A Paris labour court rejected his claim and ordered him to pay a symbolic one euro each to Dior and the John Galliano label which was also named in the action. Both are part of the same group.
Galliano's lawyer Chantal Giraud-van Gaver told AFP she was very disappointed by Tuesday's ruling, adding that she would be recommending that her client appeal the decision.
She had earlier said the claim was for between €2.4 million and €13 million, depending on how the court chose to classify the dismissal.
Until his spectacular downfall, Galliano, 54, had spent nearly 15 years at Dior and is still regarded as one of the most brilliant designers of his generation.
But his glittering career imploded in March 2011 after he was captured in a mobile phone video hurling abuse at customers in a bar in Paris's historic Jewish quarter.
The Paris criminal court in September 2011 found him guilty of proffering anti-Semitic insults in public – an offence under French law – on two occasions in February 2011 and October 2010.
He was spared jail and instead given suspended fines after the court accepted that he was sorry for his actions which he blamed on drink and drugs.
The flamboyant designer was announced last month as the new creative director of Maison Martin Margiela, in a move expected to reignite his shattered career.
Described by his new employer as one of the "greatest undisputed talents of all time", his first collection for the avant-garde Margiela label is due on the Paris catwalks in January.