Handler was on "Dirty, Sexy, Funny" with Jenny McCarthy Tuesday and laid it all out. Chelsea said she finally cut ties with Heather after McDonald allegedly traded tabloid stories with a popular magazine so they'd post her photos.
The best part? Chelsea says now Heather should "really be scared."
TMZ broke the story ... Heather appeared on Matt Weiss and Theo Von's "Allegedly" podcast this week and said while working for Chelsea, she lived in constant fear.
Listen to the whole clip, Handler is PISSED.