Wet Seal will pay $7.5 million to settle a racial discrimination lawsuit that accused the teen retailer of firing black employees to present a blond-and-blue-eyed front in its stores, according to the NAACP Legal Defense and Educational Fund.
The firm represented plaintiffs in a national class-action effort filed against the struggling Foothill Ranch company in July in federal court in Santa Ana.
The lawsuit alleged that former top Wet Seal executives denied equal pay and promotion opportunities to black store managers or removed them outright, replacing them with white employees.
In December, the U.S. Equal Employment Opportunity Commission found that company honchos had discriminated against Nicole Cogdell by removing her from her manager's role at a Pennsylvania store.
The EEOC's three-year investigation determined that Wet Seal sought an "Armani look" featuring workers who looked more like Barbie and Ken than Cogdell, who is black.
Much has changed in the last year for the company and its 526 Wet Seal and Arden B. stores.
Amid sliding sales, Wet Seal purged its board and replaced Chief Executive Susan McGalla in January with John D. Goodman.
The new leadership team has agreed to shell out $7.5 million to settle the lawsuit, according to the NAACP firm. At least $5.58 million of the amount will go into a fund to cover damages to black current and former Wet Seal managers.
The company has also agreed to make "numerous changes," promising to track applications to ensure hiring diversity, expand its human resources department to allow for better investigation of discrimination complaints and maintain a council of advisors for guidance on equal employment tactics, according to NAACP LDF.
"With this settlement, Wet Seal is attempting to right its wrongs." said Sherrilyn Ifill, director-counsel of the NAACP firm. "The fight for equality in the workplace is far from over in America."
In a statement Thursday, Wet Seal called the settlement a "no-fault resolution" and said its collaboration with the plaintiffs played an "important role in redefining the company and positioning it for success."
"We appreciate the insights we have gained from plaintiffs' counsel and the EEOC for our best-practices initiatives," Goodman said in the statement. "We are pleased to put this matter behind us as we continue to be committed to nondiscriminatory employment practices that create a welcome environment for people of all backgrounds."
Also Thursday, Wet Seal released sales figures for its first quarter, which ended May 4. Net sales slumped 5.1% to $140.4 million, while overall same-store sales slipped 2.9%.
But both of the company's brands narrowed their same-store sales plunges from the same period last year. The Wet Seal label reported a 3.4% dip, an improvement from the 7% drop during the year-ago quarter. Arden B. noted a 0.9% uptick, compared with a 11.4% dive a year ago.
The company was optimistic enough to raise its forecast for first-quarter profit. Investors pushed Wet Seal stock up 2 cents, or 5.7%, to $3.73 a share in mid-session trading in New York.