Jewish Sheriff's Deputy James Mee was subjected to an anti-Semitic rant while he was booking the Braveheart star in Malibu, California in 2006 and he claims his reporting of the incident and subsequent voiced concerns about the preferential treatment the actor was allegedly given by police chiefs cost him career advancement, job promotions and led to taunting.
Mee also claimed his job performance was unfairly scrutinised.
Police department officials denied the allegations of retaliation and ethnic discrimination.
Deputy Mee, who is still a police officer in Malibu, was expected to take the case to trial on Tuesday (14Feb12), but he reached a last-minute $50,000 (£31,250) agreement with police officials and the matter has been settled, according to the Los Angeles Times.
Gibson had been listed as a potential witness in the discrimination trial.
The terms of the deal have not been disclosed.