This is why I don't get too close to the musicians I hire. We're friendly, we hang out when we're on the road, but at home we don't really hang out.
I have had to fire a friend before when I was a manager at a day job. That wasn't too bad, he knew he had been screwing up, he had missed a few shifts without calling, and wasn't really present when he was there. His dad was dying of cancer, so it really wasn't his fault though. I kind of approached it like " I think you need to take some time off and be with your dad, you're really kind of phoning it in when you're here and I know it's because you need to be at home with your old man". He took it well, but it's not exactly the same situation.
The last musician I fired I just didn't call for the next tour. But he was never more than a hired gun in the first place.