Depending on the circumstances, the employer may or may not be legally entitled to use the code how they like. But there's enough discussions here on what constitutes development. But...
The developer may not have been legally entitled to collect a paycheck to work on GPL software on company time.
You hear horror stories all the time going everywhere from rent-a-coder to some utility bundled on the Microsoft CD, where the employer had the expectation that they owned the code, only to find out a developer cheated and used some GPL code.
Since the developer even said that there was no written of verbal agreement with the company, the default assumption would be that they are paying you to write code that they will own.
I don't want to get into legal quibbles here, but the developer has basically defrauded the company if he got paid to deliver code that they can't use because of the license.