Merit promotion policies that require students to post passing scores on standardized tests or be retained in grade have become widespread. In this study, the author used a cultural sociological perspective to examine how teachers and students at two urban high schools enacted a district-wide merit promotion policy. Findings indicate that rather than compelling teachers and students to remedy school failure academically, the policy facilitated a type of moral boundary work that distinguished "deserving" students from those deemed "undeserving." Moral boundaries were manifest in classroom practices that limited the learning opportunities provided to demoted students. The study extends research on merit promotion by illuminating how such policies operate in urban high schools as both resources for students' identity construction and as mechanisms of social exclusion. (Contains 23 notes.)