The settlement brings an end to what Sikh and Muslim plaintiffs dubbed a "brand or segregate" policy enforced by the New York City Transit Authority following the September 11, 2001, attacks on the World Trade Center.

According to the settlement papers, Transit Authority employees will no longer be forced to choose between branding their religious head coverings with the logo for the rail and bus operator's parent, the Metropolitan Transit Authority, or working in jobs out of the public view.

Bus drivers, train operators, conductors and station agents will now be allowed to wear their headscarves, turbans and other religious head wear, provided they are in the same blue colour as their transit uniforms, according to court papers.

The settlement resolves a lawsuit filed by the U.S. Department of Justice in 2004 against the Transit Authority. The lawsuit said the policy, which had been on the books for years but was not actively enforced until 2002, was being used to target Sikh and Muslim workers.

The workers were being disciplined when they refused to append a transit-system logo to their turbans or scarves and were forced to work less-desirable jobs out of passengers' view, the lawsuit said.

Transit Authority officials said the 2002 crackdown was part of an "across-the-board, neutral enforcement" of its uniform policy. But several Sikh and Muslim employees who joined the suit said the policy was designed to appease anti-Muslim sentiment following the September 11 attacks.

"We're glad that this sad chapter in our city's reaction to 9/11 has come to an end," Amardeep Singh, program director of the Sikh Coalition, said in a statement.

A spokesman for the MTA , Kevin Ortiz, said the uniform policy was "never animated by religious or ethnic bias," and that the settlement preserved the fundamental elements of the agency's uniform policies.

Thomas Perez, assistant attorney general for the Justice Department's civil rights division, said he was "pleased that the NYCTA has agreed to end its discriminatory practices that for years have forced employees to choose between practicing their religion and maintaining jobs."

The Transit Authority has also agreed to pay monetary settlements totalling at least $184,500 to eight Sikh and Muslim current and former employees who filed employment discrimination claims, according to court documents.

(Reporting by Jessica Dye; Editing by Cynthia Johnston and Philip Barbara)

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