Uber announced Thursday it had agreed to pay $100 million (88.6 million euros) to settle two closely watched class-action labor disputes covering 385,000 drivers in California and Massachusetts. The settlement resolves a major challenge to Uber's business model by allowing the ride-sharing service to keep its drivers in the two US states as independent contractors.

According to a statement from the drivers' attorney, Shannon Liss-Riordan, Uber agreed to stop deactivating drivers "at will" and would allow drivers to solicit tips by placing a sign in their cars.

The agreement also included that the company would facilitate the formation of a drivers' association that could play "a role similar to a union," she said. While such an organization is not officially a union, it can act like a union in bringing grievances to management's attention.

The lawsuit had claimed that Uber drivers are employees and thus entitled to reimbursement of expenses. It is important for other Silicon Valley tech companies too, as they share Uber's reliance on independent contractors. A trial on the issue was scheduled to start in the San Francisco Federal Court in June.

"We realize that some will be disappointed not to see this case go to trial," Shannon Liss-Riordan said, adding that the plaintiff drivers had faced significant risks of losing if the case moved forward, particularly because a federal appeals court had recently agreed to review an order allowing Uber drivers to sue as a group.

She noted, however, that the settlement wouldn't prevent a future court, or US labor authorities, from classifying Uber drivers as employees.

No legal precedent

Under the terms of the settlement, Uber agreed to pay $100 million - $84 million of which is guaranteed to drivers. Uber will also pay an additional $16 million, but only if the company's valuation grows by 150 percent above its December 2015 financing round within a year after any initial public offering. At the time, Uber was valued at $62.5 billion.

Uber chief executive (CEO) Travis Kalanick said in a blog post that the company would change its policy for deactivation of drivers. Some drivers had long complained that Uber arbitrarily terminated users from its platform.

Uber was "pleased" that the deal "recognizes that drivers should remain as independent contractors, not employees," Kalanick also said in the post.

The settlement is similar to a separate agreement announced with Lyft drivers earlier this year, though the Uber agreement is much larger given that Uber has many more drivers. Over 450,000 US drivers currently use the app each month, according to Uber.

The Uber deal must be approved by US District Judge Edward Chen in San Francisco.

uhe/kd (Reuters, dpa, Uber website)