SAN FRANCISCO — Finally moving to end a dispute that besmirched its hip, all-American brand with charges of religious intolerance, retail fashion giant Abercrombie & Fitch has agreed to change a controversial policy dictating employee dress and grooming in response to discrimination lawsuits filed by two Bay Area women.

In a settlement announced Monday, the popular, youth-oriented national chain agreed to change its “look policy” to provide better protections for women wearing Muslim headscarves, said lawyers for Hani Khan, 23, of Foster City. Khan was fired from a part-time job in 2010 at a store owned by Abercrombie in San Mateo because she refused to remove her hijab. The religious garment ran afoul of Abercrombie’s detailed rules governing the physical appearance of the people who work at its stores — including the Hollister Co. outlets involved in the lawsuits.

“If it could happen to me in the Bay Area, it could happen to anyone,” said Khan, a recent graduate of UC Davis, about the company’s policies. “I felt it was right for me to stand up to it.”

The retailer has agreed to pay $48,000 in back pay and compensatory damages to Khan and $21,000 to a second plaintiff, Halla Banafa, who was denied a job at a Hollister Co. outlet in Milpitas when she was 18 because she was wearing a hijab. At a news conference, Khan said the last 3﻿1/2 years have been a “roller coaster” but that the fight was worthwhile.

“For that to happen to me when I wasn’t doing anything wrong was very surprising and shocking,” she said. “But I’m really happy with how it turned out.”

Two cases

Khan was initially hired in 2009 at Hollister in Hillsdale Shopping Center and was allowed to wear her hijab while working as a stock clerk. But she was fired a few months later when a visiting district manager spotted Khan and objected to her appearance.

The U.S. Equal Employment Opportunity Commission filed a lawsuit against parent company Abercrombie in 2011 claiming it had violated Title VII of the Civil Rights Act, which prevents workplace religious discrimination.

U.S. District Court Judge Yyvonne Gonzalez Rogers ruled in Khan’s favor Sept. 3, setting up a trial later this month to decide damages. Instead the parties settled, without Abercrombie admitting they violated the law.

Last week the judge who heard Banafa’s case, Edward Davila of U.S. District Court in San Jose, approved a settlement for both women in which Abercrombie agreed to accommodate the religious attire of applicants and employees unless doing so would create an “undue hardship” for the company.

Attorneys for the women said the retailer will have difficulty proving such hardship. In separate rulings the federal judges rejected the company’s claims that Khan and Banafa’s hijabs were harmful to the operation of Abercrombie’s business.

Under the terms of the three-year decree, Abercrombie will also establish an appeal process for employees who are denied accommodations for religious attire and retrain its managers regarding the company’s policy on headscarves.

The retailer said in a statement Monday that it was glad to put these “very old matters” behind it.

“Abercrombie & Fitch does not discriminate based on religion, and we grant reasonable religious accommodations when they are requested,” the statement read in part. “(In) our commitment to fair hiring practices and fostering a diverse workplace, we continually evaluate our existing policies.”

Courting controversy

The cases involving Khan and Banafa are the latest in a string of controversies for Abercrombie, known for the chiseled, shirtless male models who patrol the company’s stores. In 2004 the retailer paid $40 million to settle a suit claiming its hiring practices discriminated against minorities. Its sexually provocative T-shirts for girls, with messages such “Who needs brains when you have these?”, inspired an angry boycott in 2005.

The company has achieved stunning success since CEO Mike Jeffries took over in 1992, but sales were down over the first half of 2013. The slump coincided with another notorious incident — an interview Jeffries gave to Salon.com in 2006 resurfaced in which he said his company is “exclusionary” and his clothes are intended only for “cool” and “attractive” kids. The company announced in January it would close 40 to 50 U.S. stores while focusing its growth internationally.

Abercrombie operates more than 900 stores in the United States, more than half of them under the Hollister brand, a casual clothing line for “Dudes” and “Bettys.” Hollister stores have nothing to do with the agricultural city southeast of Gilroy. The name was chosen to conjure up a fictional Southern California lifestyle of “hot lifeguards and beautiful beaches.”

Marsha Chien, one of Khan’s attorneys, quipped, “Abercrombie’s fantasy of California will no longer be allowed to suppress the real California, which embraces racial and religious diversity.”

Abercrombie’s policy changes will remain in effect for three years, during which time the company will be monitored by the court. Once that period elapses, the company no longer has to abide by the rules of the decree, said Zahra Billoo, an attorney who represented Khan for the Council on American-Islamic Relations. But, Billoo added, attorneys will watch the company closely to ensure it follows the law.

Contact Aaron Kinney at 650-348-4357. Follow him at Twitter.com/kinneytimes.