An employment tribunal ruled Joseph Rowntree School teacher Philip Grosset, who suffers from Cystic Fibrosis, had been discriminated against because he is disabled.
Mr Grosset, 46, who was sacked as head of English at the school in May 2014, said the decision ends three stressful years of fighting for his rights against the school and the council.
The senior leadership team and governors at the school have been ordered to undergo training in disability in the workplace.
York Council must take measures to ensure appropriate support is in place for other disabled employees.
Mr Grosset, of Haxby, said an additional award, to reflect the loss of his pension, could take the final cost to City of York Council to over £500,000.
The school was found guilty of discrimination in a judgement by a tribunal on September 3 2015.
The tribunal found Mr Grosset’s error of judgement in showing the film was due to stress and illness.
Mr Grossett said at the time he was working long hours with no allowances made for the fact he is a Cystic Fibrosis sufferer.
A remedy judgement of September 27 2016 ordered the City of York to pay £180,000, with an additional award to be decided in December 2016 for loss of pension.
The City of York appealed. However, on Tuesday three appeal judges at the Employment Appeal Tribunal in London upheld the original judgement.
In her summing up, Judge Eady QC reminded the City of York about their responsibilities to disabled employees.
The tribunal found that the school was responsible for “serious and substantial acts of discrimination” and that it failed to make reasonable adjustments for the needs of a teacher with Cystic Fibrosis.
In a joint statement, City of York Council and Joseph Rowntree School, said: “We can confirm a hearing before an employment appeal tribunal has taken place involving a former member of staff at Joseph Rowntree School who was dismissed on the grounds of gross misconduct. The tribunal agreed the dismissal was fair and the council is currently reviewing the other outcomes of the tribunal decision and will of course fully comply with them.”
Mr Grosset said: “I am shocked and worried by the response of the school and council. The highest appeal court in the land has confirmed that the school’s actions were not unfair dismissal, but unlawful dismissal arising from disability: a far more serious charge.
“It also confirmed my actions were not gross misconduct. And yet their message seems to be they have done little or nothing wrong. It appears they have learned nothing from the judgement against them, and other people could still be at risk.”
Mr Grosset said showing the Halloween film to students was a “poor choice” made at a time of “extreme stress and ill health.”
He said: “I apologised straight away, and have apologised at every opportunity since.”
Mr Grosset added: “An employment tribunal would later rule that this should never have been gross misconduct, and did not deserve more than a verbal warning at worst.
“After months of hearings and investigations, I was given the sack for a single one off offence after a 12-year career in local schools.
“As a middle aged man with a chronic health condition, my entire career and livelihood had been taken away from me.”