya & Co. and the recipient. For more specific comprehensive and up-to-date information or for legal advice and assistance, you should seek the opinion of legal counsel. Reproduction, distribution and/or republication of this document or the content of this document is prohibited unless you have obtained prior written permission from Poovayya & Co.

In Vijaya Bank and Another vs Prashant B Narnaware[1] a division bench of the Hon’ble Supreme Court of India has upheld the validity of a clause in an appointment letter requiring an employee to pay Rupees Two Lakh (INR 2,00,000/-) as liquidated damages if he resigned before completing three (3) years of service. The Court held that the clause did not amount to restraint of trade under Section 27 of the Indian Contract Act, 1872 (the “Contract Act”), nor was it opposed to public policy under Section 23 of the Contract Act. The Hon’ble Supreme Court overturned the Hon’ble Karnataka High Court’s decision which had quashed the clause and directed the bank to refund the amount to the respondent-employee. Background In 2007, Vijaya Bank (now part of Bank of Baroda) issued a recruitment notification for managerial posts which required selected candidates to sign an indemnity bond agreeing to serve the bank for a minimum of three (3) years, failing which they would be required to pay Rupees Two Lakh (INR 2,00,000/-) as liquidated damages. The respondent, then already working as a Manager (MMG-II) in the same bank, applied for and was selected to the post of Senior Manager (MMG-III). He accepted the terms, resigned from his previous role, signed the indemnity bond, and joined the new post. However, before completing the stipulated three (3) year period, he tendered resignation to join another bank. The resignation was accepted, but the respondent paid Rupees Two Lakh (INR 2,00,000/-) under protest. Subsequently, he approached the Hon’ble Karnataka High Court, challenging clause 11(k) of the appointment letter as unconstitutional and violative of the Contract Act. The Hon’ble High Court ruled in his favour, relying on a Division Bench decision of the Hon’ble Karnataka High Court in K.Y. Venkatesh Kumar v. BEML Ltd.[2] (the “BEML Case”), and directed the bank to refund the amount. Aggrieved by the decision of the Hon’ble Karnataka High Court, Vijaya Bank appealed the order before the Hon’ble Supreme Court. Issues Before the Supreme Court The Supreme Court was called upon to determine: Whether clause 11(k), requiring a minimum service period or payment of Rupees Two Lakh (INR 2,00,000/-), constituted a restraint of trade under Section 27 of the Contract Act; Whether such a clause was unconscionable or opposed to public policy under Section 23 of the Contract Act; and Whether such a clause is violative of Articles 14 and 19 of the Indian Constitution. Restraint of Trade The Hon’ble Supreme Court categorically held that the clause did not restrain trade or employment. Citing Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co[3]. and Superintendence Co. v. Krishan Murgai[4], the Hon’ble Supreme Court reiterated that negative covenants operating during the term of employment are not hit by Section 27 of the Contract Act. The Hon’ble Supreme Court held that a clause stipulating continued employment or payment of damages in case of breach is not a restriction on future employment, but a mechanism to ensure contractual compliance during the employment term. Accordingly, clause 11(k) was held to be a reasonable contractual safeguard, not a restraint on trade. Public Policy and Unequal Bargaining Power The respondent contended that clause 11(k) was part of a standard form contract and imposed under conditions of unequal bargaining power. He argued that he had no meaningful choice but to accept the term, which was unreasonable and contrary to public policy. The Hon’ble Supreme Court, however, took a nuanced view. Referring to Central Inland Water Transport Corp. v. Brojo Nath Ganguly[5], it acknowledged that standard form contracts entered under conditions of unequal bargaining power may be struck down if unconscionable. Nonetheless, it stressed that not every such clause would be invalid. In the present case, the Court held that the clause in question was not arbitrary, oppressive, or harsh. The obligation to serve for three (3) years or pay Rupees Two Lakh (INR 2,00,000/-) was disclosed upfront and voluntarily accepted by the respondent. Furthermore, the clause did not bar the employee from resigning entirely but only imposed a pre-agreed consequence for doing so prematurely. Rationale and Policy Considerations The Hon’ble Supreme Court recognised the rationale behind such clauses. In a liberalised and competitive banking environment, public sector banks like Vijaya Bank face challenges in talent retention. Recruitment involves substantial investment of time and money. Premature resignations impose both financial burdens and operational disruptions. The Hon’ble Supreme Court accepted the bank’s submission that the Rupees Two Lakh (INR 2,00,000/-) bond was a necessary deterrent against attrition and a safeguard to ensure return on investment in recruitment and training. It found the amount reasonable, especially considering the managerial rank and salary of the employee. Rejecting the High Court’s Reasoning The Hon’ble Karnataka High Court had relied on the BEML Case to hold the clause unenforceable. The Hon’ble Supreme Court distinguished the BEML Case precedent, noting that in the BEML Case, the clause imposed a restriction not just on duration of service but also on future employability. In contrast, clause 11(k) did not bar future employment and merely set conditions for early resignation. Further, the Hon’ble Karnataka High Court had failed to consider the financial implications and administrative costs incurred by the bank due to attrition. The Hon’ble Supreme Court emphasised that contractual clauses must be analysed in their specific factual and economic contexts, and blanket reliance on prior cases without such analysis was inappropriate. Analysis The judgment marks a significant reaffirmation of employers’ rights to include reasonable restrictions in employment contracts, particularly in sectors where attrition has substantial costs. By upholding a clause that links early resignation to liquidated damages, the Hon’ble Supreme Court has clarified that such clauses are not per se illegal or unconstitutional but must be evaluated in terms of reasonability and taking into account the surrounding circumstances. The ruling also rebalances the discussion on unequal bargaining power. While reiterating that unconscionable terms in standard form contracts are not enforceable, the Hon’ble Supreme Court indicated that not all standardised employment conditions are automatically unfair. It placed the burden on the employer to justify such terms, which Vijaya Bank successfully did in this case. The Hon’ble Supreme Court acknowledged that modern economic conditions necessitate contractual terms that might have once been viewed as restrictive but are now reasonable and necessary. Conclusion This judgment is likely to have far-reaching implications for employers, particularly in the public sector. It gives legal backing to employment bonds and service tenure clauses, provided they are reasonable, disclosed in advance, and proportionate in consequence. Employers would, however, be well advised to continue ensuring transparency, fairness, and proportionality in such contractual terms. Employees, on the other hand, must be mindful of the binding nature of terms they voluntarily accept at the time of joining. Siddhartha George, Partner: [email protected] Bilal Lateefi, Principal Associate: [email protected] Disclaimer: The information provided in this document is solely for general interest and information and is not intended to constitute legal advice and therefore should not be relied upon in any manner. The sending/sharing of this document does not create an attorney-client relationship between Poovayya & Co. and the recipient. For more specific comprehensive and up-to-date information or for legal advice and assistance, you should seek the opinion of legal counsel. Reproduction, distribution and/or republication of this document or the content of this document is prohibited unless you have obtained prior written permission from Poovayya & Co. [1] 2025 SCC OnLine SC 1107. [2] Karnataka HC DB in W.A. No. 2736/2009 disposed on 09.12.2009. [3] 1967 SCC OnLine SC 72. [4] (1981) 2 SCC 246. [5] (1986) 3 SCC 156.

In Vijaya Bank and Another vs Prashant B Narnaware[1] a division bench of the Hon’ble Supreme Court of India has upheld the validity of a clause in an appointment letter requiring an employee to pay Rupees Two Lakh (INR 2,00,000/-) as liquidated damages if he resigned before completing three (3) years of service. The Court held that the clause did not amount to restraint of trade under Section 27 of the Indian Contract Act, 1872 (the “Contract Act”), nor was it opposed to public policy under Section 23 of the Contract Act. The Hon’ble Supreme Court overturned the Hon’ble Karnataka High Court’s decision which had quashed the clause and directed the bank to refund the amount to the respondent-employee. Background In 2007, Vijaya Bank (now part of Bank of Baroda) issued a recruitment notification for managerial posts which required selected candidates to sign an indemnity bond agreeing to serve the bank for a minimum of three (3) years, failing which they would be required to pay Rupees Two Lakh (INR 2,00,000/-) as liquidated damages. The respondent, then already working as a Manager (MMG-II) in the same bank, applied for and was selected to the post of Senior Manager (MMG-III). He accepted the terms, resigned from his previous role, signed the indemnity bond, and joined the new post. However, before completing the stipulated three (3) year period, he tendered resignation to join another bank. The resignation was accepted, but the respondent paid Rupees Two Lakh (INR 2,00,000/-) under protest. Subsequently, he approached the Hon’ble Karnataka High Court, challenging clause 11(k) of the appointment letter as unconstitutional and violative of the Contract Act. The Hon’ble High Court ruled in his favour, relying on a Division Bench decision of the Hon’ble Karnataka High Court in K.Y. Venkatesh Kumar v. BEML Ltd.[2] (the “BEML Case”), and directed the bank to refund the amount. Aggrieved by the decision of the Hon’ble Karnataka High Court, Vijaya Bank appealed the order before the Hon’ble Supreme Court. Issues Before the Supreme Court The Supreme Court was called upon to determine: Whether clause 11(k), requiring a minimum service period or payment of Rupees Two Lakh (INR 2,00,000/-), constituted a restraint of trade under Section 27 of the Contract Act; Whether such a clause was unconscionable or opposed to public policy under Section 23 of the Contract Act; and Whether such a clause is violative of Articles 14 and 19 of the Indian Constitution. Restraint of Trade The Hon’ble Supreme Court categorically held that the clause did not restrain trade or employment. Citing Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co[3]. and Superintendence Co. v. Krishan Murgai[4], the Hon’ble Supreme Court reiterated that negative covenants operating during the term of employment are not hit by Section 27 of the Contract Act. The Hon’ble Supreme Court held that a clause stipulating continued employment or payment of damages in case of breach is not a restriction on future employment, but a mechanism to ensure contractual compliance during the employment term. Accordingly, clause 11(k) was held to be a reasonable contractual safeguard, not a restraint on trade. Public Policy and Unequal Bargaining Power The respondent contended that clause 11(k) was part of a standard form contract and imposed under conditions of unequal bargaining power. He argued that he had no meaningful choice but to accept the term, which was unreasonable and contrary to public policy. The Hon’ble Supreme Court, however, took a nuanced view. Referring to Central Inland Water Transport Corp. v. Brojo Nath Ganguly[5], it acknowledged that standard form contracts entered under conditions of unequal bargaining power may be struck down if unconscionable. Nonetheless, it stressed that not every such clause would be invalid. In the present case, the Court held that the clause in question was not arbitrary, oppressive, or harsh. The obligation to serve for three (3) years or pay Rupees Two Lakh (INR 2,00,000/-) was disclosed upfront and voluntarily accepted by the respondent. Furthermore, the clause did not bar the employee from resigning entirely but only imposed a pre-agreed consequence for doing so prematurely. Rationale and Policy Considerations The Hon’ble Supreme Court recognised the rationale behind such clauses. In a liberalised and competitive banking environment, public sector banks like Vijaya Bank face challenges in talent retention. Recruitment involves substantial investment of time and money. Premature resignations impose both financial burdens and operational disruptions. The Hon’ble Supreme Court accepted the bank’s submission that the Rupees Two Lakh (INR 2,00,000/-) bond was a necessary deterrent against attrition and a safeguard to ensure return on investment in recruitment and training. It found the amount reasonable, especially considering the managerial rank and salary of the employee. Rejecting the High Court’s Reasoning The Hon’ble Karnataka High Court had relied on the BEML Case to hold the clause unenforceable. The Hon’ble Supreme Court distinguished the BEML Case precedent, noting that in the BEML Case, the clause imposed a restriction not just on duration of service but also on future employability. In contrast, clause 11(k) did not bar future employment and merely set conditions for early resignation. Further, the Hon’ble Karnataka High Court had failed to consider the financial implications and administrative costs incurred by the bank due to attrition. The Hon’ble Supreme Court emphasised that contractual clauses must be analysed in their specific factual and economic contexts, and blanket reliance on prior cases without such analysis was inappropriate. Analysis The judgment marks a significant reaffirmation of employers’ rights to include reasonable restrictions in employment contracts, particularly in sectors where attrition has substantial costs. By upholding a clause that links early resignation to liquidated damages, the Hon’ble Supreme Court has clarified that such clauses are not per se illegal or unconstitutional but must be evaluated in terms of reasonability and taking into account the surrounding circumstances. The ruling also rebalances the discussion on unequal bargaining power. While reiterating that unconscionable terms in standard form contracts are not enforceable, the Hon’ble Supreme Court indicated that not all standardised employment conditions are automatically unfair. It placed the burden on the employer to justify such terms, which Vijaya Bank successfully did in this case. The Hon’ble Supreme Court acknowledged that modern economic conditions necessitate contractual terms that might have once been viewed as restrictive but are now reasonable and necessary. Conclusion This judgment is likely to have far-reaching implications for employers, particularly in the public sector. It gives legal backing to employment bonds and service tenure clauses, provided they are reasonable, disclosed in advance, and proportionate in consequence. Employers would, however, be well advised to continue ensuring transparency, fairness, and proportionality in such contractual terms. Employees, on the other hand, must be mindful of the binding nature of terms they voluntarily accept at the time of joining. Siddhartha George, Partner: [email protected] Bilal Lateefi, Principal Associate: [email protected] Disclaimer: The information provided in this document is solely for general interest and information and is not intended to constitute legal advice and therefore should not be relied upon in any manner. The sending/sharing of this document does not create an attorney-client relationship between Poovayya & Co. and the recipient. For more specific comprehensive and up-to-date information or for legal advice and assistance, you should seek the opinion of legal counsel. Reproduction, distribution and/or republication of this document or the content of this document is prohibited unless you have obtained prior written permission from Poovayya & Co. [1] 2025 SCC OnLine SC 1107. [2] Karnataka HC DB in W.A. No. 2736/2009 disposed on 09.12.2009. [3] 1967 SCC OnLine SC 72. [4] (1981) 2 SCC 246. [5] (1986) 3 SCC 156.