Why is that correct?
An employee threatens to quit if she doesn’t get a raise. She is angry about how compensation happens. She whines about it to other employees.
Employees cannot run the business. Discord in the work force grows. Move her out and promote your best to her position.
If you are asked for a recommendation, say only moderately good things that won’t leave you open to a lawsuit. Answer the “would you rehire” question with comments about her abilities.