I am a 'recovering catholic' but I will state that if the school is a parochial one, the Diocese has the right to hire and fire teachers for whatever reason it deems appropriate.

If the parochial school was receiving state or federal government aid, then I would say it would be a whole new ball of wax. If they are going to accept that kind of money, they should be held up to the same hiring and firing standards that any other non-religious school is held to.