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Sure, you'd probably prevail in the end. Most states are "no cause" states.
But whether a termination was wrongful, that's for a jury to decide. Whether you discriminated against him because of his background (I know that makes no sense, given that you hired him knowing his background, but that won't stop him), or for other reasons, etc.
And as you know, for a jury to decide doesn't come free. Lots of $$$ spent fighting against some sleezy contingency lawyer looking to make a few thousand by filing a suit, causing you to incur legal fees, and then shaking you down for a nuisance value settlement.
As to deducting from his wages, I'd venture that your lawyer is probably right, I think that's a very touchy issue under most state's laws. Whatever you do, you don't want to put yourself in a position where you've now done something wrong.
IMO, the best result in a case like this is a negotiated termination, if that is possible with him. Your goal is to (1) get him gone, AND (2) get him to sign a release waiving all possible claims relating to his employment.
If you have to give up the hundreds that he stole from you, etc., it's probably worth it if you can get a release, take it as a lesson, and move forward with the business of your business.
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