The contract expired at midnight, but Transit Workers Union Local 234 leaders said progress was being made and members will keep working as the talks continue.
The bargaining resumed Friday afternoon and will continue on Sunday, as the union looks for a raise and more security measures on the job.
All SEPTA services will continue to operate on normal schedules.
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But union leaders vowed to hit the picket lines if demands were not met.
"After months of bargaining we finally began to make some progress over the past couple days, but we simply ran out of time. We're willing to go the extra mile and grant additional time to reach a fair agreement," said TWU Local 234 President Brian Pollitt. "However, let me be clear if SEPTA's managers fail to meet our demands, we will be on the picket line."
Union leadership said their first proposal to SEPTA was a one-year contract with a 10% wage increase, but SEPTA countered with a $1,000 bonus if members made concessions to their health care.
The union said they rejected the offer. SEPTA would not discuss specifics, saying the talks are in flux.
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SEPTA says it is committed to engaging in good-faith negotiations, with the goal of reaching an agreement that is fair to our hard-working employees and to the customers and taxpayers who fund SEPTA.
The union says it is seeking "fairness on economic issues and desperately needed improvements on safety and security for both passengers and transit workers."
The transit agency is currently trying to shore up a $240 million budget deficit after the expiration of COVID relief money.
If the union does call a strike, it would shut down all bus, trolley, and subway/EL services within the city. While it's not yet known whether SEPTA union workers will indeed go on strike, commuters should be prepared in case it happens.
Commuters who rely on SEPTA say they hope an agreement can be reached before a strike that would shut down service.
The union represents more than 4,500 workers, operating buses, trolleys, and subway lines in the city of Philadelphia.
In the suburbs, SMART Local 1594, which represents 350 transit operators outside of the city, also voted to authorize a strike Friday.
Their contract expires on November 18. Members say safety is their biggest issue.
Both unions say the goal is to avoid a strike if they can reach what they deem as a fair deal with SEPTA.