I hate to directly challenge teachers, but I would tell her you're troubled by the system, as it seems unfair and unduly punitive. And if she insists, I would ask to see the literature to back up her punishment system, as you have never heard of it, and you believe it is harmful. If she can't provide any support, (she can't) I would go to the principal.
The color tracking is just a behavior tracking and management system, and a
fairly widely used one at that. And it doesn't have to be supported by research-- teachers are given some leeway in how to conduct their classrooms day to day; absent some evidence like Pemberly's that it's causing a particular child an anxiety or other medical problem, I don't think that's a battle a parent can win, like it or not. I can't think of a quicker way to alienate this teacher than attempting to go over her head on the basis of some lack of research support where none is generally necessary-- and here such an attempt pretty much guaranteed to fail, as you may note that the school itself has adopted the color chart tracking, and the teacher's only apparently added the seven-minute timout innovation to the system itself.
Instead of finding fault with the way the teacher is keeping track of her student's behavior, I'd instead bring to her attention the unfairness of the way she's treating the students in specific cases, as that's the real problem. And instead of finding fault with the way she reportedly treated a little girl when I wasn't there, I would start by bringing up the way she unfairly treated my son. I think that's simpler, more direct, and less likely to fail and cause a tempest in a teapot.
