You do not badmouth your former employer, no matter what they did.
Your way creates a nation of slaves. I, personally, oppose slavery.
You may sue them or come to an agreement that makes suing them unnecessary.
Your way creates a nation of excessive litigation. I, personally, would prefer that the courts are used for those cases when where is no other recourse.
I would not hire her now for the sole reason that she seems to believe discretion and loyalty to a company becomes optional after you leave.
You would not hire her now for the sole reason that you could not subject her to abuse without her telling people about it. If you meant to behave honorably, you would not need to cherry-pick employees who will condone your bad behavior by not reporting it to those who wish to know: potential applicants, and potential customers who might not want to do business with you.
There is no reason to have any loyalty to an entity which failed in its responsibilities to you, and to suggest that there is would be simple hypocrisy typically engaged in by business owners who enjoy a status quo based on treating workers like slaves.