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Tom, who was working for my father in the 1990s, is now living in Ohio.

Is it correct or should it be in Past Simple? I think it is correct because it is an action which was in progress in the past and also we have the "1990s" expression which refers to a duration.

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Past simple is correct. He stopped working then, at some point in the past, moved to Ohio.

You would usually use the past progressive to describe an something that was happening when another event occurred.

Back in the 1990s Tom was working for my father when he got the call his mother was ill, so he moved back to Ohio to take care of her.

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