You must retain experienced employment counsel to represent your company in the lawsuit.  If the conduct has stopped and you did take corrective action against the supervisor, then you have abided by your legal obligations.  These employees cannot demand that an employer terminate another employee merely because they are not happy with the outcome.

Your counsel should send a letter to the employees’ attorney, if represented, informing them of the law, as well as, reminding them of their legal obligations under Cal. Code of Civ. Proc. § 128.7 in pursuing frivolous claims that are not supported by the facts or the law.