Simon Cremer, 47, took Mark Gilbert, 40, to the police station after discovering he had written out a company cheque to himself and taken it to Cash Converters in October 2008.
Gilbert was paraded through the streets of Witham in Essex with a cardboard sign which read: "Thief. I stole £845 am on my way to the police station."
He admitted the crime to police and was let off with a caution but Mr Cremer was charged with false imprisonment before the case against him collapsed in December 2008.
Now Mr Cremer, who runs a flooring firm, has paid £5,000 in compensation and £8,000 in court costs to the worker who stole from him.
He said: "I think it's absolutely disgusting that he was even able to sue me after he had stolen from me to be honest. I don't want to give him a penny after what he did, so it really sticks in my throat.
"He stole from me yet he is the one who is walking away with the money. It makes me so angry."
Gilbert, a floor fitter, claimed for two years' lost earnings and the "distress" he suffered after being walked through the town.
He claimed he needed psychological help after the incident. The case was due to come before a civil court on Monday but father-of-two Mr Cremer said he could not risk the expense involved.
He settled out of court because he said it would cost him more than that to fight the case in legal bills. He also had to pay Gilbert's legal costs leaving him with an £8,000 legal bill for the case.
Mr Cremer, who lives in Little Maplestead, Essex, with his partner Karen Boardman, 45, who has been battling breast cancer, said: "It would have cost me £25,000 just to go to court, so I had no option but to settle out of court. I could not afford to take it to court, so there was no other option.
"It would financially ruin me, it would break me. I would lose my business and I would risk losing my home because I would have to remortgage it."
Gilbert, formerly of Colchester, Essex, has since moved away from the area and is believed to be living in Bristol.
He admitted writing the cheque to himself and cashing it in claiming he was owed wages that he wanted to use for a holiday and his boss was too busy to write it himself.
He said: "I feel for the bloke, I respect the bloke but I want him to pay for what he's done.
"I went in my local pub and felt a cold shoulder. I wanted to face people, to deal with it face on. I think this is going to have a long-term effect.
"I probably deserved it for what I did, fair enough but I wasn't stealing from him and I paid the money back.