BOSTON (Reuters) - Massachusetts's top court on Thursday cleared the way for voters in the state to decide whether drivers for app-based companies like Uber Technologies ( UBER ) and Lyft ( LYFT ) should be classified as independent contractors who would be entitled to some new benefits but would not be legally employees.

The Massachusetts Supreme Judicial Court rejected a labor-supported challenge to an industry-backed coalition's proposal to cement the drivers as contractors. But it also said it would allow a dueling ballot measure that would allow the drivers to unionize to move forward.

The decision came ahead of closing arguments set for Friday in an ongoing trial in a lawsuit by the state's Democratic attorney general accusing Uber ( UBER ) and Lyft ( LYFT ) of misclassifying their drivers as contractors, not employees, for years.

Should the industry fail in court and at the ballot box, Uber ( UBER ) and Lyft ( LYFT ) could face a sweeping overhaul of their business model, one that lawyers for Uber ( UBER ) and Lyft ( LYFT ) have said could force the companies to cut or end service in Massachusetts.

Uber ( UBER ) and Lyft ( LYFT ), along with app-based delivery services Instacart and DoorDash ( DASH ), have spent millions of dollars to support the ballot proposal that would cement the status of their drivers as contractors under state law.

Using contractors can cost companies as much as 30% less than hiring employees, various studies showed.

Flexibility and Benefits for Massachusetts Drivers, a ballot measure committee whose contributors include the four ride-share companies, is also proposing setting an earnings floor for app-based drivers and providing them healthcare stipends, occupational accident insurance and paid sick time.

A separate proposed ballot measure supported by the Service Employees International Union's Local 32BJ seeks to ask voters to allow Uber ( UBER ) and Lyft ( LYFT ) drivers to unionize.