The former president of Ford Europe told a federal judge on Thursday that he never meant to resign in August when he told his bosses he was seeking work elsewhere and wanted to negotiate a departure, Reuters reported.

Martin Leach testified in the first hearing of his lawsuit against Ford Motor, claiming he was fired in August but illegally barred by Ford from becoming chief executive of Fiat Auto or working anywhere else in the motor industry, the report added.

Reuters said Ford has counter sued, claiming Leach resigned, and both sides have asked US District Judge Paul Borman to rule whether Ford can enforce Leach's non-compete agreement.

The news agency noted that the dispute centres on an August 7 meeting Leach called with David Thursfield, the head of Ford's international operations, and a Ford human resources executive during which Leach told the two executives that he believed he had no choice but to seek work elsewhere.

Ford has said Thursfield and the other executive repeatedly asked Leach if he was certain, and Leach told them he had made up his mind but Leach testified that he thought Thursfield and the other executive were talking about starting negotiations over modifying his non-compete agreement, not his resignation, the report added.

"There was no point in resigning. It would have been lunacy to resign," Leach testified, according to Reuters.

The news agency noted that Leach, a 27-year Ford veteran, has said he felt his job was in jeopardy after Ford Europe posted a surprise $US525 million loss for the second quarter and his duties had been cut back. Leach had a lucrative offer to become chief executive of Fiat Auto, but the offer was dependent on Ford waiving the non-compete agreement Leach had signed barring him from working elsewhere in the motor industry for two years if he left voluntarily, Reuters added.

Leach reportedly described a chain of events which he thought would end up with Ford forcing him out and thought he "could offer the company a win-win situation...where all parties could put the most favourable light on it" by negotiating a departure with the non-compete clause waived, a condition of the Fiat Auto chief executive job offer.

Reuters said that, after the meeting, Leach returned to work and received a letter from Ford's top lawyer saying Ford thought its non-compete agreement was enforceable. The next day, Thursfield told Leach he had assumed Leach was resigning, and the company announced Leach's resignation the following week.

According to Reuters, Leach said he thought he could negotiate because Ford had done so in the past with other executives who resigned - he also said Thursfield had told a story about resigning once and packing up his office before the company convinced him to stay on.

Ford's lawyers were scheduled to question Leach on Friday, with no timetable set for a ruling from Borman, Reuters noted.