The latter makes no sense, because if so, why didn't she fire him before they moved in together. You don't abuse/harass your boss and expect to get away with it.
But if they're not living with you, and at the time, your employee, I think the "why did you not fire this person" question is pretty valid - given that she had zero hesitation in firing multitudes of people very close to her for even slightly rocking the boat.