The lawsuit had been dismissed in the state's favor, but a federal appeals court last year revived part of it in a key ruling regarding political affiliation that now covers states in the 6th Circuit: Michigan, Ohio, Tennessee and Kentucky.
The settlement was disclosed in federal court in Detroit ahead of a trial that had been set for Aug. 13.
"You shouldn't be punished for whom you're perceived to support," attorney Lisa Ward of Okemos said Friday.
Patrick Hall, Tammie Erskine, Jeff Dye and Eric Perttunen said their bosses, racing commissioner Christine White and deputy commissioner Gary Post, believed the four favored Republican Dick DeVos in the 2006 election and retaliated against them after Gov. Jennifer Granholm, a Democrat, won a second term.
Hall now is retired while Erskine and Dye lost their jobs in 2009. Perttunen still is a racing steward.
The state denied any retaliation and said job cuts were due to budget problems. The attorney general's office declined to comment on why it settled the case instead of contesting it at trial.
While some stewards may have spoken in support of DeVos, others were silent and no one was actively campaigning for him.
At a 2007 meeting, after the election, the stewards said White accused them of voting for DeVos to try to get rid of her, a Granholm appointee. Those circumstances were important to the appeals court in a 2-1 decision in 2012.
"Retaliation based on perceived political affiliation is actionable," Judge Karen Nelson Moore wrote.
Ward said the case is important no matter the political party.
"Just because they work for the state doesn't mean they don't have constitutional rights," she said. "Whom they voted for or didn't vote for has absolutely nothing to do with the quality of their work."