The Victorian teaching regulator has twice given the man the green light to teach, despite the teacher admitting to indecently assaulting the former student in the late 1980s.

The teacher is now employed by a Catholic school and has been working there for nearly two decades.

The Victorian Institute of Teaching (VIT) investigated the teacher in 2011, and a hearing panel "determined that the teacher was fit to teach," said the regulator's chief executive, Melanie Saba.

This appears to contradict the regulator's own rules, which state that a teaching registration must be denied to an applicant who "has been convicted or found guilty of a sexual or indictable offence".

In a 2011, the teacher pleaded guilty to one charge of indecent assault in 1988 at the Magistrates Court, did not have a conviction recorded and was given a good behaviour bond.

The victim is now suing the Victorian education department, alleging that he was abused by the teacher between approximately 1984 and 1986 at a government school, where the victim was a secondary school student.

The teacher allegedly groomed the student at the school library during recess and lunch breaks, and performed oral sex, masturbated and had sexual intercourse with the student while he was at the teacher's house.

The Victorian education department referred the matter to the VIT, due to their concerns about the teacher, and paid the victim a $320,000 settlement over the negligence claim.

It is understood the victim was asked to pursue the case in court as part of the settlement agreement, in order to allow the department to issue third-party proceedings against the teacher for damages.

Dr Vivian Waller, who is acting for the victim in a case filed in the County Court, said she was appalled a teacher had continued teaching despite his guilty plea.

"It is disturbing that a teacher who has entered a guilty plea to an indecent assault in 2011 is still teaching students today," said Dr Waller, solicitor and principal of Waller Legal, who specialises in sex abuse cases.

The victim is claiming damages for post-traumatic stress disorder, major depression, psychosis, chronic anxiety and panic disorder.

He told Fairfax Media the abuse was "traumatic", and he had lost faith in the teaching regulator.

"That the Victorian Institute of Teaching let him keep working is really disappointing. I would have thought he would have been out easily," he said.

"I think the system sucks … I've been feeling crap for a long time, having low self-esteem, there is so much guilt and shame."

The regulator said that they would not cancel the teacher's registration because the victim was no longer a student at the time of the offence, and no conviction was recorded. (The victim dropped out of school before the date of the offence.)

The VIT also said the victim was not a child.  It is unclear whether the victim was 17 or 18 at the time of the offending in 1988.

Asked how the VIT would treat an offence committed against an 18-year-old student – who is no longer a child according to the law, but still a student under a teacher's care – Ms Saba responded that the "VIT considers the teacher's fitness to teach based on the indictable offence".

When asked what criteria the regulator uses to determine a teacher's suitability to teach, Ms Saba said: "In determining suitability, the VIT considers if the applicant is of good character including any findings of guilt for a criminal offence as well as any physical or mental impairment."

Education department spokesman Steve Tolley confirmed the department settled the case with the victim "regarding an inappropriate relationship between a teacher and that former student".

Education Minister James Merlino said an independent review about the case was currently underway and it "would be inappropriate to pre-empt the findings of the review".

Executive director of Catholic Education Melbourne Stephen Elder said: "Teachers in Victoria can only work in schools by law if they are registered with the Victorian Institute of Teaching and Catholic schools, like all other schools across the state, rely on the integrity of VIT processes in making employment decisions."

The VIT panel decided that the teacher's assault was a "one off", as there had not been a similar incident in 20 years since.

The panel relied on testimonies of another teacher and principal, who described the teacher as a "true professional" and "exemplary".