How flawed firing of Henderson city manager proves costly

By Steve Kanigher

Saturday, Feb. 19, 2011 | 2 a.m.

As if Henderson’s money problems weren’t bad enough, it has to pay $1.3 million to a former city manager because it botched her firing with poor communication, questionable legal advice and a mishandled contract.

Had the city more patiently and closely followed a termination process — including evaluating her job performance before dropping the hammer — it could have fired Mary Kay Peck at a fraction of the cost of what it must pay.

Instead, the city’s blunder may be memorialized in some government textbook as an example of how not to fire a high-ranking public employee.

Peck’s three-year contract, signed in October 2007 when she became city manager, required that if the City Council ever wanted to get rid of her, it would have to show justifiable cause. If it couldn’t, the city would have to pay a hefty settlement. Council members unanimously thought they met the “cause” requirement when she was fired at an April 2009 public hearing. But an independent arbitrator who was allowed the final word said the council messed up by failing to prove cause and by leaning on unreliable witnesses and false testimony.

This week, the city agreed to pay Peck $1.3 million.

Councilman Steven Kirk and former Councilman Jack Clark said this week that they relied on the city’s legal team that advised the council it had cause to fire Peck.

Others blamed Peck’s employment contract for not clearly defining what would have constituted cause to discharge, and because the city failed to evaluate her job performance in a timely fashion.

Now, the city must dig into its lean $234.4 million general fund and its liability insurance to pay. “Anything that impacts our economic situation is certainly of concern to us,” Henderson spokesman Bud Cranor said.

Henderson already is battered by the recession. The city bought out 200 employees over the past two years, closed City Hall on Fridays, eliminated vehicle allowances, and got police and firefighter unions to freeze base wages.

Peck, who was paid $225,000 a year, was accused of withholding vital budget information from the council and for instituting a culture of fear among employees.

UNLV law professor Ann McGinley and Local Government Managers Association of Nevada officials faulted the city for not evaluating Peck’s performance long before the hearing.

“That’s one of the key problems here,” McGinley said. “Perhaps if they had evaluated her sooner, she could have corrected whatever behavior they thought was problematic.”

Peck’s contract specified that she was to have received her first council evaluation six months after she was hired, in April 2008, and was to be evaluated each October. But those evaluations never occurred, according to Peck’s Las Vegas attorney Norman Kirshman.

Steve Driscoll, past president of the state managers association and Sparks assistant city manager, said the best way a city can avoid costly litigation is for council members to meet regularly with the city manager, and to raise concerns as soon as they become known.

“You should have fully intelligent conversations that will get you to a resolution,” Driscoll said. Douglas County Manager T. Michael Brown, association president, added: “Annual performance evaluations are critical. They improve the communication between the council and the manager. They provide important feedback to the manager.”

Last year, long after Peck’s dismissal, the city resumed annual evaluations.

The city attempted to negotiate a settlement with Peck but those talks disintegrated, said Las Vegas attorney William Cooper, a labor management specialist hired by Henderson for the negotiation and arbitration.

Choosing one of four causes in Peck’s contract, the council claimed “intentional and continued failure to substantially perform her duties” as the reason to discharge her. That’s why the city paid her only $160,000 when she was terminated, including accrued salary and benefits. Instead, she will get the additional money — approved Tuesday by the council — as a result of arbitrator Gerald McKay’s finding in December that the city failed to prove cause.

After reviewing McKay’s decision and Peck’s contract, McGinley said she agreed with McKay.

“They didn’t come close to proving cause,” McGinley said. “Intentional and continued failure to substantially perform sounds more like you either didn’t show up for work or you did it in such a poor way.”

McKay concluded that most accusations leveled at Peck were inaccurate, and that employees the city called as witnesses weren’t credible.

One dispute, for example, involved an employee who didn’t take a planned trip to Dallas to research a science museum for Henderson. McKay concluded that the employee, who initially blamed Peck for not being able to go on the trip, asked Peck not to be sent on the fact-finding mission.

“There is nothing in the record to demonstrate that she intentionally or continually failed to substantially perform her duties,” McKay wrote about Peck. “What the council tried to do by its (public) session was to avoid having to pay Ms. Peck the money that it owed her under the terms of the employment agreement.”

Because McKay found that the city didn’t prove cause, he enforced a contract provision that entitled her to as much as three years’ salary. He also said she deserved accrued cost-of-living increases, sick leave, holiday and vacation pay, pension benefits, attorneys’ fees and the costs of arbitration.

Although she had 18 months left on her original term of employment when she was fired, McKay awarded Peck 2 1/2 years worth of salary. That’s because of another provision allowing an additional year to be added to the contract each October unless the city had given at least 90 days written notice that it wouldn’t grant an extension.

But Clark, who uttered the “culture of fear” allegation at the hearing, said that was but one of many reasons to fire Peck. He cited as an example her sharing employee medical information with the City Council, which he considered a violation of privacy under the federal Health Insurance Portability and Accountability Act, commonly known as HIPAA.

Clark said of McKay: “He mischaracterized everybody’s role in this ... I have no regrets about my decision.”

Kirk said that before the hearing he and his colleagues were advised individually by then-City Attorney Shauna Hughes and Cooper that the city met the definition of cause to fire Peck. Hughes, who retired in 2009 after 26 years and joined a Las Vegas law firm, didn’t return repeated phone calls for comment.

Cooper denied issuing an opinion to council members on the issue of cause, but said the definition of cause in the contract was vague.

“There was certainly an issue of what the definition of cause was,” Cooper said.

But Kirk conceded the definition of cause in the contract was too vague. “That’s a legal issue that should have been resolved by our legal department,” he said. “In retrospect, there should have been a list of reasons plainly described to define cause. Is lying to the people who appointed you cause? How about not being aware of financial issues that could impact the city? How about things you should have known?”

McKay, an arbitrator from Burlingame, Calif., considered his recommended award to Peck to be “interim” because he wanted the city to work out the settlement with her attorney. Had the two parties failed to settle, McKay normally would have been asked to issue a final binding award. But he died of a heart attack Jan. 27.

Peck, who moved to Florida and was unavailable for comment, had been a city employee for 12 years, specializing in zoning and community development when she was named city manager. Word leaked out in March 2009 that Peck had a falling-out with the council. She took what was characterized as a vacation, and later as paid administrative leave, but never regained her job.

At the fateful City Council meeting a month later, Kirshman accused the council of seeking to terminate Peck without transparency.

“There has been nothing to lead me to believe that the decision wasn’t made some time ago,” he said. “I just want the record to show that Mary Kay Peck is no doubt going to be terminated for reasons that have never been articulated to me.”

Council members then publicly tore into Peck’s job performance and fired her while she sat in the crowded audience. By meeting’s end, tears were streaming down her face. She was never invited to respond.

“I was shocked at what I perceived as allegations that were dripping with venom,” Kirshman said this week. “She was going through hell.”

A month after she was fired, Peck sued the city in federal court, arguing that she never was offered a pretermination hearing, never received a performance evaluation and never was given an opportunity to respond to allegations. Although U.S. District Judge James Mahan dismissed the lawsuit in October 2009, Peck took her dispute to binding arbitration.