You have several options depending upon how much time and money you want to invest. Either way, start by obtaining counsel because ultimately you will need it to some degree regardless of the action you take.
If you want to terminate for cause which in theory anyways, saves you from paying a lot of in lieu of notice money, start tracking his activity by a product such as Websense (
www.websense.com). This product not only tracks activity, it is a very effective filter. First though, develop an internet usage policy and communicate it to employees. Have them evidence that they agree to abide by this policy as a term of employment. If he does not agree then you have grounds for dismissal right there especially if you have employees sign something upon hiring stating that they agree to abide by company policies. Should he agree to abide but still behave the way he is, then you have to document, document, document all the performace meetings and measures that you have taken with him. If you put him on a performance improvement program, you have to document how that went. Still, firing for cause is a thorny area.
Probably the easiest way to go is a termination without cause in which case you basically give the employee a package to take a hike. You can merely cite a lack of fit with the organization as the reason. One month severance pay per year of service is a good rule of thumb. In the end this is usually the easiest and cheapest option since you will have the employee sign a release in order to get the package.
Either way, I'd advise you to seek competent HR legal counsel.