Israel Folau says he is "very disappointed" after failing to reach a settlement with Rugby Australia (RA) at his Fair Work Commission hearing, paving the way for a battle in the Federal Court.

Key points: Folau was sacked over a homophobic Instagram post

Folau was sacked over a homophobic Instagram post He is suing Rugby Australia over the dismissal

He is suing Rugby Australia over the dismissal Now, the hearing is likely to be heard in the Federal Court

The former Wallaby — who was sacked on May 17 for breaching his contract — posted a video online on Thursday night in which he called for RA to say sorry.

Folau's $4 million deal was torn up after he told his 366,000 Instagram followers that "hell awaits" homosexuals.

RA described the post as a "high-level breach" of the Professional Rugby Players' Code of Conduct.

The spat on Friday moved to the Fair Work Commission in Sydney — a first and largely procedural step in a fight that now looks likely to end in the Federal Court.

"Very disappointed by the outcome today," Folau said outside the hearing.

"I would like to thank all those who have supported me through this time. I'll continue to stand up for the freedoms of all Australians."

Folau arrives at today's hearing in Sydney. (AAP: Joel Carrett)

Folau's solicitor George Haros said the former Wallaby's legal team were "unable to reach a settlement with Rugby Australia" at the three-hour meeting.

"It appears as though, unless things change, we will be heading to court," Mr Haros said.

Rugby Australia CEO Raelene Castle also attended the meeting but did not comment outside the hearing.

Rugby Australia and NSW Rugby Union later issued a joint statement saying they were "incredibly disappointed that today's Fair Work conciliation has been unsuccessful and did not reach a resolution".

"We remain confident in our process and will continue to do what is required to defend the values that underpin our game," Rugby Australia said.

Folau claims RA offered money

Folau brought the action and wants RA to acknowledge his contract was terminated because of his religious beliefs.

"Hopefully Rugby Australia will accept that my termination was unlawful and we can reach an agreement about how they can fix that mistake," Folau said in the video he posted on Thursday.

"First and foremost I am hoping for an apology from Rugby Australia and an acknowledgement that even if they disagree with my views, I should be free to peacefully express my religious beliefs without fear of retribution or exclusion."

The 30-year-old also claimed in a TV interview on Thursday night that the sport's powerbrokers had offered him money to take his homophobic Instagram post down.

Shortly after he made the comments, RA issued a statement saying: "Any suggestion that Rugby Australia offered Israel Folau money to remove a post made on April 10, 2019, is completely untrue."

Watch Duration: 1 minute 5 seconds 1 m 5 s Israel Folau calls for apology from Rugby Australia

His sacking and the subsequent slanging match has ignited a debate about free speech.

A settlement always appeared unlikely, particularly as the former full-back had already crowdfunded $2 million to pay his legal fees.