Croydon LBC is facing a legal challenge from an executive director who has been on long-term gardening leave for more than a year.
Executive director of localities, Hazel Simmonds, was one of four senior staff suspended by the incoming chief executive Katherine Kerswell in February last year.
It came as the council was in financial meltdown and had been forced to issue a section 114 notice.
Three of the suspended directors – director of finance Lisa Taylor, executive director of place Shifa Mustafa and executive director of health, wellbeing and adults Guy van Dichele – have all since resigned.
Now Ms Simmonds has launched a grievance claim against the council for race discrimination, victimisation and unlawful reduction in wages.
In addition, she has brought a direct claim of race discrimination against the chief executive personally.
Ms Simmonds, who is being represented by local government lawyer Mark Greenburgh, remains on gardening leave.
The report issued by auditor Grant Thornton in January found the revamp of the theatre and arts centre cost more than £67m – more than double the budget.
Grant Thornton claimed the then chief executive, two section 151 officers and monitoring officer, all failed to fulfil their statutory duties.
They have all since left the council.
A council spokesperson said: ‘It is not the council's policy to comment on individual staffing matters.'
The grievance comes as cash-strapped Croydon warned it could face a further s114 notice.
Interim finance director Richard Ennis has warned the council could face a £73m black hole in its budget if it is forced to repay money from its housing revenue account.
