BOSTON, June 27 (Reuters) - Uber Technologies ( UBER )

and Lyft ( LYFT ) on Thursday agreed to adopt a $32.50 hourly

minimum pay standard for Massachusetts drivers and pay $175

million to settle a lawsuit by the state's attorney general

alleging they improperly treated drivers as independent

contractors who can legally receive lower compensation than

employees.

The companies also agreed to give drivers paid sick leave,

accident insurance, and healthcare stipends and to stop funding

or supporting a ballot initiative that would have asked voters

in November to cement app-based drivers' status as contractors,

Attorney General Andrea Joy Campbell said.

Uber ( UBER ) and Lyft ( LYFT ) in separate statements said the agreement

reflected the desire of most drivers to work on their own terms

while receiving many of the key benefits that are legally

guaranteed to employees.

"In taking this opportunity, we've resolved historical

liabilities by constructing a new operating model that balances

both flexibility and benefits," said Tony West, Uber's ( UBER ) chief

legal officer.

The agreement requires Uber ( UBER ) to pay $148 million and Lyft ( LYFT ) to

pay $27 million to the state. At least $140 million will be paid

out to drivers, according to a court filing.

Campbell, a Democrat, made the announcement hours after

Massachusetts' top court cleared the way for voters to decide

whether to approve the industry-backed ballot measure, along

with a dueling labor-backed proposal to allow drivers to

unionize that will continue to move forward.

It was also the eve of closing arguments in a non-jury trial

in a lawsuit filed in 2020 by Campbell's predecessor,

now-Governor Maura Healey, over the status of drivers whose

services have helped fuel the U.S. gig worker economy.

Campbell had been asking a judge to conclude that the

state's 55,000 Uber ( UBER ) drivers and 35,000 Lyft ( LYFT ) drivers are

employees under state law and therefore entitled to benefits

such as a minimum wage, overtime and earned sick time.

Studies have shown that using contractors can cost companies

as much as 30% less than employees.

"For years, these companies have underpaid their drivers and

denied them basic benefits," Cambpell said in a statement.

"Today's agreement holds Uber ( UBER ) and Lyft ( LYFT ) accountable."

The settlement provides for greater benefits and pay for

Uber ( UBER ) and Lyft ( LYFT ) drivers than provided under a similar settlement

in November with New York state and under legislation signed

into law in May in Minnesota.

Uber ( UBER ) and Lyft ( LYFT ) in defending themselves at trial had argued

that Campbell's office misunderstood their business models and

that they could be forced to cut or end service in Massachusetts

if their drivers were deemed employees.

They along with DoorDash ( DASH ) and Instacart had

financially supported Flexibility and Benefits for Massachusetts

Drivers, the ballot measure committee behind the proposal to ask

voters to deem app-based drivers as contractors.

The proposal had also called for providing drivers benefits

similar to those in the settlement. After its announcement,

Conor Yunits, a spokesperson for the industry-backed campaign,

said the group will no longer be moving forward with the

initiative.

The industry through a $200 million campaign had previously

in 2020 convinced California voters to pass a measure similar to

the one backed by the companies in Massachusetts, solidifying

drivers as independent contractors with some benefits.

Litigation challenging that measure is ongoing.