The clip was uploaded in 2006 and had featured a boy with autism.
The employees were given six-month suspended jail sentences in 2010.
Google had appealed against the ruling, saying it had removed the video within two hours of being notified by the authorities.
The three employees - global privacy counsel Peter Fleischer, chief legal officer David Drummond and former Google Italy board member George De Los Reyes - had been convicted of privacy violations, but absolved of defamation in the original case.
At the time Google had said it would be impossible to pre-screen every film posted to its sites to check their contents.
The firm described the appeal ruling as a "victory".
"We're very happy that the verdict has been reversed and our colleagues' names have been cleared," said a spokesman,
"Of course, while we're all delighted with the appeal, our thoughts continue to be with the family who have been through the ordeal."