The National Association of Head Teachers (NAHT) says that parents could use the Human Rights Act to gain compensation for bullying and harassment suffered by their children.
Under the legislation, which comes into force in October, a school's failure to deal with bullies could make it responsible for the infliction of "degrading treatment" on the victims, claimed NAHT general secretary David Hart.
To protect schools from costly legal wrangles and compensation awards, the government should amend its expulsion guidance - last revised only last week - to take the implications of the act into account, he said.
Last week, the Department for Education made it clear that head teachers in England must have the right to expel violent or very disruptive pupils.
Mr Hart welcomed the new guidelines, but said they did not meet all of his concerns.
On Wednesday, he said he had taken expert legal advice on the likely implications of the Human Rights Act for schools in England and Wales, and the possible financial consequences were worrying.
He said that under the act, heads had a "positive duty" to protect pupils from bullying and racial or sexual harassment by expelling the perpetrator.
If an expelled pupil's parents were successful in appealing to a local authority panel to get their child reinstated, schools would have to find a way of teaching that child outside normal lessons.
'Litigious society'
"Serious bullying and racial or sexual harassment are particularly nasty forms of degrading treatment caught by the act," he said.
"Whether we like it or not, we have to appreciate the fact that we live in an increasingly litigious society.
"Schools, local authorities and appeal panels all have to recognise that failure to deal firmly with cases of degrading treatment meted out by pupils could lead to claims for damages.
"We can't afford to have any lack of clarity, so I shall be going back to the Education Secretary, David Blunkett, to say we really need a new circular during the autumn term which makes it clear that bullying and racial and sexual harassment are covered by the guidance.
"If people make successful claims, the cost could easily exceed a million pounds in the first year unless heads are given the appropriate flexibility to exclude pupils permanently in the event of inhuman or degrading treatment."
'Policies meet requirements'
But an Education Department spokesman said there was nothing in the expulsion guidance as it stood to prevent heads from expelling pupils for their first serious transgression.
"We are happy that our policies ensure both that well-behaved pupils are protected from disruptive pupils, and that where pupils are excluded we have given a commitment they get a full-time education by 2002 which will prevent them causing mayhem on the streets as happened before.
"Taken together, we are confident that they would meet the requirements of the Human Rights Act."