Dolfin,
you know the job better than i would, if you feel taking legal action or what have you, is the thing to do then you should do it.
Reason why i mentioned about making things worse is, i'd have thought word would get around about the grievance and then co-workers would talk and then they start with giving you a reputation for whatever.
just do what feels right. From what i've seen you write, it sounds more like they'd rather keep you on a limited job then to do unemployment and all that. Finding a different job might be the better idea.

Klauss