Marcia McNeil came up with 12 findings in a report, concluding that the investigation was flawed from the beginning.
The government issued a statement accepting the report issued Friday, with a promise to change how it responds to future allegations of employee misconduct.
"It's quite troubling that (there was) such a lack of due process and a lack of understanding for existing procedures," said Elaine McKnight, head of the Public Service Agency and former deputy associate health minister.
"We can never forget the impact HR investigations can have on people's lives. ... None of us can be satisfied with what happened here."
McNeil was appointed by the government to review the dismissals of four Health Ministry employees and suspensions of three others in 2012 after an investigation into the relationship between university researchers seeking grants and employees working on B.C.'s PharmaCare program.
Roderick MacIsaac, one of the four fired, was in the last week of his student co-op placement with the government and later killed himself.
The government's actions have prompted out-of-court settlements, reinstatements, union grievances and ongoing court cases.
McNeil said she hoped that with better planning and attention to detail and investigation processes recommended by the government's Public Service Agency, future probes will not be as flawed.
"The investigation conducted in 2012 of employees in the ministry did not at all times follow established best practices," she said in her report. "Indeed, I have found that the investigation was flawed from the outset, as it was embarked upon with a preconceived theory of employee misconduct."
She said the investigation and decision-making process did not follow the Public Service Agency's model for best practices into allegations of serious misconduct.
"By the time the investigation team was formed, the ministry review team had already reached the conclusion that some employees had engaged in misconduct even though this was outside the scope of its terms of reference," she said.
McNeil said the integrity of the investigation was compromised when members of the ministry review took part in the investigation.
She said the allegations of employee misconduct required a broader probe and the government should have considered using an outside investigator.
"While looking into contracting issues, the ministry became aware that private personal health information may have been disclosed inappropriately to contract researchers," she said.
The ministry was required to make a timely public disclosure of the potential information breach, but it also chose to announce that employees were fired and the RCMP had been contacted, she noted.
"The disclosure of disciplinary consequences for seven ministry employees put the issue of employee misconduct in the public domain," the report stated. "Unfortunately, for the seven employees and many others, this issue has remained in the public eye."
Since the firings, the Liberal government settled three wrongful dismissal lawsuits, reinstated two employees, and Premier Christy Clark and Health Minister Terry Lake have apologized to MacIsaac's family.
No charges have been laid. McNeil said her report "is not intended to, and does not, answer questions regarding specific allegations against the employees."
Opposition New Democrat leader John Horgan said the report fails to answer two basic questions — who made the dismissal decisions and why.
"I don't know how the public could have any comfort that Ms. McNeil's report is comprehensive, any comfort that Ms. McNeil's work got to the bottom of this, or any comfort that the government of British Columbia is being open and transparent about what they did to seven individuals."
McNeil did not have the power to compel people to co-operate with her review.
Former deputy health minister Graham Whitmarsh, who signed the original letters of termination, questioned the independence of the review and did not officially participate.
Whitmarsh accused the government of attempting to make him the scapegoat for the firings.
He said he would participate in the auditor general's independent review, should it occur. The office of the auditor general said it is considering launching its own review.
Finance Minister Mike de Jong has said Whitmarsh's decision not to participate in McNeil's review was "unfortunate."
Note to readers: This is a corrected story. A previous version misidentified an employee as Robert MacIsaac