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June 28, 2024

Rideshare companies reach $175M settlement with state over wages, benefits

A group of people at a table Image | Courtesy of Sam Doran, State House News Service A panel of industry executives face questions from the Initiative Petitions Committee on March 19 about potential ballot questions dealing with work classification and benefits for app-based drivers. From left: Lucas Munoz, Uber's director of driver policy; Kate Rumbaugh, head of government affairs for DoorDash; Katie Franger, part of Uber's policy team for the northeast; Brendan Joyce, Lyft's public policy manager in Massachusetts; and Tom McNeil, senior manager of government affairs for Instacart.

Uber and Lyft will pay Massachusetts drivers some of the highest guaranteed wages in the country under a landmark deal with state prosecutors that also brought a halt to a years-long campaign seeking to rewrite how state law defines those workers.

Attorney General Andrea Campbell and the companies agreed on a $175 million settlement Thursday evening that ends the nearly four-year-old lawsuit against Uber and Lyft, lays out a slew of new wage, benefit and job protection requirements, and sidesteps the legal question at the heart of the case.

The deal secures a sizable pay increase for tens of thousands of drivers and guarantees they will soon be able to access paid sick leave, occupational accident insurance and some degree of health benefits -- some of which, prosecutors alleged, the companies unfairly failed to provide for years.

Uber and Lyft will no longer face the prospect of a judge declaring that their status quo arrangement with drivers is illegal in Massachusetts, and they can continue to define their drivers as independent contractors.

Both companies plan to continue offering rides in Massachusetts and signaled they expect no major impacts on operations. An Uber official said prices for riders might increase slightly, but added that the company has minimized disruption in other states like New York where the popular apps have been required to begin paying higher wages to drivers.

"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."

Altering the political landscape this summer and fall, the settlement also prompted gig economy power players to suspend their campaign for a ballot question that would have defined drivers as independent contractors instead of employees.

Uber and Lyft agreed in the settlement to "cease participation in any funding or support" for the ballot question.

Instacart and DoorDash were also part of the coalition working to alter driver status in state law and could have tried to continue the fight on their own. However, a campaign spokesperson confirmed Thursday evening that supporters no longer plan to submit a question for the Nov. 5 ballot.

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

It was an abrupt inversion for the industry-backed campaign that has already spent about $45 million on efforts to get voters to change state law in their favor. On Thursday morning, the state's highest court cleared the measure to appear on the ballot. Nine and a half hours later, the measure was officially dead.

Under the settlement, Uber and Lyft must pay their drivers at least $32.50 per hour when the workers are either en route to pick up passengers or actively transporting riders to a location. The companies are not required to pay for the time when drivers are logged into an app, but neither have a passenger in their vehicle nor are traveling to pick someone up. Those wages must begin Aug. 15 and will be adjusted annually for inflation.

The rate is considerably higher than in some other states. In New York, drivers outside New York City earn at least $26 per hour for the time between accepting a trip and completing a ride (the same range of time that will be compensated in Massachusetts).

Drivers here will also begin to accrue up to 40 hours per year of paid sick leave, provided at a rate of $20 per hour, and Uber and Lyft agreed to obtain occupational accident insurance for drivers.

The companies will also offer "portable health funds," which are cash stipends that drivers can use to pay for eligible health insurance plans, starting next year. Uber called it "the nation's first portable health insurance benefit fund." They'll additionally provide drivers with stipends to buy into the state's paid family and medical leave program.

Other parts of the agreement call on Uber and Lyft to give drivers more information about trips and expected earnings before they accept a ride, in-app chat support in multiple languages, and an appeals process to challenge deactivations.

Uber will pay Massachusetts $148 million and Lyft will pay the state $27 million, most of which will flow to current and former drivers as restitution. Campbell's office said it would announce details about who qualifies for payments and how to apply in the coming weeks.

Labor leaders celebrated the agreement. In a statement provided by Campbell's office, Massachusetts AFL-CIO President Chrissy Lynch declared, "Uber and Lyft's free ride is over."

"This settlement includes a comprehensive package of strong wages, benefits and protections for the drivers that these corporations have been exploiting for years. We deeply appreciate AG Campbell's hard work holding these corporations rightfully accountable to Massachusetts employment laws," Lynch said.

Parties filed the settlement agreement just before 5 p.m. Thursday on the eve of closing arguments in the trial. Its submission immediately ends the court proceedings, preventing Judge Peter Krupp from issuing a decision that could have declared Uber and Lyft in violation of or compliant with existing labor law.

The settlement does not take a stance on how drivers should be classified, effectively allowing the companies to continue treating drivers as contractors but with the new wage and benefit requirements.

"This agreement is an example of what independent, flexible work with dignity should look like in the 21st century. We are thrilled 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. "In taking this opportunity, we've resolved historical liabilities by constructing a new operating model that balances both flexibility and benefits. This allows both Uber and Massachusetts to move forward in a way that reflects what drivers want and demonstrates to other states what’s possible to achieve."

Lyft Executive Vice President of Driver Experience Jeremy Bird described the settlement as "a huge win for Massachusetts drivers that secures their freedom to earn when, where, and however long they want."

Massachusetts becomes the latest state to strike a legal or legislative compromise with Uber and Lyft, who for years spent heavily on lobbying and political campaigning in an effort to reshape state laws in their favor.

In 2022, Uber paid New Jersey $100 million in back taxes after officials there alleged the company misclassified its drivers as independent contractors. Late last year, both companies collectively paid $328 million in a wage theft settlement in New York that also required Uber and Lyft to provide drivers with paid sick leave and new minimum pay standards. And in May, Minnesota enacted a new law that requires Uber and Lyft to increase what they pay drivers and offer new protections, a compromise after Minneapolis sought to impose even larger rate increases on the companies.

Former Attorney General Maura Healey, who is now governor, sued Uber and Lyft in 2020, alleging that they inflated their profits for years by treating drivers as contractors and denying them the wages and benefits owed to employees.

"Our lawsuit against Uber and Lyft was always about fairness for drivers," Healey said Thursday, adding that the agreement "delivers historic wages and benefits to right the wrongs of the past and ensure drivers are paid fairly going forward."

The case languished behind the scenes for nearly four years before a bench trial began last month.

Stakeholders in the debate over the pay and benefits of app-based drivers for years have been unable to push reform measures through the Legislature, or amend the state's independent contractor law, leading parties to try to reconcile differences in the courts or through ballot questions.

Senate President Karen Spilka commended Campbell's team for "perseverance" in negotiating the settlement and said she was "heartened to see that millions will be paid to former drivers who were denied these basic benefits for years."

"For too long, TNC drivers were denied access to the policies enacted to protect our working residents. I'm thrilled to see that the AG's tireless efforts have resulted in this historic settlement to extend those protections to Uber and Lyft drivers," Spilka said.

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