The case had threatened to impact how UK Sport offers grants to British athletes in future, potentially forcing the body to introduce benefits and increased protection in the event of disputes or grievances.
"Judgement was received at 1700 today and it has been found that Jess Varnish was neither an employee or a worker of either British Cycling or UK Sport," her management said in a statement.
Funding agency UK Sport said the verdict provided reassurance "that the relationship between UK Sport, National Governing Bodies and athletes is as it has always intended to be."
It said this was "to provide the means and support for talented athletes to achieve their dreams of realising success at the Olympic/Paralympic Games."
Varnish, who was dropped by the British cycling squad in 2016 before the Rio Olympic Games, had sought to sue for wrongful dismissal and sexual discrimination.
The cyclist had alleged she was the victim of bullying and sexist language, particularly from now-departed technical director Shane Sutton. British Cycling had maintained that Varnish was dropped on performance issues alone.
Varnish had argued that her status was akin to an employee of the sports body and UK Sport, and she was therefore entitled to basic workers' rights.
"Whilst this verdict did not find Jessica Varnish to be an employee or worker of UK Sport or British Cycling, we have already taken action to strengthen the duty of care and welfare provided to athletes and are ensuring that avenues for raising any concerns are effective and appropriate," said UK Sport.
"It also gives us confidence that the structure of the relationship between other National Governing Bodies, their athletes and UK Sport can continue in a similar way," the body added.
"But we will reflect on the concerns that were raised through this case when finalising our future strategy for post Tokyo."