This charming employee is trying to push the envelope and push you as far as possible, and you have not acted assertively to put an end to it. As a result, he is going to become increasingly impossible until he sees that he has finally hit the wall.
Employees who act this way do so for any number of reasons, often because they are compensating for some underlying insecurity. However, it will make more sense for you to focus on his behavior rather than on the deeper factors that may determine it.
The next time he goes into his condescending mode, you should meet with him in private and give him direct feedback. Describe the specific behavior, let him know your opinion of it, show him some alternative behaviors, and then let him know the consequences if he continues down the current path.
The next step is his. If he improves, be sure to give him some positive feedback. If he becomes even more troublesome, document it and let him know how difficult it is for you to keep difficult employees on board.
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