Kate Hudson's Fashion Line Settles with Ex-Employee in Lawsuit

Kate Hudson's online retailer just cleared one of its legal headaches by settling its lawsuit against her.

Talitha Peters -- a former exec at Fabletics -- filed new legal docs obtained by TMZ to have her lawsuit against the retailer thrown out after striking a settlement for an undisclosed amount.

Kate is an owner of Fabletics.

As we reported ... Peters sued Fabletics and parent company JustFab last October claiming Fabletics gave her the ax because she went to rehab to treat her Ambien addiction.

Peters said the retailer was all good with her taking time off at first, but then stuck their nose in her biz and 86'd her the day she was supposed to return.

Case closed.