In a landmark settlement that is expected to avoid a costly ballot fight this November, Attorney General Andrea Joy Campbell on Thursday announced an agreement with Uber and Lyft that will grant employment benefits and rights for gig drivers that Campbell says are among the best in the country and requires the companies to pay $175 million in penalties and back pay for drivers.
The deal mirrors in some ways what traditional employees in Massachusetts are entitled to but, importantly, does not establish drivers as employees, allowing the companies to continue to treat them as independent contractors. It also resolves a years-long legal fight between Massachusetts and Uber and Lyft while likely voiding the ballot measure on the issue that the state Supreme Judicial Court just hours earlier had approved for this fall’s elections.
Under the deal, drivers for Uber and Lyft will earn a minimum wage of $32.50 per hour — from the time a driver accepts a ride until they drop off passengers — and be entitled to an array of benefits. The agreement does not include delivery companies such as Instacart and DoorDash.
“For years, these companies have underpaid their drivers and denied them basic benefits,” Campbell said in a statement. “Today’s agreement holds Uber and Lyft accountable, and provides their drivers, for the very first time in Massachusetts, guaranteed minimum pay, paid sick leave, occupational accident insurance, and health care stipends,”
Uber said in a statement the agreement preserves the flexibility and independence drivers want.
“This agreement is an example of what independent, flexible work with dignity should look like in the 21st century,” Uber chief legal officer Tony West wrote. “We are thrilled to see more policymakers supporting portable benefits and innovative frameworks to improve independent work.
Lyft did not immediately respond to requests for comment.
The ranks of the “digital working class” — who are paid by the job on various online platforms — has grown rapidly in recent years, and the fate of gig drivers here could have a major impact on their colleagues across the country. The use of ride-hailing services in Massachusetts doubled between 2021 and 2023, rising to 79.8 million trips last year, according to a study funded by Flexibility and Benefits for Massachusetts Drivers, the industry coalition pushing for drivers to be enshrined as independent contractors.
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Tech companies have always treated the roughly 200,000 drivers for Uber, Lyft, and other app-based gig companies as independent contractors, saying many value the flexibility of their nontraditional jobs, and the companies had been seeking to formalize that classification at the ballot box this November.
App-based companies maintain they’re not employers, but are simply giving drivers a way to make money whenever they want, and they say a recent industry-backed survey found 85 percent of drivers want to remain independent contractors with limited benefits. But worker advocates maintain the companies use this approach to shield themselves from the legal responsibility and cost of being full employers.
In 2020, then-Attorney General Maura Healey sued Uber and Lyft for violating state labor laws, and the trial finally started in May; closing arguments were set to take place Friday. But even had the state won in court and successfully proved drivers were employees, the companies were set to pour money into their ballot campaign. Now, both the suit and the campaign are moot.
“Our lawsuit against Uber and Lyft was always about fairness for drivers,” Governor Healey said in a statement. “I congratulate Attorney General Campbell and her team for securing this settlement that delivers historic wages and benefits to right the wrongs of the past and ensure drivers are paid fairly going forward.”
The agreement also means the issue won’t be mired in the courts for years, as it has been in California.
In 2020, a state appeals court in California ordered the companies to stop treating the drivers as independent contractors. But that fall, voters approved a tech-industry-backed ballot measure affirming the drivers were independent contractors. The matter is still tied up in court, and driver pay there lags far behind wages elsewhere.
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Labor lawyer Shannon Liss-Riordan, who has sued Uber and Lyft repeatedly for misclassifying drivers and is part of the coalition of labor advocates that contested the ballot measure, said the companies had adopted the same tactic here: trying to stave off a potential loss in court with a ballot initiative.
But Campbell’s office said it had the upper hand following the trial, and used that position to extract a deal for drivers. For its part, Uber said it was glad to resolve longstanding issues.
Currently, Uber and Lyft drivers in Boston take home less than the state’s $15 minimum wage, according to a recent report by the UC Berkeley Labor Center, which estimates the median hourly pay for drivers in Boston and several other major cities is $10.64 an hour, not counting tips or expenses.
Under the settlement, their new pay and benefits will be substantial. Starting Aug. 15, drivers will make at least $32.50 an hour, with wages set to increase by 3 percent a year starting in January. Drivers will also earn 1 hour of sick time for every 30 hours worked — maxing out at 40 hours of paid sick time a year — and receive a stipend to buy into the state’s paid family and medical leave program.
Drivers who work more than 15 hours a week for Uber and Lyft combined will have 50 percent of their health insurance premiums paid for by the companies; drivers who work more than 25 hours a week will have 80 percent of their premiums covered. Drivers will also have occupational accident insurance similar to workers’ compensation, protection against discrimination, and an appeals process to challenge deactivations. Details about each trip’s miles, minutes, and earnings will be provided to drivers before they accept a passenger.
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The drivers will still be responsible for their own taxes, and companies won’t contribute payroll taxes, according to Uber.
The Massachusetts deal provides stronger benefits than a similar agreement reached in Minnesota, according to Campbell’s office, and pays more than one in New York, where drivers make a minimum of $26 an hour and don’t get health insurance. Drivers in New York City have a higher minimum pay rate, although it’s calculated differently, per minute and mile, and is only in effect when a passenger is in the car.
Also on Thursday the SJC approved a separate ballot question giving drivers the right to unionize. If the union question goes through, or the state Legislature acts on a bill allowing them to organize, the agreement with the companies will give the drivers a much higher baseline of wages and benefits to build upon.
“It is essential that drivers have a union to ensure these concessions are protected and improved upon,” the coalition pushing for driver union rights said in a statement.
Labor advocates who had been pushing to make the drivers employees said they were pleased with the agreement.
“We’re pretty thrilled,” said Chrissy Lynch, president of the Massachusetts AFL-CIO. “It vindicates the rights of exploited drivers and holds these companies accountable for their practices.”
State Senator Lydia Edwards, who sponsored a bill to make drivers employees, said she was “giddy, and also extremely relieved” by the settlement.
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”It speaks to the moment and fulfills an immediate need for drivers,” Edwards said, though noting the debate over over whether the drivers should be employees or independent contractors is likely not over.
Ali Badawi of Watertown said the settlement may make work-life balance more attainable. He has been driving with Uber for nine years and often works 12-hour days. Usually, he makes no more than $22 an hour. “It’s just not enough,” he said. “How can I be expected to pay my bills like that?”
Matt Stout of the Globe staff contributed to this report.
Katie Johnston can be reached at katie.johnston@globe.com. Follow her @ktkjohnston. Diti Kohli can be reached at diti.kohli@globe.com. Follow her @ditikohli_.