By Carolyn Said

Lyft drivers suing for employee status have agreed to remain independent contractors under the terms of a settlement agreement reached late Tuesday night with the ride-hailing company.

The resolution of the proposed class-action case, one of many pending against the on-demand industry, allows Lyft to continue its core business model with few disruptions.

"We are pleased to have resolved this matter on terms that preserve the flexibility of drivers to control when, where and for how long they drive on the platform and enable consumers to continue benefiting from safe, affordable transportation," Kristin Sverchek, general counsel at Lyft, said in a statement.

Lyft agreed to pay the drivers $12.25 million and make two changes in its terms of service for drivers. It will list specific reasons that allow it to "deactivate" drivers -- previously it could terminate their service for any cause. Lyft also agreed to pay fees and costs for future arbitration claims.

"We believe this is a fair settlement and adequate resolution of the claims we brought, given the risks we faced in the litigation against Lyft," the drivers' attorney, Shannon Liss-Riordan, said in a statement.

Those risks included provisions in Lyft driver contracts requiring arbitration and effectively banning class-action cases.

Lyft's much bigger rival Uber has similar contract language but a judge hearing a case by Uber drivers ruled that its arbitration clause is unenforceable. That opened the door for the Uber drivers seeking employee status to proceed as a class action. Liss-Riordan represents the drivers in that case as well. It is set to be heard by a San Francisco jury in June in federal court.

That case, O'Connor v. Uber Technologies, makes a variety of high-ticket financial claims, including that drivers are entitled to expense reimbursement and tips, both dating back to the founding of Uber five years ago.

The Uber and Lyft cases reflect a nationwide debate about whether the growing cadre of freelancers, including workers for a new generation of on-demand companies, should be entitled to the rights and benefits of employees.

Lyft said it supports new hybrid models that would give contractors more benefits.

"Apart from this settlement, we continue to explore a variety of ways to provide services and support for our driver community, including the potential for portable benefits, because we believe it is important to preserve the flexibility drivers cherish while also strengthening their safety net," the company's statement read.

Lyft said about 80 percent of its drivers put in 15 hours a week or less behind the wheel.

The settlement agreement in Cotter v. Lyft must be approved by U.S. District Judge Vince Chhabria, who will preside over a hearing about it on Feb. 18 in San Francisco.

(c)2016 the San Francisco Chronicle