Report  Assessing Transportation Network Companies’ Financial Obligations to Massachusetts Programs

Over the past decade, the emergence and exponential growth of Transportation Network Companies (TNCs) such as Uber and Lyft have transformed the personal transportation industry across the United States, while also raising important questions about rideshare companies’ broader economic and societal impacts.¹ Massachusetts is currently debating the classification of TNC drivers—specifically, whether they are independent contractors or employees. This classification has significant financial implications for entitlement benefits and employee protection programs such as workers’ compensation, unemployment insurance, and paid family and medical leave.²

Several states have taken legislative and legal steps in the last few years aimed at better defining the relationship between TNCs and their drivers, crafting fair labor practices, and ensuring adequate contributions to state benefit programs. A 2022 landmark case in New Jersey resulted in Uber and a subsidiary paying $100 million to the state’s Unemployment Trust Fund because of the misclassification of drivers as independent contractors.³ In California, a study estimated that Uber and Lyft would have owed $413 million to the state’s Unemployment Insurance Fund between 2014 and 2019 had they classified drivers as employees.⁴ In late 2023, the Office of the New York State Attorney General announced significant settlements with Uber and Lyft totaling $328 million; these settlements resulted from a multi-year investigation, which found that Uber and Lyft policies had prevented drivers from accessing state financial benefits.⁵ Most recently, a study commissioned by the Minnesota Department of Labor and Industry highlighted the need to establish a minimum compensation standard for Minnesota’s TNC drivers to ensure that their earnings align with the state’s minimum wage laws, as many drivers make less than the minimum wage (after accounting for vehicle-related expenses).⁶

At the federal level, the Biden administration enacted a new labor rule in January 2024 to address the misclassification of workers as independent contractors with the goal of providing millions of US workers enhanced legal protections and compensation.⁷ This rule broadened the criteria for determining employee status by introducing a six-factor analysis for determining whether a worker is an employee or a contractor. The major TNCs had a muted response to this federal action, claiming that the rule change is not likely to impact them.⁸

In Massachusetts, critical questions have been raised about the adequacy of TNC contributions to state benefit programs. In 2020, the Office of the Attorney General (AGO) filed a lawsuit to classify Uber and Lyft drivers as employees under the Commonwealth’s wage and hour laws, asserting that “Uber and Lyft are unable to meet a three-part test under state law that would allow them to classify drivers as independent contractors.”⁹ AGO explained that drivers do not meet the law’s criteria for independent contractors because of their lack of autonomy, stating, “Uber and Lyft drivers are not engaged in an independently established occupation or business. The drivers are not true independent entrepreneurs with the ability to grow their businesses using their individual abilities.”¹⁰ In a press release dated July 14, 2020, AGO asserts:

By misclassifying drivers as independent contractors, Uber and Lyft deny their drivers basic protections under the Massachusetts Wage and Hour Laws. Many drivers are not even guaranteed the state minimum wage or overtime because the companies don’t pay them for time spent between rides or reimburse them for necessary business expenses such as fuel, vehicle maintenance, and insurance. The companies only recently began offering drivers temporary paid leave due to the COVID-19 pandemic, but even these new policies fail to comply with the Massachusetts Earned Sick Time Law. And drivers who think they were wrongly suspended or terminated cannot challenge those actions in court because their service agreements require them to go to arbitration.

To explore whether TNC contributions to state benefit programs have been sufficient, this analysis considers two primary scenarios. In the first scenario, TNC drivers are assumed to be classified in a correct manner. As a result of that hypothetical correct classification, there may be no change in the payments owed to various public benefit programs.¹¹

In the second scenario, TNC drivers are assumed to be wrongly classified as independent contractors. In this scenario, TNCs owe a financial obligation to the Commonwealth comparable to that of a taxi company. As demonstrated below, from 2013 through 2023, Massachusetts benefit programs would have suffered a conservatively estimated loss of $266,416,315 if TNCs incorrectly classified drivers as independent contractors. Were TNC drivers to be recognized as employees, the Division of Local Mandates (DLM) believes the state could continue to foster innovation in the transportation sector while ensuring drivers have access to vital worker benefit programs, appropriately funded with employer contributions.

1.      Note that this report focuses on TNCs only, and omits Delivery Network Companies due to a lack of data availability.

2.     The classification may also financially impact other Massachusetts programs such as MassHealth, which are not the subject of this study due to data availability limitations.

3.      New Jersey Department of Labor and Workforce Development. (2022, September 13). Uber pays $100M in driver misclassification case with NJ Department of Labor and Workforce Development and Attorney General’s Office. [Press release].

4.      Jacobs, K. & Reich, M. (2020). What would Uber and Lyft owe to the State Unemployment Insurance Fund? University of California, Berkeley, Center for Wage and Employment Dynamics.

5.      New York State Office of the Attorney General (2023). Attorney General James secures $328 million from Uber and Lyft for taking earnings from drivers. [Press release]. Note that while the settlements address issues such as unfair pay deductions and lack of benefits like paid sick leave, which are generally associated with employee status, they make no direct statement about a potential reclassification of drivers as employees rather than independent contractors.

6.      Parrott, J., & Reich, M. (2024).  Transportation Network Company Driver Earnings Analysis and Pay Standard Options. Prepared for the Minnesota Department of Labor and Industry. It is noteworthy that after the Minneapolis City Council passed an ordinance setting the minimum wage for rideshare drivers at $15.57 per hour, Lyft and Uber announced they will cease operations in Minneapolis starting May 1. Lyft described the ordinance as “deeply flawed” and unsustainable for their operations, while Uber criticized the council for disregarding data, predicting the move would leave 10,000 workers jobless and many residents without transportation services. Mayor Jacob Frey expressed support for a minimum wage for drivers but criticized the ordinance for mandating “inappropriate driver compensation.” For more details: CNN. (2024, March 15). Lyft and Uber to cease operations in Minneapolis after new minimum wage law.

7.      Employee or Independent Contractor Classification under the Fair Labor Standards Act, 89 Fed. Reg. 1638-1743 (Jan. 10, 2024) (codified at 29 C.F.R. pts. 780, 788, and 795).

8.      Uber Technologies, Inc. (2024). Department of Labor’s final rule on worker classification. Uber Newsroom. Retrieved from https://www.uber.com/newsroom/dol-final-rule-2024/ and Lyft, Inc. (2024). Lyft’s view on the 2024 Department of Labor rule. Lyft Blog. Retrieved from https://www.lft.com/blog/[psts/lyfts-view-on-2024-department-of-labor-rule.

9.      Massachusetts Attorney General’s Office (2020, July 14). “AG Healey: Uber and Lyft Drivers are Employees Under Massachusetts Wage and Hour Laws.” [Press release].

10.     Id.

11.     The issue of whether payments are due even if TNC drivers are currently correctly classified as independent contractors is unsettled. First, according to DLM’s interpretation of the Massachusetts Workers’ Compensation Manual, some payment to workers’ compensation may be required even under the current classification, as we have been informed through a conversation with staff from the Workers’ Compensation Rating and Inspection Bureau of Massachusetts. Similarly, payments to PFML may be required for drivers classified as independent contractors, as indicated by a rate calculator publicly made available at https://calculator.eol.mass.gov/pfml/contribution/. However, TNCs take an opposing view, and the matter is ultimately likely to be settled through the judicial process.