How to tactfully fire an old employee of your company without harming your personal relationship with him/her?

The best thing would be to be truthful with the employee. Tell him the reason of firing. I am in Amsterdam and in my office there are lots of contractors. With outsourcing booming here and all jobs being transferred to India, all the contractors have been told that they will be removed in some months. THey will be given2 months of advance notice. They have been told the reason, that client is reducing the budget and hence we need to outsource the jobs to India. The contractors are also fine with it. Be truthful, be clear. INshaAllah, this will not harm your personal relationship. There is a reason why you want to fire him. Tell him the reason and I am sure he will understand.