Teal MP Monique Ryan and her chief of staff have been unable to resolve an unfair dismissal claim following "robust" private negotiations, a court has been told.
Political staffer Sally Rugg appeared with her lawyers at the Federal Court in Melbourne on Friday for a second urgent hearing to keep her job, after she filed a suit against Dr Ryan.
Ms Rugg and the MP sat at different ends of the courtroom and did not acknowledge each other during the brief hearing.
She has alleged the Commonwealth injured her in her position as chief of staff by engaging "in hostile conduct in the workplace" and named Dr Ryan as a "principal actor" in legal action launched at the end of January.
Ms Rugg has asked the court to prevent her from being terminated while she pursues the suit, as her employment with Dr Ryan had been due to end on January 31.
Commonwealth barrister Nicholas Harrington said all parties had attended mediation on Thursday and decided to continue negotiating over the next two weeks.
"There was a robust exchange of views at that mediation, as often happens, and there was a lot to think about as a consequence," he said.
"After about four hours the mediation ended and it was unsuccessful."
He said he was optimistic the adjournment will allow the parties "to develop the path we were walking on yesterday" by continuing mediation.
Judge Debra Mortimer warned Mr Harrington that the interlocutory application would need to be resolved at the next hearing.
"That will be a month of negotiations and that should be adequate," she said.
Mr Harrington said the Commonwealth would keep Ms Rugg in her position until the matter returns to court on March 3.
Dr Ryan hired Ms Rugg, a former Change.org head, last year following her successful challenge to then-treasurer Josh Frydenberg's seat of Kooyong in the federal election.
Ms Rugg has alleged Dr Ryan and Commonwealth breached national employment standards and workplace agreements by sacking her for refusing to work unreasonable hours.
She is seeking compensation and pecuniary penalties from all parties.
