BOSTON, June 27 (Reuters) -

Uber Technologies ( UBER ) and Lyft ( LYFT ) will pay $175

million and implement a $32.50 hourly minimum wage for drivers

in Massachusetts to settle the state's lawsuit accusing them of

improperly treating drivers as independent contractors who can

legally receive lower compensation than employees, the state's

attorney general said on Thursday.

The companies also agreed to give drivers paid sick

leave, accident insurance, and healthcare stipends and to stop

funding or supporting a state ballot initiative that would

cement app-based drivers' status as contractors, Democratic

Attorney General Andrea Joy Campbell said in a statement.

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 made the announcement hours after the state's

highest court

cleared the way

for voters to decide in November whether to approve the

industry-backed ballot measure, along with a dueling proposal to

allow drivers to unionize.

It was also the eve of closing arguments in a

non-jury trial

in Boston 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.

In a statement, Campbell said the agreement holds Uber ( UBER )

and Lyft ( LYFT ) accountable for underpaying drivers for years. The

companies have denied wrongdoing in the lawsuit.

The ruling earlier on Thursday by the Massachusetts

Supreme Judicial Court

rejected

a labor-supported challenge to the ballot measure, which

Uber ( UBER ) and Lyft ( LYFT ) have spent millions of dollars to back. The

proposal would guarantee drivers most of the same benefits

included in the state's settlement with Uber ( UBER ) and Lyft ( LYFT ).

The industry through a $200 million campaign 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.