The court case against Hay Shire Council has been finalised after the Federal Circuit Court of Australia dismissed the matter by consent.
In December, Amanda Spalding lodged an unfair dismissal claim against the council and five councillors after being sacked as general manager just 12 months into a five-year contract.
"I decided to withdraw my action because essentially the next stage of the case was in the federal court," Ms Spalding said.
"I'm only a small person and cannot afford that type of court action so I offered to withdraw and we agreed, so the court dismissed the proceedings by consent."
The Daily Advertiser previously reported that Ms Spalding claimed she was sacked after making "numerous complaints" about bullying and harassment by elected councillors, as well as her decision to report what she described as corrupt conduct and maladministration in the council to the ICAC, NSW Police and the Office of Local Government.
She said in a statement that the court was not required to determine the veracity of the allegations she made.
"I now live in Orange and I love local government; when it's good, it's very good but it can also not be good," Ms Spalding said.
"I won't allow this one occasion to make me lose faith as the local government is an institution which you can't lose faith in."
A statement by the Hay Shire Council said the mayor and councillors concerned were pleased with the outcome.
"[They] are looking forward to continue working with acting general manager Kristyn Thronder to deliver council's strategic plan for the betterment of the Hay Shire community," the statement read.
"Council is currently in the process of recruitment for the permanent position of GM."