The city of Crystal and police Sgt. Rob Erkenbrack have settled a nearly two-year-old labor dispute, with $160,000 going to the veteran officer who told a state mediator he was unjustly demoted in May 2013 and fired last August.

Under the agreement, neither side admits wrongdoing. The city maintains it had cause to discipline Erkenbrack, but it agreed to rescind his demotion and firing, and Erkenbrack, a 27-year veteran, retired effective April 15.

Erkenbrack said Crystal dropped its initial request for a gag order. “They paid me $160,000 to settle. That is a statement of guilt by the city,” he said Tuesday.

But Police Chief Stephanie Revering said “the city maintains we had just cause for the employment actions that we did.” She said the city settled to avoid the cost and uncertainty of continued litigation.

The city’s insurer, the League of Minnesota Cities Insurance Trust, paid $50,000 of the settlement and the city paid $110,000, league attorney Jana Sullivan said. Erkenbrack agreed to drop all claims of age discrimination and other issues against the city.

“It is a good settlement for all parties,” given the potential for further litigation expense, Sullivan said.

Communities United Against Police Brutality, an area nonprofit group that supported Erkenbrack, held a celebration Tuesday night at Crystal City Hall. About 20 to 25 people attended, including Erkenbrack, who called the outcome a “vindication.”

Earlier, Erkenbrack said the underlying issue was the city’s allegation that he had not properly supervised officer Alan Watt, who left his handgun unattended on a table in the police squad room while he went to talk to Revering in April 2012.

Erkenbrack said he produced city records showing he was on vacation that day and couldn’t have supervised Watt.

Revering said that the handgun situation was not the issue but that she could not discuss why Erkenbrack was disciplined.

Erkenbrack and Watt were put on paid leave and then fired. They have said they were disciplined for questioning the thoroughness of the Crystal police investigation of a home theft report stemming from a 2008 raid by the now-defunct Metro Gang Strike Force.

Revering said the city hired the Everett & VanderWiel law firm to look into the theft. She said Watt was returned to duty in September but terminated Feb. 28 because of new and old issues, which he is contesting.