By Nate Raymond and Daniel Wiessner
BOSTON (Reuters) -Uber Technologies and Lyft (NASDAQ:) agreed Thursday to adopt a $32.50 minimum hourly wage standard for Massachusetts drivers and pay $175 million to settle a lawsuit filed by the state's attorney general that alleges they improperly treated drivers as legally independent contractors. They may receive less compensation than employees.
The companies also agreed to give drivers paid sick leave, accident insurance and health care stipends and to stop funding or supporting a ballot initiative that would have asked voters in November to cement the status of app-based drivers as contractors, Attorney General Andrea Joy Campbell said.
Uber (NYSE:) and Lyft said in separate statements that the deal reflected the desire of most drivers to work on their own terms while still receiving many of the key benefits that are legally guaranteed to employees.
“By seizing this opportunity, we have resolved historic liabilities by building a new operating model that balances flexibility and profits,” said Tony West, Uber's chief legal officer.
The agreement requires Uber to pay $148 million and Lyft $27 million to the state. At least $140 million will be paid to drivers, according to a court filing.
Campbell, a Democrat, made the announcement hours after Massachusetts' high court cleared the way for voters to decide whether to approve the industry-backed ballot measure, along with a labor-backed proposal to allow drivers to unionize. that will continue to advance.
It was also the eve of closing arguments in a bench trial in a lawsuit filed in 2020 by Campbell's predecessor, now Gov. Maura Healey, over the status of drivers whose services have helped boost the gig economy in USA.
Campbell had been asking a judge to rule that the state’s 55,000 Uber drivers and 35,000 Lyft drivers are employees under state law and therefore entitled to benefits such as a minimum wage, overtime and earned sick time.
Studies have shown that using contractors can cost businesses up to 30% less than hiring employees.
“For years, these companies have underpaid their drivers and denied them basic benefits,” Campbell said in a statement. “Today's settlement holds Uber and Lyft accountable.”
The agreement provides higher benefits and payouts for Uber and Lyft drivers than were provided in a similar November settlement with New York state and under legislation enacted in Minnesota in May.
Uber and Lyft, defending themselves at trial, argued that Campbell's office misunderstood their business models and that they could be forced to cut or terminate service in Massachusetts if their drivers were considered employees.
Along with DoorDash (NASDAQ:) and Instacart (NASDAQ:) had financially supported Massachusetts Driver Benefits and Flexibility, the ballot initiative committee behind the proposal to ask voters to consider app-based drivers as contractors .
The proposal also called for offering drivers similar benefits to those in the agreement. Following its announcement, Conor Yunits, a spokesman for the industry-backed campaign, said the group would no longer pursue the initiative.
The industry, through a $200 million campaign, had previously convinced California voters in 2020 to approve a measure similar to the one backed by companies in Massachusetts, solidifying drivers as independent contractors with some benefits. Litigation challenging that measure is ongoing.
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