mine works fine with .zip files
i used Apples archive tool and have zero "3rd party apps" installed. worked one click no problem: it created a folder right next to the file for me to browse into (NOTE: your new filesystem is not case sensitive - keep in mind some archives cannot extract correctly if they are from a case sensitive OS and or try to set OS bits on files)
you've may have installed a 3rd party "multi-archive aware" app that "changed the arguments to zip". it is not the "freeware zip" and does not have the same arguments. also "freeware" apps might use "high" compression methods that apple's doesn't have (meaning and old GPL linux or pkzip .zip file does work in Catalina)
just change the plist or icon for zip so there is no argument mismatch ?