Good luck fining a new coach who will put up with that. I'm sure all candidates will be required to be unemployed.
An employment lawyer could sue and end up with the former head coach owning the university... I have never heard that interviewing for a job is a fire-able offense. After you've put it out there in the press, it would be hard to say you fired him "for cause". Dumb AD far as I can see.
Is there some sort of clause in his contract that maybe says he can't interview for another job? Then there would maybe be breach of contract. Still fishy no matter how you slice it.