Could be, but turnover in these type of management jobs is very high. He'll be able to find another job if he's any good. Even if he's no good, I expect he'll find something soon enough.

Lawsuits can be expensive, take a lot out of everyone emotionally, and can poison the atmosphere. Even if you win, you lose (and if you lose, you really lose).

If you think your boss is screwing you, you need to look for other work. They transferred him, so he can still earn a living while he's looking. Anyone who would lose a good employee over something like this is simply an idiot. It costs a fortune to recruit a new person and get him or her up to speed. Anyone who doesn't recognize this is someone you don't want to work for.