A businessman who placed a sign saying "thief" around an employee and marched him to a police station has had to pay him £13,000.
Simon Cremer claimed Mark Gilbert had stolen a cheque for £845 from him.
But Mr Gilbert, who claims he was owed the cash, is understood to have sued his former employer for the distress and humiliation caused.
Mr Cremer, who runs a flooring business in Witham, Essex, said lawyers had advised him to settle out of court.
He said: "I am very disappointed. I am very dissatisfied with the legal system.
"My legal team advised it would be cheaper to settle than go to court - which could have cost £20,000, that is money I don't have."
Mr Gilbert admitted the theft and received a police caution.
Mr Cremer, 46, and the three employees were arrested and accused of false imprisonment following the incident in September 2008, but the charges were later dropped.
Mr Gilbert was marched through Witham with the sign dangling from his neck.
The sign, written on cardboard, said: "THIEF. I stole £845 am on my way to police station."
But Mr Gilbert, 40, told a newspaper that he had been owed wages - a claim denied by Mr Cremer.
Update: This report has been amended to clarify that Mr Gilbert was cautioned for the offence.