MEMPHIS, Tenn.—FedEx Express, a unit of Memphis, Tenn.-based FedEx Corp., said it has reached a $53.5 million tentative settlement in a class action racial discrimination suit filed on behalf of 20,000 Hispanic and African American employees in the company's Western region.

Under terms of the settlement in Satchell, et al. vs. FedEx Express, FedEx Express also will make several policy changes nationwide, including elimination of a basic skills test.

A company spokeswoman said the settlement amount is covered by insurance, but did not reveal the insurer.

However, according to plaintiff attorney James Finberg, a partner with San Francisco-based Altshuler Berzon L.L.P., FedEx is insured by a unit of Hamilton, Bermuda-based XL Capital Ltd. An XL spokesman could not be reached for comment.

Preliminary approval of the settlement agreement by the federal district court in San Francisco was scheduled to take place April 13, according to Mr. Finberg. Final approval, after terms of the settlement are sent to affected employees, is expected in August, he said.

The lawsuit was filed on behalf of employees who have worked in the company's western U.S. region, which covers all or part of 14 states, since October 1999, according to court papers.

Plaintiffs charged that implementation of FedEx's human resource polices was "rife with stereotyping and racial bias," according to the court papers.

The lawsuit was filed in state court in 2002 and moved to federal court in 2003, according to Mr. Finberg. The court granted class certification in the case in September 2005.

FedEx Express President and Chief Executive Officer David J. Bronczek said in a statement: "Let me be clear--FedEx Express does not discriminate and did not discriminate in this case--period. We voluntarily entered into this consent decree to avoid the likely greater expense of continued proceedings in an unpredictable and often irrational litigation environment."

According to FedEx Express, the basic skills test that is being eliminated under terms of the settlement covers basic levels of competence for reading and other necessary skills such as reading basic maps. It was used as a prerequisite for promoting employees to several key higher-paid positions.

FedEx said it agreed to discontinue the test to remove any claims concerning it. "We will continue to hold all of our employees to the same high performance standards people have come to expect from FedEx," Mr. Bronczek said.

Other policy changes clarify selection and advancement polices, providing additional guidance in evaluating employee performance and discipline administration, according to FedEx.