By Nate Raymond
BOSTON (Reuters) - Uber Technologies (NYSE:UBER) and Lyft (NASDAQ:LYFT) are set to face trial on Monday in a U.S. lawsuit by Massachusetts' attorney general alleging the ride-share companies misclassified their drivers as independent contractors rather than more costly employees.
The non-jury trial in Boston comes amid broader legal and political battles in the Democratic-led state and elsewhere nationally over the status of drivers for app-based companies whose rise has fueled the U.S. gig worker economy.
Massachusetts Attorney General Andrea Joy Campbell is asking a judge to conclude that drivers for Uber and Lyft are employees under state law and therefore entitled to benefits such as a minimum wage, overtime and earned sick time.
Her office claims the companies for years misclassified thousands of Massachusetts drivers and cannot meet a three-part test under the state's worker-friendly laws that would allow them to be deemed independent contractors.
Studies have shown that using contractors can cost companies as much as 30% less than using employees.
Uber and Lyft argue that they properly classified the drivers, saying they are not transportation companies that employ drivers but technology companies whose apps facilitate connections between drivers and potential riders.
The companies warn that, should Suffolk County Superior Court Judge Peter Krupp rule against them, they would be unable to maintain their flexible business model in the state and may be forced to cut or cease operations in Massachusetts.
Rohit Singla, a lawyer for Lyft, during a Thursday pre-trial hearing said his client's "current business cannot support drivers as employees, is not set up for that and wouldn't work that way."
The case is going to trial a week after Massachusetts' highest court heard arguments over whether to allow an industry-backed ballot measure to go before voters in November that defines the drivers as contractors but entitles them to some new benefits.
The court appeared open to allowing some version of that proposal to go on the ballot along with a rival, labor-backed ballot measure that seeks to allow the drivers to unionize.
The lawsuit going to trial was filed in 2020 by Campbell's predecessor, Maura Healey, now the state's Democratic governor. Should the state prevail, it has said the companies could face large penalties for not properly classifying their drivers.
By not classifying their Massachusetts drivers as employees, Uber and Lyft avoided paying $266.4 million into workers' compensation, unemployment insurance and paid family medical leave over 10 years, according to a report by the state auditor.