Document, Document, Document. E mail is a great way to do this. E mail the problem employee stating the problem and send a copy to the supervisor. Print copies of the e mails and maintain them in a separate folder.
This shows that you recognized the problem and attempted to resolve it. It also demonstrates that the supervisor was well aware of the situation. You have to cover your back side first.
Sometimes, there are employees that are "immune" for one reason or another. They can't be made to work and they can't be fired. They may be in a relationship with someone important or be related to somone important. They may have dangerous information and know where the bodies are buried.
When the stuff hits the fan, they are not the one that will be going out the door. Protect yourself.
Rufus