It's become all too common a practice to succumb to extortion and pay someone off because it's cheaper in the long run. BS, it's time to make a stand, not one penny to this POS
I say they should continue to employ him. However, inform him that his office is now located in Baghdad [outside the green zone! :].
Only if you measure things solely in dollars.
I used to represent fire insurers in court against claims - arson and insurance fraud. (Interesting work).
We had one client who wrote small ($10-15K) contents policies on rental property - trailers, apartments, and so forth.
This company's policy was to fight ALL arson-for-profit claims. Despite the fact that with a small contents policy, you often wound up spending more on defending the case than you would have if you had settled for the policy limits.
After awhile, the word got out and the arson-for-profit guys quit getting policies with the company. The company actually wound up ahead, because they had honest policyholders who just had a normal expected frequency of loss (which is what you calculate the premium on).
For us it was a bit of a disappointment that their policy worked so well, because we had a ton of fun with those cases -- since the perps never expected anything but a quick settlement. Imagine being a plaintiff who's had a terrible run of luck - 9 houses burning in 6 years, imagine that! - and having to face a jury.
Sometimes you just have to take a stand. Surprising how easy it is once you try and quit being afraid of shadows in the corners . . .