Both our Justin and the very justifiably well-respected school finance economist Bruce Baker have weighed in from different, and equally enlightening, perspectives as to the legal problems (read: certain lawsuits) that would result from instituting systemic value-added assessment-based teacher dismissals and demotions (including de-tenuring tenured teachers). Here, I add my two cents as a former (defense) litigator of these very sorts of issues in Florida.
First, I wholeheartedly agree with both Justin and Bruce that a flood of lawsuits is certain to occur (one roughly the same size as the flood of dismissals and demotions that occur). Simply put, if you fire people, and they think their firings were unfair, then you are going to be sued. Period. In fact, I think that these lawsuits will assert not only claims under the Due Process Clause and Title VII, as Justin and Bruce explain, but also under ordinary state contract law, and possibly in some states (including Kentucky), claims under state constitutional provisions forbidding "arbitrary" governmental action. This certainty of a litigation explosion alone ought to give policy makers pause when they consider their "blame the victim" strategies for improving teaching. In fact, if I were general counsel of a school district, I would advise the administrators to run. Run fast, away from this. However, assuming that district political officials ignore their general counsels (which they sometimes do), would such suits ultimately succeed? It may be surprising, but except for the rare "unconstitutional arbitrariness" claim that might succeed in a state such as Kentucky, I'm not so optimistic for the plaintiffs. Here's why:
As to any contract-based claims, these would likely just be throw-aways to add to the complaint. Any decently represented district will cover value-added demotion and dismissal as an explicit term of the teacher contact (dealing with the union on this brings up a whole separate issue, of course).
As to the Due Process claims, Bruce makes some very forceful and valid points regarding the validity of the value-added model of assessing teacher performance, and he is, of course, the expert on that topic. However, a claim for wrongful termination in violation of the Due Process Clause is a claim of denial of legal procedures--nothing more. The "property interest" in one's teaching job is simply a threshold showing that has to be made before one can even begin to argue that the proper procedures were denied. Under well-settled precedent, a school district complies with the Due Process Clause as long as it offers teachers (1) sufficient notice of impending termination or demotion; and (2) an opportunity to be heard (usually in a hearing before the Board or its designate). Typically, districts also provide a right to counsel and a rudimentary appellate system. Now, the flaws that Bruce identifies would of course be relevant to such a proceeding, but if the decision were to stand after several layers of hearings in spite of such statistical evidence, then the teacher would be left with a very weak due process claim, regardless of the decision's substantive correctness as a matter of measurement.
As to the disparate impact claim, although I agree with much of Justin's analysis, I must disagree with the claim that school districts would have a hard time showing their policies to be neutral. The neutrality that matters in these cases is facial neutrality, and there is nothing race-based on the face of any such policies. Any race-based effects must be proven statistically. That being said, both Justin and Bruce are surely correct that substantial statistical disparities would result from the use of such measures, and these disparities would be largely based on race.
However, to survive a disparate impact claim (i.e., to win at summary judgment), the district would only have to show that the value-added measures were (1) job-related; and (2) consistent with business necessity. The first element would be a no-brainer. However flawed, a measurement of student learning gains is clearly related to the job of being a teacher. The second element would be somewhat problematic for districts if an expert witness were prepared to offer Bruce's methodological critiques. However, even these critiques concede that some useful, effectiveness-related information can be gleaned from such measures, and in such a case, the court will only be concerned with whether the district was ever presented with a race-neutral alternative that was just as effective at accomplishing the employment-based objective, but was rejected or not considered by the district. Do such equally effective, race-neutral measures of teacher effectiveness exist (I honestly do not know)? If not, then the district would at least have a decent chance of successfully defending its use of value-added, despite its flaws.
Again, none of this means that there would be no lawsuits. Every fired or demoted employee who perceives the sanction to be unfair sues. However, a few high-profile federal circuit court decisions could douse a litigation explosion pretty quickly.