When a company has this type of buddy system, it points to two main problems: one is your co-worker, and the other is your boss. The first step is for you and your associates to meet with this co-worker and express your dissatisfaction with his or her behavior. Be sure to emphasize that the conversation has nothing to do with the friendship with the boss, and everything to do with spying, lying, and deceit. Tell this person that it is time for the nonsense to stop, adding that you hope you do not have to take further action at a more senior level to get the problem under control.
The next step is for you and your group to meet with this boss. Tell the boss that he or she is being given inaccurate information regarding your performance and behaviors, and then present specific documentation or examples to support your claims. Be sure to indicate that the constant tattling and prattling is undermining the productivity and effectiveness of the group, while adding that if there are negative claims voiced about you or your associates in the future, you would like to discuss the matter.
The weak link in this organizational chain is your boss. If he continues to be enthralled with your co-worker's fictional stories, perhaps it is time to tell the non-fiction version to one of the company's topsiders.
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