First, cases of defamation are usually outside the allowed scope of Small Claims courts. They are mainly 'money' courts where individuals (and in some cases, corporations) can have their simple cases heard by a nuetral 3rd party and obtain a legally binding judgment.
Second, defamation is a very hard issue to litigate and, as such, is not normally within the ability of most laypersons (non-attorneys).
Finally, you would have to prove what the former employee is saying, and how it has damaged you. Also, you need to know that if what is being said is true, it is not defamation.
If you still want to consider legal action, you should talk with an attorney familiar with your states laws.
