National retail chain Dillard's Inc. has agreed to pay $2 million to settle a class action disability discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission.

The settlement resolves a 2008 lawsuit filed against the Little Rock, Ark.-based retailer for allegedly using a longstanding national policy and practice of requiring all employees to disclose personal and confidential medical information to obtain sick leave, the EEOC said in a statement Tuesday.

The settlement also resolves allegations that Dillard's terminated employees for taking sick leave beyond the maximum amount of time allowed.

In the suit, the EEOC alleged that since 2005 Dillard's violated Americans with Disabilities Act by requiring former cosmetics counter employee Corina Scott at a store in El Centro, Calif., and others, to disclose the exact nature of their medical conditions to be approved for sick leave.

Ms. Scott, who was absent from work for four days, and others, subsequently were fired in retaliation for refusing to provide details of their medical conditions, according to the lawsuit, which was filed in U.S. District Court for the Southern District of California.

The EEOC also claimed Dillard's enforced a maximum-leave policy that limited the amount medical-related leave an employee could take without regularly determining if more leave was allowed under the ADA.

The district court ruled that Dillard's medical disclosure policy was “facially discriminatory under the ADA,” the EEOC said in the statement.

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“Policies and practices that permit medical inquiries without proof of a valid business necessity run afoul of the law, often having large-scale consequences,” said Anna Park, regional attorney for the EEOC's Los Angeles district office, in the statement. “All employers should carefully examine their own policies and practices to ensure compliance with federal law."

Dillard's agreed to pay $2 million to identified claimants and establish a class fund for unidentified claimants. The agreement also requires Dillard's to review and revise company policies, according to the statement.

The two policies that allegedly violated the ADA are not in effect and the company denies that either policy violated the law, Dillard's said in a separate statement Tuesday.

“However, in order to avoid further protracted litigation with the EEOC over policies that are no longer in effect, Dillard's determined that the most efficient resolution was to settle with the EEOC,” the company said in the statement. “Under the settlement the company agreed to not reinstate the policies at issue as well as to other injunctive relief, and to establish a class fund from which current and former associates who believe they were adversely affected by the policies can make a claim.”