A court then decided Ms Balan's case should be subject to arbitration per a contract she signed while working for Tesla.
The arbitrator found in favour of the firm and Musk, dismissing her claims, due to California's statute of limitations - meaning too much time had passed since the alleged defamatory statements were made.
Tesla brought the case back to a district court in California to have the decision confirmed.
However, Ms Balan appealed this decision, and judges from the US Court of Appeals for the Ninth Circuit found in her favour - in effect deciding the California court did not have the jurisdiction to make its judgement.
They have ordered for the confirmation of the arbitration award to be cancelled, and for the district court to dismiss the action due to its lack of jurisdiction.