Massachusetts secured a big raise for Uber and Lyft drivers in the state, but some are worried the deal could have negative side effects

Uber and Lyft settle to pay Massachusetts drivers $32.50 per hour for time spent completing a ride, as well as paid sick leave and accident insurance.

• Uber and Lyft settled to pay Massachusetts drivers $32.50 per hour for time spent completing a ride.
• The settlement includes paid sick leave, accident insurance, and health plans for drivers.
• Drivers remain independent contractors, and some are concerned about competition and wage impacts.

Many Uber and Lyft drivers in Massachusetts are about to be paid more for their work — and it may be a sign of what's to come in other states. Still, some drivers are not fully satisfied.

After a four-year legal dispute over the status of ride-hailing drivers in Massachusetts, Uber and Lyft agreed via a settlement to pay a minimum rate of $32.50 an hour for time spent completing a ride. The settlement will pay $175 million to the state and drivers, many of whom claimed both companies violated Massachusetts wage and hour laws.

Massachusetts also won paid sick leave, improved accident insurance, and a health insurance plan for drivers who work 15 or more hours a week. Both companies said they would stop supporting a ballot initiative to set drivers' classification as contractors in stone.

However, there are some limitations. The new minimum rate only applies to time spent actively picking up a rider or taking them to their destination, meaning if a driver waits for a ride for half the time, their pay drops to $16.25 an hour. Also, Massachusetts drivers will be considered independent contractors, meaning they will not receive all the protections of employees. Sergio Avedian, senior contributor at The Rideshare Guy, said up to 80% of drivers prefer to remain independent contractors, citing driver surveys he helped run.

Four Massachusetts Uber and Lyft drivers said that while the settlement is a win for drivers in many ways, they fear it could increase competition and may not be as significant a wage increase as many think. Still, the settlement could be a sign of what's to come in other states with lobbying efforts underway.

Uber will pay $148 million and Lyft will pay $27 million to Massachusetts. Of this total, $140 million will go to drivers.

Both companies said in statements that the agreement is a step forward in balancing the benefits many drivers requested and the flexibility of drivers to start and end their shifts whenever they want.

Over the last few years, minimum pay and benefits legislation has passed in New York, California, Washington, and Minnesota.

"The recent agreement reached in Massachusetts before the ballot initiatives were decided by Massachusetts voters is a favorable outcome for most Massachusetts drivers," Avedian said. "The agreements in New York State, Minnesota, and now Massachusetts demonstrate that drivers uniting and campaigning for higher pay and benefits" are having success getting ride-hailing companies to negotiate.

What Massachusetts drivers say

Avedian said for the majority of drivers, this settlement is a big step in the right direction. He said the settlement may hurt the top echelon of drivers, but it will allow less experienced drivers to make more and feel safer on the road.

Mark McInerney, 60, who drives for Lyft in Boston, said he's pleased with the settlement, noting it "will make a good model for national policy" concerning compensation and flexibility for drivers.

He noted these changes will benefit his wallet, as he's had frustrations about how Lyft "frequently underestimates the time required to complete a trip mostly due to conditions beyond the platform's control, such as waiting for a passenger at the pickup and traffic conditions like congestion from construction and accidents."

"They rarely adjust the fare to reflect the extra time required to complete a trip, even when the time goes 40% or more over the estimate," he said. "For that reason, I drive only when incentives are offered and focus on short trips with nearby pickup locations."

Boston driver Matt R., who has done over 4,000 rides on Uber and Lyft with a 5.0 rating, said he was initially skeptical about the decision but thinks this is one of the better settlements he's seen. The $32.50 per engaged hour is an improvement for many drivers, he said, though he had concerns about how drivers and passengers might not understand that wage doesn't factor in time waiting to accept a ride, with three potential impacts:

"First, luring new drivers to the space, slowing demand, reducing utilization rates, and watering down average hourly online earnings for current drivers. Secondly, there's a very high likelihood we'll see tips dry up. Why tip someone making $32.50 an hour, right? Finally, increased fares may reduce demand. I believe Uber and Lyft have a good understanding of how to do this with minimal impact on demand, but it remains to be seen."

Matt added this decision could hurt top-earning drivers like himself but could benefit drivers in slower, lower-earning markets. He wished the agreement addressed other issues like unpaid travel time due to rider cancellations, unapplied surge payments, or app glitches impacting earnings.

Ronald Banks, who has driven for seven years in Texas and Massachusetts, said the paid time off is a plus, but as his active hourly rate is as high as $49, he fears this decision could hurt his earnings.

Jen, a full-time driver in Boston, said the settlement may be a net positive, though she isn't sold this will benefit everyone.

"Many drivers believe Uber will make adjustments in other ways to secure their current profit margins," Jen said. "However, I am glad full-time drivers will get some sort of sick pay and a healthcare stipend as unpaid time off caused by illness and healthcare insurance borne entirely by drivers are both extremely expensive for self-employed drivers."

How minimum wage legislation is working in other states

A handful of states have already agreed with Uber, Lyft, and other ride-hailing and delivery companies on citywide or statewide plans. Lobbying efforts by drivers are underway in Chicago, Portland, and Virginia, Avedian said.

In 2020, California passed Proposition 22, which kept drivers as independent contractors but gave them benefits such as guaranteed pay. California drivers receive at least 120% of minimum wage, which is now $16 an hour, and $0.35 a mile while completing a ride or delivery. Qualifying drivers can get up to $489.54 a month for healthcare insurance costs, and drivers get additional insurance covering medical expenses and lost income resulting from job-related illness or injury.

The California Supreme Court is challenging the legality of Proposition 22 over concerns about classifying drivers as independent contractors.

Research from the UC Berkeley Labor Center and the Center for Wage and Employment Dynamics suggests even with these guarantees in place, drivers in Los Angeles and San Francisco had net hourly earnings well below minimum wage, even with tips — net hourly pay with tips for passenger drivers in California is $9.09, while for delivery drivers it's $13.62. Similar results were found in the Boston, Chicago, and Seattle metros.

As of early June, the minimum hourly rate for Uber and Lyft drivers in New York outside of New York City was raised to $26.78. Drivers in New York City receive the pay rates decided on by the Taxi and Limousine Commission. Drivers also received new benefits like sick leave, training, and chat support.

This came after Uber and Lyft paid New York $328 million over wage theft claims, though both companies denied wrongdoing. The companies have been under fire recently after Uber reportedly locked out New York City drivers in the middle of their shifts in opposition to a minimum wage rule, a decision Lyft said it's considering as well.

In May, Uber and Lyft struck a deal to pay Minnesota drivers $1.28 per mile and $0.31 per minute minimum. The two companies threatened to pull out of Minneapolis, which has a minimum wage for large businesses of $15.57.

Are you a gig driver who is struggling to make ends meet? Are you driving into your retirement years? Reach out to this reporter at nsheidlower@businessinsider.com.