BOSTON — Uber Technologies and Lyft have settled a lawsuit with the Massachusetts Attorney General Andrea Joy Campbell, agreeing on Thursday to upgrade their drivers’ compensation and benefits in a significant shift away from their traditional business models. The companies will now implement a $32.50 hourly minimum wage for their Massachusetts drivers and will pay a combined $175 million to resolve claims they had misclassified workers as independent contractors.
Under the terms of this landmark agreement, the rideshare giants will also introduce new benefits for drivers including paid sick leave, accident insurance, and healthcare stipends. Additionally, they agreed to withdraw support from a November ballot initiative that would have enshrined drivers’ status as independent contractors, a move signaling a major policy shift.
The settlement, which follows a legal challenge initiated by Campbell’s predecessor, requires Uber to contribute $148 million and Lyft $27 million. This substantial sum aims to compensate for potential wage disparities experienced by drivers under the previous classification. At least $140 million of this will be distributed among the drivers themselves.
The resolution arrives shortly after the Massachusetts Supreme Judicial Court authorized a vote on a union-supported proposal that advocates for drivers’ rights to unionize. This initiative will proceed independently of the now-halted industry-backed measure.
This agreement not only dramatically alters the compensation structure for thousands of drivers in Massachusetts but also serves as a potential bellwether for other states grappling with the gig economy’s impact on traditional employment standards. Campbell, in a statement, highlighted that the new standards would ensure drivers receive fair pay and benefits comparable to what is mandated for full-time employees.
Research indicates that treating workers as contractors saves companies up to 30% in labor costs, underscoring the financial stakes of employment classification in the gig economy. This move by Uber and Lyft could set a precedent, suggesting a shift towards more robust labor protections for gig workers nationally.
Previously, Uber and Lyft had argued that reclassifying drivers as employees could force them to curtail or cease operations in Massachusetts due to increased operating costs. The companies have historically maintained that their drivers value the flexibility associated with contractor status, a point reiterated in their statements acknowledging the settlement.
The backdrop to this settlement includes a sustained push across various states to better regulate gig economy operations. Similar legislative efforts and legal challenges have been seen in New York and California, where battles over the rights of gig workers have prompted both public referenda and ongoing litigation.
As the gig economy continues to evolve, this settlement in Massachusetts could inspire further regulatory and legal changes across the United States. As companies like Uber and Lyft adjust their business models to comply with local labor laws, the repercussions may redefine what it means to be a gig worker in America.