Wow that would bother me. Why is he walking such a small dog off lead in the first place ? maybe he just doesn't feel like putting a leash on his pet?
A leash is for Their safety and our peace of mind.
and I don't know if mothers actually do that when their puppies are grown - at least none I've seen. He's really risking his dog's life - what if another big dog was loose and he couldn't grab his yorkie in time ? What if his dog bolted before he could 'grab' him by the neck ? That's sad and you're in a hard place.....
I'd make friends with him if you could ...and try to slip some advise in the converstation for the sake of his dog.