The U.S. Equal Employment Opportunity Commission sued AT&T on Thursday, accusing the nation's largest phone company of discriminating against workers over 40.

NEW YORK, Aug 20 (Reuters) - The U.S. Equal Employment Opportunity Commission sued AT&T Inc on Thursday, accusing the nation's largest phone company of discriminating against workers over 40.

In a lawsuit filed in U.S. District Court in Manhattan, the EEOC said Dallas-based AT&T had "no legitimate business or reason" for its nationwide policy not to rehire employees who had retired under various retirement and severance programs.

The EEOC said tens of thousands of retirees covered by the programs, including a Voluntary Retirement Incentive Program and an Enhanced Pension and Retirement Program, are harmed by the policy, which it said took effect in October 2006.

"From what AT&T has told us, there are in excess of 50,000 individuals subject to these plans," said Louis Graziano, an EEOC lawyer handling the case, in an interview. "At most, very few people under 40 would be affected."

Graziano said that for many years prior to 2006, the programs let retirees reapply for jobs after a six-month waiting period. The current AT&T was created in 2005 when SBC Communications Inc bought what had been AT&T Corp.

Marty Richter, an AT&T spokesman, declined to comment on the lawsuit. He said the phone company makes diversity a top priority, and that discrimination of any sort, including on the basis of age, "is not tolerated."

AT&T employs 294,600 people, according to its website.

The EEOC is seeking the rehiring of and payment of back wages to affected employees, an injunction against further discrimination, and other remedies.

It brought the case on behalf of John Yates, who was 57 years old when AT&T turned him down for employment.

Yates could not immediately be reached for comment.

The EEOC filed a similar federal case in Missouri against a unit of the insurer Allstate Corp (ALL.N) in 2004. That case is still ongoing.

AT&T shares were up 17 cents to $25.55 in afternoon trading on the New York Stock Exchange.

The AT&T case is EEOC v. AT&T Inc, U.S. District Court, Southern District of New York (Manhattan), No. 09-7323.

The Allstate case is EEOC v. Allstate Insurance Co, U.S. District Court, Eastern District of Missouri (St. Louis), No. 04-1359. (Reporting by Jonathan Stempel; Editing by Steve Orlofsky, Leslie Gevirtz)