Former Chelsea first team doctor Eva Carneiro turned down the offer of a £1.2m settlement from the club, documents submitted to her employment tribunal show.
Chelsea also claim Carneiro turned down more than one offer from the club to take her old job back.
Carneiro is claiming constructive dismissal against the football club and separately she is bringing a legal action against Jose Mourinho, who left Chelsea in December, for alleged victimisation and discrimination.
The hearing began on Monday morning at the London South Employment Tribunal in Croydon and is expected to last between seven and 10 days.
Mourinho is expected to give evidence at the tribunal on Monday next week and will be expected to face at least one day of questioning.
Carneiro and physio Jon Fearn were criticised by Mourinho and dropped from first-team duties following the draw with Swansea on the opening day of the 2015/16 Premier League season, on August 8 2015.
The pair went on to the pitch to treat Eden Hazard, an action which meant Chelsea were temporarily down to nine men as they had already had goalkeeper Thibaut Courtois sent off.
The doctor did not appear on the bench again for first-team duties and later parted company with the club, while Fearn continues to be employed by Chelsea and returned to the first-team bench in March.
Mary O'Rourke QC, for Carneiro, said: "This is a tale of two employees, one good (Dr Carneiro) and one bad (Mourinho).
"The bad employee forces the good employee out of the job of her dreams and the employer does nothing to stop it.
"The bad employee berates, sexually harassed and demoted the good employee for carrying out her professional duties, namely her health and safety duties as the first team doctor, pitchside.
"Rather than investigating and disciplining the bad employee, the employer allows the bad employee to confirm demotion, both publicly and privately and to continue with his job."
However, Chelsea and Mourinho deny she was discriminated against.
Chelsea submitted there were "concerns about her willingness to develop her skills in respect of injury diagnosis and rehabilitation, particularly at the expense of being seen as part of the 'first team' and undertaking what she perceived as the more high-profile role of providing on-pitch treatment".
The respondents claim Dr Carneiro was "preoccupied with developing her profile" and associating herself with the first team in a way discouraged by the club for backroom employees.
In its skeleton argument, the club submits: "Contrary to the suggestion that the claimant was uninterested in the media, she twice gave interviews, had discussions about presenting a TV programme, and engaged a digital media consultant (without informing Chelsea).
"Most seriously of all, she secretly briefed against Chelsea to the media, in flagrant breach of the club's communication policy and disciplinary procedure."
Carneiro's case against Chelsea and Mourinho could hinge on the interpretation of a Portuguese expression - and the Football Association has already cleared the former Blues boss of wrongdoing.
Carneiro claims that as she ran on to the pitch during the August 8, 2015 game with Swansea, Mourinho shouted "filha da puta", meaning daughter of a whore in Portuguese, at her.
The panel was read an extract from Mourinho's statement in which he conceded that he used the term "filho da puta", meaning "son of a bitch".
The FA ruled on September 30, 2015 that "the words used do not constitute discriminatory language" after consulting an independent academic expert in Portuguese linguistics.
But O'Rourke argued: "He uses the word 'filha' [as opposed to 'filho'] because he is abusing a woman."
She argued the expression is "very offensive" and that it was aimed at her client because she was the "only female pitchside".
The hearing continues.