Uber Technologies and Lyft have agreed to a landmark settlement establishing a $32.50 hourly minimum wage for their drivers in Massachusetts. This agreement follows a lawsuit by the state’s attorney general alleging the companies had improperly classified drivers as independent contractors to avoid providing employee benefits.

In addition to the wage increase, the settlement includes $175 million in compensation, paid sick leave, accident insurance, and healthcare stipends for drivers. Uber and Lyft will also cease funding a ballot initiative intended to maintain drivers’ status as contractors.

The settlement requires Uber to pay $148 million and Lyft to pay $27 million, with at least $140 million distributed to drivers. Attorney General Andrea Joy Campbell emphasized that this agreement holds Uber and Lyft accountable for underpaying their drivers and denying them basic benefits.

This agreement provides more benefits and pay for Massachusetts drivers compared to similar settlements in other states, including New York and Minnesota.

Uber and Lyft had argued that classifying drivers as employees could force them to cut services in Massachusetts, but the new operating model aims to balance flexibility with employee benefits.