Uber Technologies Inc. will pay $20 million to settle California lawsuits challenging the company’s classification of drivers as independent contractors, and not employees owed the benefits of traditional employment.

Resolution of the long-standing fight over benefits and pay comes as Uber is preparing for its initial public offering later this year. The litigation attacked the ride-sharing company’s business model of treating its drivers as contractors to avoid the costs of paying a minimum wage, overtime, sick leave and health insurance....