The decision to go with a cash settlement rather than reinstate former Ludlow Town Council clerk Veronica Calderbank was made behind closed doors last week, but it was made public at a full council meeting last night.
The council also resolved to make no public statement on the matter until a settlement was decided. But in the minutes of the private meeting the council said reinstating her would create an "unworkable situation".
Mrs Calderbank won the claim against Ludlow Town Council at the end of a month-long employment tribunal hearing in December last year.
Judge Rohan Pirani, who was overseeing the Birmingham tribunal, said that, given the "substantial losses" in salary and pension Mrs Calderbank might want her job, and the tribunal may order her to be reinstated.
But now Ludlow Town Council's legal advisor Kuldeep Chehal has informed employment dispute body ACAS it does not intend to re-employ her.
In the minutes of the closed meeting, Mayor of Ludlow Jim Smithers said: "Members felt that the new council had established a positive dialogue with the local community.
"Reinstatement of the previous town clerk would be seen as a regressive step and undermine the confidence of the community and create an unworkable situation for staff."
He said if a settlement could not be reached by negotiation, the council would accept whatever settlement was decided by the tribunal.
During the dispute Mrs Calderbank accused former council members of bullying and she claimed she was left with no choice but to quit her role in June 2012, after being asked to work long hours without a break, despite a crippling back problem.
While her claim of unfair constructive dismissal was upheld, a claim that the council did not make "reasonable adjustments" for Mrs Calderbank's back problem was dismissed, along with accusations against former councillors John Aitken, Jeffrey Wilcox and Susan McCormack.
A claim for direct disability discrimination was also withdrawn by Mrs Calderbank herself.
But the tribunal found that Mrs Calderbank had not contributed to or caused her own dismissal so was therefore due compensation.
A remedy hearing will be held on February 18.