I am in a middle management role in a large organisation. I recently had to sack someone after a long process of trying to tackle poor performance. She was a nice woman but not at all able to do the job that was required of her. Unfortunately, she had serious mental health issues which affected her perceptions of reality, and this made it hard for her to understand where she was going wrong. I therefore took lots of advice at every stage of the process, made reasonable adjustments, put masses of support in place, but after two years, it was clear that she was not capable of making the improvements that were required of her. She was not interested in redeployment and so we had to let her go.
She happened to be very friendly with another woman who is a manager on my level, who has some limited contact with me and other members of my team. I had the distinct impression that this other manager was attempting to stir up trouble while I was trying to take the employee through the capability procedures, but wasn't quite sure what was going on, so I let it go.
Today I learned that, since her friend was sacked from the organisation, this manager has been gossiping in fairly public meetings about what she thinks happened. This was reported back to me by someone who knew the true circumstances in which the employee was sacked, and it's clear that the version this manager is freely discussing with other people has been seriously distorted.
I'm not surprised that she has a distorted view as she has heard it from her friend, who is psychotic. However, she must also know that there were serious performance issues with this employee, as the employee applied for a much lower grade job in this manager's department and didn't get it - in fact, they readvertised it because they didn't find anyone suitable.
I know that gossip happens in all organisations, but had assumed that a manager might realise there are two sides to every story. 
. TBH, I am 
and 
that a manager at this level would not know better than to gossip about such sensitive issues to all and sundry, and I'm furious that I am being accused of treating this employee badly when, god knows, I bent over backwards to try and help her. Needless to say, I am not in a position to defend myself in any way, as the details of the case are naturally confidential. Apparently, this manager has form for behaving like this - I am disgusted at her lack of professionalism.
I know I would be within my rights to submit a grievance against this other manager, as there are several people who witnessed what she said. However, I don't want to make things awkward for those witnesses, so I'd rather not go down that route. So should I just suck it up, accept that she is an unprofessional bitch and let it go? Or do I ask her why she made the comments that she did, tell her how unfair I felt they were and how surprised I was that she would discuss these issues publicly, and then just watch her squirm.
I will probably mention it to my boss either way, but he doesn't line manage the other manager, so doubt there is much that he can do. AIBU to want to say something to this woman, or am I just overreacting about the whole thing. (FWIW, the allegations are pretty serious and wholly unfounded - as far as I'm concerned, they are libellous.)