Governors have rescinded the sacking of Salisbury College principal Howard O'Keeffe and have set up a special committee to review the affair.
Mr O'Keeffe, who was brought in to turn around the finances of the college, which is pound;2 million in debt, was sacked after proposing to make four members of his senior management team redundant. But now the board of governors have reinstated him in his pound;75,000-a-year post.
Mr O'Keeffe, 54, has voluntarily agreed not to go into work while a governors' committee investigates how and why he was sacked and if it was justified.
Peter Riggs, chairman of the 18-strong panel of governors, said: "The special committee will look at his dismissal in the first place. His contract has been reaffirmed and his conditions reinstated."
A board of governors meeting decided to withdraw the sacking after correspondence between Mr O'Keeffe's solicitors and the board's solicitor.
The principal had said he was dismissed without any explanation, while his solicitor is understood to have argued it was an illegal action.
Three fellow Wiltshire principals. led by George Bright of the Wiltshire college, had accused the governors of breaking employment law and the instruments and articles of the government of the college. They wrote a letter to the board of governors condemning his dismissal.
Some 22 principals in neighbouring Hampshire led by Mike Snell, the head of Brockenhurst College, also wrote in support of Mr O'Keeffe.
He had come to Salisbury in March with the reputation of having turned round Havant sixth-form college in Hampshire.
He was hired to rejuvenate the 14,000-student college which has been struggling for several years.
The new principal had proposed the redundancies of four of his senior management team after taking the advice of consultants hired with the help of the local learning and skills council.
The four managers, deputy principal Colin Briddick, Jane Holmes, David Sambrook and Steve Dear were unhappy at the prospect of redundancy.
After Mr O'Keeffe was dismissed by Mr Riggs, the four managers were reinstated. Mr Briddick has been standing in as acting principal.
Mr Riggs said the special committee investigating the affair would consist of three or four governors. It would involve those who did not take part in the decision to sack Mr O'Keeffe.
There are a limited number of governors who would be eligible, although some new ones have been appointed since the decision.
Board vice-chairman Michael Thompson was away when the meeting was held and would be eligible to sit on the committee.
Mr Riggs said he was not prepared to reveal the reasons why Mr O'Keeffe had originally been summarily dismissed with just one month's salary.
He said: "The governors acted on the professional advice of the lawyer and also the clerk."
Mr O'Keeffe said he did not want to comment but previously has indicated he would fight to save his previously unblemished 30-year career in education.
It is understood he is happy that the dismissal has been withdrawn and is looking forward to putting his case to the special committee.
George Bright said: "If Howard is happy with that then I am fine."