Claude Dauphin, the former chairperson of Montreal's executive committee, sued after it came to light that the he was the target of an internal investigation led by city comptroller over allegations of conflict of interest in 2009.
That investigation included the interception of Dauphin's emails.
The comptroller was transferred moved out of the job and later retired.
The findings of the probe were turned over to police, but Dauphin was not charged.
City bylaws prevent outright surveillance of elected officials.
The city said today that it will settle out of court and has agreed to pay Dauphin to cover his legal fees and moral damages.
Both parties agreed to the settlement, according to the city.
Both sides also agreed not to comment further on the case.