I wouldn't want to work for anyone who doesn't understand the, importance of autonomy, the reasons as to why we make the decisions that we do, the ability that we all have to ignore the full reality of our choices (this is an important human survival tactic, that if we didn't possess we wouldn't cope with day to day life).
The ability to recognise our own bias and separate that from decision making in the workplace is important, as well as similar qualities, especially at management level.
If i found out that a decision to not employ someone without very good reason, such as close personal care being given, to people who are allergic, then i would look for another job.
Thankfully i wouldn't have to, as being employed by an LA, there would be an internal inquiry and that person would soon have the power taken away from them, if they didn't change.
OP take the particular decision out of the equation and what you are asking is "should an employer be able to refuse to employ someone who makes the decision to do something that is legal and isn't a high risk activity".
Some people smoke to alleviate anxiety issues, i judge those that would think they are lesser people, because they smoke, for whatever reason.
I have worked with many people over my twenty five year working life and they have smelt and took the piss over breaks for many reasons, smokers being one of the lesser in numbers.