"As soon as Cricket Tasmania was made aware, it undertook an investigation that determined the interaction was consensual, private, occurred on the one occasion only, was between mature adults and was not repeated," Gaggin said in a statement.
"Cricket Tasmania clearly does not condone this type of behaviour and addressed the matter directly with Tim Paine.
"However, because of the consensual nature of the actions it was determined that no further action was required or appropriate."
Gaggin also said it was inappropriate for him to comment further on the matter given "criminal charges" against the former employee were still pending.
In its statement, Cricket Tasmania added: "The allegations raised against Tim Paine by a former Cricket Tasmania employee were only brought to the attention of Cricket Tasmania when formal charges of theft were laid against that employee in mid 2018.
"Cricket Tasmania Chairman, Andrew Gaggin, said there was no complaint raised at the time of the incident in November 2017, nor when the employee's position with the organisation was terminated."
The bombshell revelations come less than three weeks out from the first Ashes Test at the Gabba, which is scheduled to commence on Wednesday December 8. Cricket Australia chairman Richard Freudenstein confirmed Paine would still be eligible for selection for the upcoming Ashes series.
Paine married his wife Bonnie in 2016, and the couple have two children together — Milla and Charlie.
Although CA has not yet confirmed Paine's replacement, vice-captain Pat Cummins looks set to become Australia's 47th Test captain, the first fast bowler to serve that role in 65 years.
In a statement, Freudenstein said: "The Board has accepted Tim's resignation and will now work through a process with the National Selection Panel of identifying and appointing a new captain.
"While the Board acknowledges an investigation cleared Tim of any breach of the code of conduct regarding this matter some years ago, we respect his decision.
"CA does not condone this type of language or behaviour.
"Despite the mistake he made, Tim has been an exceptional leader since his appointment and the Board thanks him for his distinguished service."
Tim Paine's full statement
"Today I am announcing my decision to stand down as the captain of the Australian men's Test team.
"It's an incredibly difficult decision, but the right one for me, my family, and cricket.
"Nearly four years ago, I was involved in a text exchange with a then-colleague. At the time, the exchange was the subject of a thorough CA Integrity Unit investigation, throughout which I fully participated in and openly participated in. That investigation and a Cricket Tasmania HR investigation at the same time found that there had been no breach of the Cricket Australia Code of Conduct.
"Although exonerated, I deeply regretted this incident at the time, and still do today. I spoke to my wife and family at the time and am enormously grateful for their forgiveness and support.
"We thought this incident was behind us and that I could focus entirely on the team, as I have done for the last three or four years. However, I recently became aware that this private text exchange was going to become public.
"On reflection, my actions in 2017 do not meet the standard of an Australian cricket captain, or the wider community. I'm deeply sorry for the hurt and pain that I have caused to my wife, my family, and to the other party.
"I'm sorry for any damage that this does to the reputation of our sport. And I believe that it is the right decision for me to stand down as captain, effective immediately. I do not want this to become an unwelcome disruption to the team ahead of what is a huge Ashes series.
"I have loved my role as captain of the Australian cricket team. It's been the greatest privilege of my sporting life to lead the Australian men's Test team. I'm grateful for the support of my teammates and proud of what we've been able to achieve together. To them, I ask for their understanding and forgiveness.
"To Australian cricket fans — I'm deeply sorry that my past behaviour has impacted our game on the eve of the Ashes. For the disappointment I have caused to fans and the entire cricket community, I apologise.
"I've been blessed with a wonderful, loving and supportive family, and it breaks my heart to know how much I've let them down. They have always stood by me, been my most loyal fans, and I'm indebted to them for their support.
"I will remain a committed member of the Australian cricket team, and look forward with anticipation to what is a huge Ashes tour."
