They have the right. The O's absolutely had the right to hold Dan to his contract.
The general understanding in the industry is you let your people interview for promotions.
My guess is the whole system works a lot more smoothly this way.
If you don't allow your folks to do it, and other teams do, you are going to be at a hiring disadvantage. As an owner you should understand that at some point you are going to be the one trying to hire someone away.