All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.
We need to clarify many important points here:
1. Homosexuality is a big crime. It is an offensive and shameless practice contrary to the nature of human beings. For the enormity of this evil, the penalty inflicted on its doer by the Islamic Sharee’ah is death penalty. The Prophet said: “If you find anyone doing the act of the people of Prophet Loot kill them both.” Killing the persons engaged in this act applies only if they did so freely on their own choice.
2. Homosexuality is a major repulsive sin; whoever commits it disobeys his Lord and becomes dissolute; consequently, his belief in Allah and religion is reduced, but he does not become Kafir (non-Muslim). So, he deserves to be treated as a dissolute Muslim.
3. Everyone who repents sincerely from this sin Allah forgives him since the door of repentance is open until the sun rises from the West or until one breathes his last.
4. Concealing the sins of a Muslim is better than unveiling him. The Prophet said: “Whoever covers a Muslim in this world, Allah will cover him in the Hereafter.” [Muslim] Above all, the mentioned person in your question did not make it public. Whatever you overheard might have been misunderstood by you or might have meant something else, etc.
5. If you are sure that he is practicing homosexuality, then in this case, you are obliged to exhort him and convey to him the rulings of the Sharee’ah concerning this evil. If you are not able to convey this message directly, you may use other indirect means to convey to him the message, such as giving him a cassette, a booklet, or writing him a letter without mentioning your name, etc. You may find this kind of literature at any Islamic center or by visiting some Islamic sites.
6. Keep in mind that this person is still Muslim, and we hope that Allah will give him good reward on his good deeds. As long as this person is good in his manners and does not practice that sin in his working place, then there is no harm in working with him and you are not supposed to put him in seclusion to avoid sinning with him. But everyone who feels sexual attraction to him should lower his gaze and should not talk to him except in the limits of necessity to avoid temptation.
7. After teaching him the Islamic rulings (on this abominable sin) and exhorting him (if he still insists on practicing that crime), then you may threaten him with bad consequences, such as dismissal from work and bringing the matter to the knowledge of the public and the authorities as well. If he gives up practicing this sin, then this is what is required; otherwise, you may decide upon an appropriate way to deal with him; e.g., notify the authorities, etc.
For more benefit about the prohibition of homosexuality, please refer to Fatawa 82048, 89290, 92704, 83746 and 81617.
Allah knows best.