Aishah Azmi, 24, was suspended on full pay after staff at Headfield Church of England Junior School in Dewsbury said pupils found it hard to understand her.
A Leeds employment tribunal dismissed three of Mrs Azmi’s claims of discrimination and harassment, but found she was victimised and awarded her £1,000 for “injury to feelings”.
A month later, the local education authority sacked her from her post as a bilingual support worker.
Mrs Azmi, of Thornhill Lees, Dewsbury, said she was willing to remove her veil in front of children but not when male colleagues were present.
Her lawyer, Nick Whittingham, said Mrs Azmi was not available for comment.
Mr Whittingham, of Kirklees Law Centre, said the Employment Appeal Tribunal (EAT) accepted it was possible for direct discrimination to occur in respect of a manifestation of a religious belief such as the wearing of the veil, adding it was an “important test case”.
He said: “The EAT rejected the employer’s argument that all discrimination on the basis of such manifestations can potentially be justified as indirect discrimination.”
He went on: “However, the EAT found that in this particular case there had not been direct discrimination against Ms Azmi.
He added that no legal aid money was spent in bringing the appeal and Mrs Azmi’s barrister carried out the work free of charge.
A spokeswoman for Kirklees Council said: “Kirklees Council and the school were disappointed Mrs Azmi and her representatives decided to pursue an appeal.
“The decision from the employment tribunal in Leeds was a fair, considered and appropriate judgment and the council is satisfied the EAT has supported that.”
Her position sparked a debate on the wearing of the face veil by Muslim women.
Labour MP Shahid Malik, who represents Mrs Azmi’s home town of Dewsbury, said the original tribunal decision was a “victory for common sense” as was yesterday’s ruling: “I was very, very confident the council and the school behaved in an appropriate manner.”
He said he now hoped Mrs Azmi would let the matter rest and not pursue any further legal avenues.