Yvonne Mosquito, the West Midlands Deputy PCC, was suspended after visiting a murder victim's family without informing officers.
Following a disciplinary in May 2016, Ms Mosquito had an employment tribunal listed to take place in May 2017.
A joint statement said "all outstanding matters" were resolved.
A BBC source said Ms Mosquito had received a payout. The Office of the Police and Crime Commissioner said it would not comment on whether money had exchanged hands.
Allegations against Ms Mosquito related to a visit she paid to the family of Kenichi Phillips, 18, who was shot dead in a car in Birmingham, on 17 March 2016.
Police and Crime Commissioner David Jamieson said her actions "caused ongoing upset and distress" and "damaged the relationship" between the family and police "in the middle of a complex and sensitive murder investigation".
Her supporters insisted she visited as an ordained minister who wanted to offer condolences to relatives.
Her union Unite rejected the allegations, saying it was "deplorable" the hearing went ahead in Ms Mosquito's absence.
She was issued with a final written warning and her contract was never renewed.
The BBC previously reported Ms Mosquito wrote a letter of complaint about the PCC's behaviour towards her, of which the PCC was aware, four weeks before her suspension.
A joint statement issued by the Office of the Police and Crime Commissioner (PCC) and Ms Mosquito said they were "happy to announce that they have amicably settled all outstanding matters between them".
"Litigation is a stressful business and the parties acknowledge and regret the effects that inevitably follow from that," it added.
The former colleagues thanked each other for their work around issues of equality, the statement added.

Prisoner distress, self-harm and suicide attempts are too often seen as signs of manipulation, rather than vulnerability, research by the Centre for Mental Health and the Howard League for Penal Reform found.
A record number of prisoners killed themselves in 2016, figures have shown.
The government said an internal inquiry into deaths in custody was under way.
The report by the two charities, which is based on interviews with healthcare staff working in prisons, found that the majority of prisoners have multiple and complex needs, including poor mental health.
But many do not get access to mental health support.
The report claims that staff shortages, a "toxic" working environment and a failure to recognise the impact of prison on both prisoners and staff, all contribute to an "unsafe environment".
It recommends three steps to help prisons shift away from a "primarily punitive approach" to a culture centred on wellbeing, recovery and rehabilitation:
Sarah Hughes, chief executive of the Centre for Mental Health, said: "We need to bring about a culture change in prisons that puts safety top of the agenda, that understands the traumas both prisoners and staff too often live with, and that means people get the right help when they need it."
Last month, the Ministry of Justice said there were 119 self-inflicted deaths in prisons in England and Wales in 2016 - 29 more than the previous year and the highest number since records began in 1978.
Frances Crook, chief executive of the Howard League for Penal Reform, said it was "time for action".
She added: "No-one should be so desperate while in the care of the state that they take their own life.
"Staff who work in prisons should never feel so under pressure that they cannot stop and listen."
A government spokeswoman said: "Increased support is now available to those at risk of self-harm or suicide, especially in the first 24 hours, and we have invested in mental health awareness training for staff.
"An internal inquiry is also under way looking at all deaths in custody in the last year, to further our understanding of why these events happen."
A row between a Police and Crime Commissioner and his deputy, who was found guilty of serious misconduct, has been resolved following a payout.
[NEXT_CONCEPT]
Prisons in England and Wales need a "profound culture change" which focuses on inmate safety, a new report says.