Asked for comment, David La Torre, a Penn State spokesman, said: "It is common practice for incoming head coaches to select their own coaching staff. Penn State will have no further comment on this matter."
The lawsuit, which seeks at least $1 million in damages for emotional distress and loss of earnings, argues that although the assistant coaches were never implicated of wrongdoing in the Sandusky investigation, their firings stigmatized them in the eyes of potential employers.
"Penn State terminated each of them at the height of the Sandusky scandal's dark shroud and without any attempt whatsoever by Penn State to preserve the reputation of these guiltless individuals," the suit alleges.
Additionally, the suit claims that Penn State shortened the severance pay period for both men, denying them six months of wages and benefits that coaches in their position typically would receive.
Paterno and Kenney have since been treated as "pariahs," the suit says, and have been turned down for jobs, allegedly because of the belief that they were fired for reasons related to the Sandusky investigation.
Kenney, now a coach at Western Michigan University, said that instead of focusing on his credentials, job interviewers had asked him about allegations that he had ignored "red flags" about Sandusky's behavior.
Paterno was told by one university that coaches from Penn State were considered "toxic" and has been unable to find full-time work, the suit states. He plans to release a book about his father this year.
The suit also takes aim at the Penn State-commissioned investigation and report by former FBI Director Louis Freeh, which concluded that Paterno and other highly ranked officials at Penn State enabled Sandusky to continue abusing children.
The lawsuit states that Penn State should have known the Freeh report was "an unreliable rush to judgment without a proper investigation, and the conclusions reached were not substantiated."
The suit is the latest in a slew of legal actions stemming from the Sandusky investigation. The Paterno family has a separate lawsuit against the National Collegiate Athletic Association that claims the NCAA had no right to impose sanctions on Penn State in the wake of Sandusky's arrest.
Three former Penn State administrators, including ex-president Graham B. Spanier, are awaiting trial on charges that they lied to a grand jury and buried reports that Sandusky was molesting children. Spanier has also initiated a defamation lawsuit against Freeh as a result of the conclusions in the Freeh report.
Penn State has reached settlements on 26 of an estimated 31 claims filed by men who said Sandusky had abused them.