Victor, 16, and her mother sued two Sierra High School administrators who told Victor in August that her shirt was an improper display of sexuality that violated the school's dress code and might be disruptive. A teacher had her called to the school's office when she showed up in the shirt, according to court documents.
"The law on this is very clear: Public schools can't censor the personal beliefs of students," ACLU attorney Linnea Nelson said. "The message of Taylor's T-shirt expresses the most fundamental type of speech already protected by the First Amendment, the California Constitution and the California education code."
Under the terms of the settlement, school administrators deny violating Victor's free speech rights, and they and the district deny any wrongdoing. The school board approved the required dress code updates Tuesday night, spokeswoman Victoria Brunn said.
"Students continue to be supported in their right for self-expression in all of our high schools," she said in a statement. "Our No. 1 priority continues to be the ability to keep our kids safe physically and emotionally."
Victor, who was open at school about identifying as a lesbian, said she reviewed the district's dress code before deciding to wear the shirt. Since she did not find any rules prohibiting pro-gay messages, she said, she chose to be sent home instead of change.
"I knew that rule did not exist, and I knew that was my free speech right to wear that shirt to school," she said in an interview.
A high school senior in South Carolina was suspended in September for also refusing to change out of a T-shirt with the same phrase. The school district there ended up overturning the punishment, saying the shirt bothered some adults but wasn't a problem for other students.
In other recent cases, Ohio University last year agreed to revise its student conduct code and pay $32,000 to a student who sued after a campus group was told not to wear T-shirts bearing a sexually suggestive double entendre.
In 2013 a Connecticut school district agreed to let a high school student wear a T-shirt with a slash mark through a gay pride rainbow after facing the threat of legal action from the ACLU.
But federal courts have allowed some limits on student speech.
The U.S. Supreme Court ruled in 2007 that an Alaska school acted within its discretion to discourage illegal drug use when it suspended a student who displayed a banner reading "Bong Hits 4 Jesus" at an Olympic torch relay.
And the 9th U.S. Circuit Court of Appeals said in 2014 that administrators at a Northern California high school plagued by racial strife lawfully banned T-shirts bearing the American flag while the campus commemorated Mexican Heritage Day.
With the Central California settlement in the works last week, Victor was given the go-ahead to wear the T-shirt in question.
"I wore the shirt on the first day I was allowed to," she said. "My mom bought me the same shirt in a different color, and she bought me a sweatshirt that says, 'Dare to be different' in rainbow colors."
The Associated Press