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Hays files claim over severance against city

Former Lodi City Attorney Randy Hays has filed a claim against the city alleging his severance pay was shorted.

Hays, who was fired by the City Council on Jan. 13, filed the claim Thursday, faulting City Manager Dixon Flynn for causing the loss. A claim is the first step to filing a lawsuit.

In his own handwriting, Hays wrote that the amount of his severance paycheck was less than what he felt was due. He received the payment at City Hall on Jan. 23.

Upon termination, Hays was expected to receive six-months salary under his employment contract signed when he was hired in 1995. He feels, however, that the city failed to "pay stated sum certain as severance," according to the claim. He could not be reached for comment Friday afternoon.

Flynn said the approximate amount of Hays' last check was $77,000. It included not only the lump sum cash payment equal to six months salary (approximately $62,500), but the salary earned in the pay period before he was fired and accrued vacation pay.

Flynn said the sum was less because the city, by law, had to withhold taxes.

"We also called our attorneys and the IRS, and all three said we have to withhold taxes," Flynn said.

"I'm not doing it to annoy him. I'm doing it because it's the law."

Internal Revenue Service documents spells out tax withholding for severance pay; the key issue is whether the separation from employment is involuntary.

"Any payment made by the employer to the employee due to the employee's involuntary separation is wages subject to federal income tax withholding. ... It makes no difference whether the employer is legally bound by contract, statute or otherwise to make a payment. Dismissal or severance pay is treated as supplemental wage payments (compensation paid in addition to the employee's regular wages)," according to the law, published in the "Payroll Management Guide" which the city subscribes to.

As with any other claim, Hays' will be forwarded to a third-party administrator that will make a determination whether to deny or accept it.

If the third-party administrator recommends it be denied, it will be forwarded to the City Council.

Hays and outside counsel Michael Donovan were both fired by the City Council last month after falling under increased scrutiny about how the city's contamination litigation was being handled.

In 2000, the city filed a lawsuit against more than a dozen businesses, including the News-Sentinel, with hopes their insurance companies would pay to clean up groundwater believed contaminated.