The successor company to Woolworth's has agreed to pay $3.5 million to settle allegations the retailer laid off workers based on age.

The Equal Employment Opportunity Commission today announced the settlement of a lawsuit accusing Woolworth's of wrongly laying off 678 workers from 1995 to 1997. The agency said managers targeted workers over 40 years old in a nationwide cost-cutting move.

EEOC Chairwoman Cari M. Dominguez said her agency has seen a jump in age discrimination complaints during the recent wave of layoffs. "If we are not careful, age discrimination will reach epidemic levels," she said. "This is a wake-up call to corporate America."

Woolworth's closed in 1997 and is now known by the name of its other major retail chain, Foot Locker Inc. Foot Locker did not admit wrongdoing.

Most of the payments to individual employees will range from $4,000 to $7,000, EEOC officials said. Former workers said what was most galling about the firings was that managers wouldn't even allow the laid-off workers to apply for part-time jobs being offered to younger people outside the company.

Former Woolworth's manager Donald Russell of Providence, R.I., said the goal of the age-based layoffs was to reduce the cost of such benefits as health care and pensions.

"At one time, Woolworth's was part of Americana," said Russell, who worked at Woolworth's for 34 years.

"There's a lesson here: Be careful what you do . . . you'll end up destroying what you're trying to save."