The lawsuits - one in California and one in Massachusetts - will be settled with a payment of $84m to the two plaintiffs, while a second $16m payment will be made if Uber goes public or its valuation increases by one and a half times from December 2015 within the first year of an IPO.
Under the terms of the settlement, Uber has also agreed to provide drivers with more information about their individual rating and how it compares with their peers. The taxi firm will also introduce a policy explaining the circumstances under which drivers are "deactivated". It said it would also create a drivers' association in both California and Massachusetts, with quarterly meetings.
But, by continuing to classify drivers as contractors Uber dodges having to pay extra costs associated with staff, such as healthcare benefits, paying the minimum wage and overtime. Contractors also cannot form unions.
Uber chief executive Travis Kalanick acknowledged that "we haven't always done a good job working with drivers", saying it was "time to change".
Although the deactivation policy will initially only apply in the US, the company plans to roll it out to the UK and other countries "over time". Most obvious reasons include drinking and driving, being violent or refusing to pick up a passenger because of their race or sexual persuasion. But in other cases - a smelly car or bad driving - Uber will contact the driver to try and resolve the issues first.
As part of the settlement, Uber has agreed not to deactivate drivers who regularly decline trips when they are logged in, Kalanick said.
He added: "Six years ago when Uber first started in San Francisco, it was easy to communicate with the handful of drivers using the app... Today, while the number of drivers using our app has grown dramatically, their reasons for doing so haven’t changed. In the US almost 90 percent say they choose Uber because they want to be their own boss.
"Drivers value their independence—the freedom to push a button rather than punch a clock, to use Uber and Lyft simultaneously, to drive most of the week or for just a few hours. That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees."