I'm sorry this happened to you. Unfortunately, parties to a lawsuit are generally protected from claims for defamation arising from statements contained in their pleadings. This is known as "litigation privilege." Thus, it is unlikely that the misrepresentations contained in these court documents could form the basis for a libel claim.
The most likely cause of action would be one for malicious prosecution (the act of bringing a lawsuit without good cause for the purpose of harassing or intimidating the other party). However, an essential element of such claim is termination of the lawsuit in the defendant's favor. Since your employer settled the suit, I don't see how a cl aim for malicious prosecution could be supported.
This answer is a general interpretation of the law and is not fact specific to your case. Likewise it does not create an attorney-client relationship. You should seek an attorney for a review of your specific facts and documents.
Probably not. Your co-worker's report to your employer is not subject to claims of defamation for a number of reasons including (1) CA Civil Code section 47; (2) the requisite element for defamation of 3rd party publication; and (3) the strong public policy favoring reports of the kind of misconduct that she alleged. Suing on these grounds will inevitably bring an anti-SLAPP motion and you can wind up on the hook for the defendant's very considerable legal fees.
As for suing your employer, your employer did not make the statement and was legally required to investigate it. Your employer had the discretion to believe it or not -- the law did not dictate a result in that effort. It is wholly unlikely that your employer published the statements of that employee in any matter that would meet the requirements of publication to any 3rd party. So, it is highly unlikely that you have any sound legal claim against your employer, most especially if you were not terminated based on the allegations.
You will see a lot of reference to defamation in employment contexts here on Avvo. Many of those references are incorrect and not based on actual hands-on experience litigating defamation claims. Civil Code Section 47 is a powerful problem for the defamation plaintiff to overcome and, in the employment context, the requisite publication to a 3rd party is not accomplished by reporting or repeating the allegedly defamatory statements to others within the employing entity.
You are not incorrect to feel that you have been injured and to want to know where is your remedy. This is a common situation and represents a difficult but unmistakable (and controversial) policy choice in the law.
You may want to schedule a consultation with a defamation-experienced employment attorney to discuss these issues in further and exacting detail. If you do, ask during that consultation about the potential for claims against the accusing co-worker based on interference with contractual relationship and interference with prospective economic benefit. These are slightly less problematic for the plaintiff than defamation. But, in truth, unless your evidence is truly jaw-droppingly awesome in its strength and conclusiveness, taking on the burdens of plaintiff and going after the complainant on these facts will almost inevitably make your situation significantly worse rather than better.
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