ON JUNE 27, Attorney General Andrea Campbell’s office abruptly ended an ongoing trial and settled a lawsuit that had charged Uber and Lyft with violating the Commonwealth’s wage and hour laws by improperly classifying their drivers as independent contractors rather than as employees.
The deal provides rideshare drivers with a guaranteed minimum wage and other protections and sets $175 million in penalties for the two companies. “Today’s agreement holds Uber and Lyft accountable,” Campbell said in announcing the settlement.
Yet Uber and Lyft got what they most wanted – no admission that their drivers are, in fact, employees. The attorney general’s office got what they felt they needed as well – the rideshare companies’ commitment to withdraw a ballot question that would have enshrined drivers’ status in state law as independent contractors. But the settlement left the larger issue of the role of misclassification in the gig economy unresolved.
By all accounts, the trial had been going well for the AG’s legal team. Closing arguments were expected to nail down a positive verdict. The settlement put the brakes on any affirmative declaration that the drivers were employees, an outcome that would have had national and even international repercussions.
A few hours before the settlement was announced, the Supreme Judicial Court had allowed the Uber- and Lyft-sponsored ballot initiative to proceed. The language was modeled on California’s successful 2020 Proposition 22 campaign, in which Uber, Lyft, and their allies spent a record-setting $200+ million, saturating the landscape with ads and dwarfing the contributions of the labor and driver organizations’ opposition.
Uber and Lyft had threatened to raise a comparable amount for the Massachusetts campaign, virtually assuring electoral success. In light of the SJC’s action, the AG’s office made a tactical decision to seek a settlement. The financial terms were augmented by a pledge to withdraw the November referendum. In Campbell’s words, “a successful ballot initiative would have wiped out” the impact of prevailing in court.
Labor advocates welcomed the settlement, Chrissy Lynch, president of the Massachusetts AFL-CIO, pronounced herself “thrilled.” And even long-time anti Uber and Lyft litigator Shannon Liss-Riordan acknowledged that there was a “huge sigh of relief,” recognizing that opponents would not have been able to match resources in a ballot question showdown.
Uber and Lyft have spent hundreds of millions of dollars rolling through primarily red state legislatures, carving out their drivers from coverage of essential worker protections. A successful ballot initiative in Massachusetts would have been the icing on the cake.
For years, the two companies have told drivers that their flexible schedules – the most appealing feature of the occupation – are dependent on their role as independent contractors. That stance is simply inaccurate. There are no federal or state employment laws that prohibit flexibility for employees. During the trial, company lawyers abandoned the flexibility argument and maintained that Uber and Lyft were simply technology or platform firms, akin to Airbnb, connecting riders and drivers.
David Weil, an economics professor at Brandeis University’s Heller School for Social Policy and Management, was the AG’s expert witness and scoffed at the companies’ arguments. In his public trial testimony, he pointed out that Uber and Lyft have created a branded product or service. Riders request the companies, not a specific driver. The companies independently and unilaterally set prices for riders and compensation for drivers based on sophisticated models of what riders are willing to pay and whether drivers are willing to work.
“Airbnb is a digitally facilitated marketplace that offers a range of options and prices set by the property owner,” says Weil. Uber and Lyft, on the other hand, offer their customers transportation services, not connections. Summarizing his argument, Weil suggests that “they are transportation businesses that operate like any other business that uses employees to satisfy customer demand.”
Why are Uber, Lyft, and other gig employers so wedded to a system of employing workers as independent contractors? There is the obvious financial incentive of avoiding tax and insurance obligations that conventional employers routinely face. In April, state Auditor Diana DiZoglio’s office issued a report claiming that, by misclassifying their Massachusetts workers, Uber and Lyft evaded more than $266 million from 2013 to 2023 in benefit programs such as unemployment insurance, workers’ compensation, and paid family and medical leave.
Beyond the clear economic competitive advantage, many gig employers have developed an ideological aversion to business models that presume a sense of accountability, obligation, and liability for the workers who produce their products and services. While misclassification predates the gig economy, these employers have transformed the practice from a straightforward avoidance of business responsibilities into a celebration of supposed individual entrepreneurialism.
So what are the current prospects? The settlement explicitly precludes further claims of misclassification by the attorney general against Uber and Lyft. According to the AG’s office, however, there is “no hesitation” to pursue other violations of Section 148B, the statute that defines the differences between an employee and an independent contractor.
Last year, the attorney general issued $6.2 million in citations against Gopuff, a national delivery service company, for misclassifying their drivers. The case is currently on appeal. The drivers who drop off packages for Amazon are also typically independent contractors. As with Uber, Amazon’s omnipresent clout has protected the company from damaging regulatory enforcement so far.
There has been and will continue to be private litigation, and the settlement does not prevent other state agencies from seeking penalties for avoidance of state mandated benefits.
The Executive Office of Labor and Workforce Development oversees the administration of unemployment insurance and workers’ compensation, and could pursue claims of misclassification as its sister agencies in New York and New Jersey have done. In a carefully worded statement, the office’s spokesman, Matthew Kitsos, said that the agency “has followed the attorney general’s lawsuit, including the terms of the settlement, and plans to consider all available options”
While the Uber/Lyft initiative is off the ballot, another ballot proposal (Question 3) will ask voters this fall to support unionization and collective bargaining rights for transportation network drivers. The measure, supported by the Service Employees International Union and the International Association of Machinists, circumvents federal laws prohibiting independent contractors from forming unions by creating a state apparatus to grant collective bargaining rights, similar to what SEIU has done with family childcare providers and personal care attendants.
The ballot question has been controversial within the labor movement and among driver advocates because it is silent on the issue of employment status, thereby accepting the classification of rideshare drivers as independent contractors. Harris Gruman, executive director of SEIU Massachusetts State Council, acknowledges that drivers should be considered employees. But in light of Uber and Lyft’s successful legal maneuverings, he said, “It is better to be an independent contractor with a union than an employee without one.” With this cavernous caveat, Uber recently announced it will not actively campaign against the initiative.
Independent contractors make up just 7 percent of the nation’s workforce and many of them are legitimately independent. But the outsized economic and cultural impact of the gig economy, with its arrogant dismissal of traditional employment methods, represents a fundamental challenge to federal and state standards for workers. Workers without protections or benefits become known as YOYOs — “you’re on your own.”
“It is vital that Massachusetts gets this right,” argues the AFL-CIO’s Lynch. Uber, Lyft, Amazon, and other gig companies have lobbied heavily to sustain their business models and it will take a combination of worker organizing, legislative remedies, legal challenges, and heightened regulatory enforcement to defend and preserve many decades of hard-fought protections for American workers.
Mark Erlich is a fellow at Harvard Law School’s Center for Labor & a Just Economy and the retired head of the New England Carpenters Union. He is also a member of the board of MassINC, publisher of Commonwealth Beacon.
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