Israel Folau and Rugby Australia have failed to reach a settlement at a conciliation hearing, paving the way for the case to head to court.
Both the former Wallabies full-back and Rugby Australia said they were "disappointed" with the outcome of the Fair Work Commission hearing on Friday.
Speaking to reporters in Sydney, Folau's lawyer George Haros said it appeared that "unless things change we'll be heading to court".
The conciliation hearing was the first stage of Folau's unfair dismissal case, launched after he was sacked by Rugby Australia in May for posting anti-gay messages on social media.
The rugby star is a Christian who argues his contract termination was an unlawful act of religious discrimination.
He could now apply to have his case heard in Australia's Federal Court.
The 30-year-old told reporters after a hearing lasting almost four hours: "Look, very disappointed about the outcome today but I'd like to thank all those who have supported me throughout this time.
"I will continue to stand up for the freedoms of all Australians."
Rugby Australia and NSW Rugby Union issued a joint statement, which said: "Rugby Australia and NSW Rugby Union are incredibly disappointed that today's Fair Work conciliation has been unsuccessful and did not reach a resolution.
"We remain confident in our processes and will continue to do what is required to defend the values that underpin our game."
Folau has been fundraising to help cover the costs of his legal action.
His first campaign was closed down by GoFundMe on Monday before the Australian Christian Lobby set up a second fundraising page.
It raised more than two million Australian dollars (£1.1million) in just two days.