He claims that when he refused, he was bullied, harassed, and eventually his job ￡ 60.000 – a year layoffs.
The dignitary cannot be called because the Tribunal imposed a gagging order to prevent the details of the alleged affair is published.
There is no question of any wrongdoing by Sheik Mohammed, who's world's most influential racehorse owner via his Godolphin stables, or one of his family.
Mr Ali claims he was a "trusted servant of the Royal family," working for UK Mission Enterprises Ltd-a company that logistics is exclusively in the Royal family.
He claims that in June 2009 he for a meeting with the firms managing director Abdulla Shakeri and Abdullah Al-Mansoori, a diplomat for the United Arab Emirates was summoned.
He claims that the couple asked him to exploit his "privileged access" in the Palace to spy on a dignatary which they suspected of having an affair.
As a sweetener, he was offered the chance to Mr Al-Mansoori 15,000 pound convertible BMW car buy for just ￡ 1000, the Tribunal was told.
"They suspected that [the dignitary] an affair with [a] personal assistant and wanted me to find out the truth for them," said Mr. Ali.
"They wanted me to spy on [them] as [they] Long cross visited."
The father-of-he said the "mission" refused because he thought it was illegal and that he threatened to call the police, Mr Al-Mansoori replied: "I'm a diplomat, nobody can touch me."
He claims that he was suspended in September 2009 and four months later after a "sham dismissal process", in which he was accused of racism, theft, Islamic extremism and threats to kill colleagues fired.
Mr Ali also claims that before he was fired, his employers henchmen to follow him and vandalise his house sent, it is alleged that he and his family fear for their safety.
Two of his colleagues, Edwin Amagua and Olatunji Faleye, are also claiming unfair dismissal and discrimination respectively, claiming that they were forced from their jobs after refusing to sign false statements about Mr. Ali's behavior.
The three plaintiffs, of London, are collectively suing UK Mission Enterprise Ltd, Mr Shakeri, Mr Al-Mansoori and Yousuf Mohammed, a former colleague.
The respondents deny all allegations. They claim that the men were fired because their work did not meet the required standards.
They deny that Mr Ali to spy on the dignitary ever was asked if he ever came into contact with the person.
Sheikh Mohammed, 61, has been Minister-president of the United Arab Emirates and reportedly has a personal fortune of 8 billion pounds.
His older wife, Sheikha Hind, who is rarely seen in public, is believed to be in her 50 and the mother of 12 children of Sheikh Mohammed 's.
His second wife is Princess Haya bint Al-Hussein, a 36-year-old international jumping champion, who gave birth to a daughter in 2007.
The Sheikh of vast UK property rich includes numerous homes in and around London, including Long cross-thought worth about ￡ 75 million-as well as his own Palace, thousands of acres of land, and stables near Newmarket, Suffolk-the home of British horse races.
The hearing at central London Employment Tribunal continues.
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