On the eve of closing arguments, Attorney General and rideshare companies agree on driver status

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Uber and Lyft will pay their Massachusetts drivers some of the highest guaranteed wages in the country as part of a groundbreaking settlement with prosecutors that halted a years-long campaign to change the definition of those workers in state law.

Attorney General Andrea J. Campbell and the two companies agreed to a $175 million settlement on June 27, ending a nearly four-year-old legal battle against Uber and Lyft, establishing a series of new requirements related to wages, benefits and termination protections, and sidestepping the legal issue at the heart of the case.

The deal gives tens of thousands of drivers a significant pay raise and will soon guarantee them eligibility for paid sick leave, workers’ compensation and a certain level of health insurance benefits, some of which prosecutors say the companies wrongfully withheld from them for years.

Uber and Lyft no longer have to deal with a judge declaring their status quo arrangements with their drivers illegal in Massachusetts. They can continue to consider their drivers as independent contractors.

Both companies plan to continue offering rides in Massachusetts and signaled they do not expect a major impact on operations. An Uber official said prices for riders could increase slightly, but added that the company has minimized disruptions in other states such as New York, where the popular apps have had to pay their drivers higher wages.

The agreement changed the political landscape this summer and fall and also prompted influential gig economy players to suspend their campaigns on a ballot question that would have defined drivers as independent contractors rather than employees.

Uber and Lyft agreed in the settlement to stop “any involvement in the financing or support” of the ballot question.

Instacart and DoorDash were also part of the coalition pushing for a driver status change in state law and could have tried to continue the fight on their own, but a campaign spokesperson confirmed on June 27 that supporters no longer planned to submit a question for the Nov. 5 ballot.

“Our goal has always been to protect the flexibility that 97% of app-based drivers in Massachusetts say is important,” said spokesperson Conor Yunits. “While the campaign is no longer moving forward with a referendum, we believe in the importance of preserving the independence of all app-based workers, and we will continue to advocate for policies that preserve the flexibility they value so much.”

It was an abrupt about-face for the industry-backed campaign, which has already spent around $45 million to persuade voters to change state law in its favor. The Supreme Court had previously approved the bill for a vote on June 27. Nine and a half hours later, the bill had officially failed.

Under the agreement, Uber and Lyft must pay their drivers at least $32.50 per hour when workers are either on the road to pick up passengers or actively transporting passengers to a location. The companies do not have to pay for the time when drivers are logged into an app but do not have a passenger in their vehicle or are on the road to pick someone up. These wages must take effect on August 15 and will be adjusted annually for inflation.

The rate is significantly higher than in some other states. In New York, drivers outside of New York City earn at least $26 per hour for the time between accepting a ride and completing it. These are the same categories of time paid in Massachusetts.

Drivers in the state will now be able to accrue up to 40 hours of paid sick leave per year, paid at $20 per hour. In addition, Uber and Lyft have agreed to provide workers’ compensation insurance for their drivers.

The companies will begin offering “portable health funds” next year, cash benefits that drivers can use to pay for their health insurance. Uber called it “the country’s first portable health insurance fund.” They will also provide stipends to their drivers to buy into the government’s paid family and medical leave program.

Other parts of the agreement require Uber and Lyft to give drivers more information about trips and expected earnings before accepting a ride, offer in-app chat support in multiple languages, and establish an appeals process to challenge takedowns.

Uber will pay Massachusetts $148 million and Lyft $27 million, the majority of which will go as compensation to current and former drivers. Campbell’s office said it will release details on who is eligible for payments and how to apply in the coming weeks.

Union leaders celebrated the agreement. In a statement provided by Campbell’s office, Chrissy Lynch, president of the Massachusetts AFL-CIO, said, “The Uber and Lyft free passes are over.”

“This settlement includes a comprehensive package of high wages, benefits and protections for the drivers these companies have exploited for years. We are very grateful to AG Campbell for his hard work in holding these companies accountable under Massachusetts labor laws,” Lynch said.

The parties filed the settlement shortly before 5 p.m. on June 27, the night before closing arguments. The filing immediately ended the trial and prevented Superior Court Judge Peter B. Krupp from making a decision that could have declared Uber and Lyft unlawful or in compliance with applicable labor laws.

The agreement does not address driver classification, allowing companies to continue to treat their drivers as de facto contract workers, albeit with new wage and performance requirements.

“This agreement is an example of what independent, flexible and dignified work should look like in the 21st century. We are pleased to see more policymakers supporting portable benefits and innovative frameworks to improve independent work,” Uber Chief Legal Officer Tony West said in a blog post. “By seizing this opportunity, we have addressed historical shortcomings by developing a new operating model that balances flexibility and benefits. This allows both Uber and Massachusetts to move forward in a way that meets drivers’ desires and shows other states what can be achieved.”

Jeremy Bird, executive vice president of driver experience at Lyft, called the settlement “a huge victory for Massachusetts drivers, giving them the freedom to earn money when, where and for as long as they want.”

Massachusetts is the latest state to reach a legal or legislative compromise with Uber and Lyft, after the two companies spent years lobbying and politically campaigning to reshape state laws in their favor.

In 2022, Uber paid $100 million in taxes to New Jersey after authorities there alleged the company falsely classified its drivers as independent contractors. Late last year, both companies paid a combined $328 million in New York as part of a wage theft settlement that also required Uber and Lyft to provide their drivers with paid sick leave and new minimum wage standards. And in May, Minnesota passed a new law requiring Uber and Lyft to increase their driver pay and offer new protections – a compromise after Minneapolis tried to impose even larger rate increases on the companies.

Former Attorney General and current Governor Maura T. Healey sued Uber and Lyft in 2020, alleging that the companies inflated their profits for years by treating drivers like contractors and denying them the wages and benefits owed to employees.

“Our lawsuit against Uber and Lyft has always been about fairness for drivers,” Healey said on June 27, adding that the agreement “provides historic wages and benefits to right the wrongs of the past and ensure drivers are paid fairly in the future.”

The case remained in the dark for nearly four years before the trial before a single judge began last month.

For years, parties involved in the debate over the pay and benefits of app-based drivers have failed to get reform measures through Parliament or to change the state’s independent contractor law, so the parties are trying to resolve differences in court or through ballot issues.