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You have good reason to be concerned about your current job if applying for another job is a breach of your contract
and the other school has approached your superior asking for references (something not generally done until a job has been applied for and accepted). It was indeed unprofessional of the interested school to contact your supervisor without first clearing the contact with you, but now that they have the only thing you can do is damage control. You did not apply for the job; you have told your supervisor this. That is really all you can do at this point EXCEPT to hire an attorney who is local to you who practices employment law.
Your employment lawyer will be able to tell you better than I if there is any action you can take against the school that is pursuing you so aggressively for contacting your supervisor without your permission.
If your current school dismisses you for breach of contract
, you can then appeal the dismissal and subpoena
the other school's records about you. This will presumably demonstrate that you never submitted an application and thereby never breached the contract. Unless the TIE service (about which I know nothing) generates an application automatically (and you say it does not), that should be sufficient grounds for you to win your appeal as long as keeping a feeler out in the job market is not also a breach of your employment contract
(as it shouldn't be; such a clause could well be found to be unenforceable).
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