Abercrombie & Fitch Co. (search) has agreed to pay $40 million to black, Hispanic and Asian employees and job applicants to settle a class-action federal discrimination lawsuit that accused the clothing retailer of promoting whites at the expense of minorities, lawyers said Tuesday.

The settlement, approved Tuesday morning by U.S. District Court Judge Susan Illston, requires the company to adhere to a consent decree that calls for the implementation of new policies and programs to promote diversity and prevent discrimination in its workforce. Abercrombie & Fitch also must pay about $10 million to monitor compliance and cover attorneys' fees, although the agreement contains no admission of wrongdoing by the company.

"We have, and always have had, no tolerance for discrimination. We decided to settle this suit because we felt that a long, drawn out dispute would have been harmful to the company and distracting to management," chairman and CEO Mike Jeffries said in a statement Tuesday.

In trading, Abercrombie & Fitch shares closed down 93 cents, or 2.1 percent, at $44.08 on the New York Stock Exchange. Wall Street had known the settlement was coming; last week, in its third-quarter earnings report, Abercrombie & Fitch had said it would pay $50 million to resolve the litigation.

The lawsuit originally was filed last June in San Francisco by Hispanic and Asian groups charging that Abercrombie & Fitch, known for its "classic casual American" clothing styles, hires a disproportionately white sales force, puts minorities in less-visible jobs and cultivates a virtually all-white image in its catalogues and elsewhere. A second, similar lawsuit was filed against the company last November in New Jersey.

The U.S. Equal Employment Opportunity Commission (search) joined the private plaintiffs in the lawsuit, which alleged that Abercrombie & Fitch violated portions of the Civil Rights Act (search) of 1964. The lawsuit specifically accused the company of engaging in recruiting and hiring practices that exclude minorities and adopting a virtually all-white marketing campaign.

"The retail industry and other industries need to know that businesses cannot discriminate against individuals under the auspice of a marketing strategy or a particular 'look'. Race and sex discrimination in employment are unlawful, and the EEOC will continue to aggressively pursue employers who choose to engage in such practices," said Eric Dreiband, the EEOC's general counsel.

The EEOC estimated the lawsuit would affect more than 10,000 Hispanic, Asian or black men and women.

The consent decree calls for Abercrombie & Fitch to hire a vice president of diversity and hire up to 25 diversity recruiters. The company also promised that its marketing materials would reflect diversity.

The original lawsuit was brought on behalf of nine young minorities, including students and graduates of Stanford University and the University of California, who were denied jobs or fired based on their race.

"This agreement promises to transform this company, whose distinctiveness will no longer stem from an all-white image and workforce," said Thomas A. Saenz, vice president of litigation at the Mexican American Legal Defense and Educational Fund.