English, who won the BBC One show in 2010, has filed papers with an employment tribunal claiming she was forced to quit her job when her £100,000-a-year contract wasn't renewed.
The pair's relationship is now "extremely bitter" and English has been warned she's "playing with fire" by taking legal action, sources have told the Daily Mail.
English was given a job at Viglen when she won the show, but later claimed she was performing a junior role and reporting to a manager on a fraction of her salary.
"The cameras have stopped rolling, welcome to the real world, there is no job," she was apparently told.
She was later handed a job at YouView, but left two months before her contract ended after being told it wouldn't be renewed.
"Lord Sugar had tried to help Stella. When she was unhappy in one job he moved her. But it was Stella who left just two months before the contract ended, she was desperate to go," the source added.
Both parties declined to comment on the situation yesterday (February 17).
The Apprentice 2009 winner Yasmina Siadatan, currently on maternity leave, is the only successful candidate still working for Lord Sugar.