Track cyclist Jess Varnish is suing UK Sport and British Cycling for sex discrimination, detriment suffered for whistleblowing, victimisation and unfair dismissal.
According to The Times, Varnish was told at a preliminary court hearing this week that she could proceed with a claim that she should have been regarded as an employee of the organisations.
Should that be the case, she could be owed full legal obligations.
Varnish was dropped from British Cycling's elite programme last year, leading to the sprinter alleging former technical director Shane Sutton had told her she was "too old" and that she should "go and have a baby" when telling the 25-year-old that her contract was not to be renewed.
A British Cycling investigation concluded last month found that Sutton had used "inappropriate discriminatory language" towards Varnish.
Another eight claims made against him were dismissed.
The Australian has since taken up a post at the Chinese Cycling Association and is currently part of their coaching staff at the International Cycling Union Track World Cup in Manchester.
An independent review into the culture of British Cycling's performance programme, released in June, stated that they did not view Varnish's removal as an "act of discrimination" and that they believed it did not "follow contractual due process".
Varnish was dropped last April, shortly after missing out on a team sprint berth at the Olympic Games in Rio de Janeiro.
British Cycling denied claims the London 2012 Olympian lost her place due to public criticism of coaches the previous month, insisting the decision was taken on performance grounds.
A preliminary court hearing is expected to take place in April to determine whether Varnish could have been considered an employee at British Cycling and UK Sport.
The case could have significant repercussions for UK Sport funded athletes, as if Varnish is deemed to have been an employee it could pave the way for the organisation to have to pay pension and national insurance costs.
Currently funded athletes are not viewed as members of staff so UK Sport are not required to pay either.
UK Sport had sought to block the legal action by issuing a strike-out order for the case to be instantly dismissed, according to The Times.
They also reportedly submitted a costs order and deposit order against Varnish.
It is claimed the orders, which were all rejected, could have threatened to bankrupt the cyclist.
"Because the legal process is still ongoing regarding Jess Varnish we are unable to comment on the issues mentioned at this time," UK Sport told BBC Sport.
A British Cycling spokesperson added it was "in an ongoing and positive dialogue with Jess and looks forward to reaching a resolution which all parties will regard as equitable".
British Cycling performance director Stephen Park, who was appointed in December 2016, has previously stated that Varnish would be welcome to return to their elite programme should she meet required times.