Reminds me of a managers course I took a few months ago. Something about how some employees will turn off a certain section of their brain. And when they do, there's no going back (sorry, can't remember the terminology). It's unfortunate that it's been able to get to this point.
Best course is be direct and go through the process of warnings before termination. Thankfully you have a small office. The larger the office, the worse it is when you got a bad apple in the bunch.
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