The Gaelic-language teacher claimed a senior manager at Skelmersdale college, near Wigan, made signs suggesting he was stupid during a meeting.
Mr Birtill, 49, was also told that his classes were likely to end in violence as students were Irish, he said.
He took his case to a tribunal in Liverpool, after consulting the Commission for Racial Equality.
But after Mr Birtill gave evidence, the case was settled out of court. The college agreed to pay pound;2,750 in damages with pound;400 costs. It also issued a "statement of regret" to Mr Birtill for any offence, without admitting legal liability. The statement said: "The college regrets the standards aspired to in its equality policies were not met in this case."
Mr Birtill, who remains at the college's adult and community learning department, said that, at the meeting in December last year, the issue of the safety of lecturers working alone was raised. The manager allegedly said that it could be dangerous for Mr Birtill because his students were Irish. When Mr Birtill asked what he meant, the manager allegedly made a gesture indicating that he was stupid.
Mr Birtill, who teaches at Irish centres in Liverpool, Ormskirk and Ashton in Makerfield, near Wigan, said he brought the case because he was "determined to fight racism." "This is happening all over the place," he said. "It's against the law and I wasn't going to put up with it." He added: "I am very saddened that it got as far as it did and it was not sorted out internally, but you can't believe things like this happen. The college has all these policies about equal opportunities and racism, but when it comes to the crunch they take no heed of them."
Philip Lewis, principal of the college, which has 15,000 students, said:
"I'm really sorry that Tony was hurt by the remarks made to him, despite the apology offered. I will ensure as far as I can that all staff are sensitive to the background and feelings of others, in all their dealings in the workplace."