> ...is central to protestant theology...
tl;dr: Using the "good fruit" passage to condemn people as "bad people" is bad reading comprehension.
Those words were said by Jesus, so it's impossible to ignore, but it's also commonly misinterpreted.
In the place you cited, it's clearly talking about "false prophets", or people who incorrectly claim to speak God's truth. They look like spiritual people (Christians, even), but you can tell they're rotten by the "fruit" of their lives. And (continuing on to verse 20) some "Christian leaders" do not follow Christ and will absolutely be rejected by Jesus on their judgement day. That passage Jude is also about determining if someone follows Christ earnestly more than deciding they're hell-bound or something.
Also, if we back up in that chapter in Matthew a bit (1), we'll see Jesus clearly say you'll be judged by the yardstick we apply to others. If we condemn assholes, we'll be condemned as assholes. Which of us isn't an asshole sometimes?
That's not giving assholery a pass, though. It's just if we're really concerned about improving the world and fixing the behavior of others, we should address ourselves first so that we won't be ineffective in the task.
Anyway, I agree that the "know them by their fruit" passage is misapplied to judge someone as a rotten person. A rotten spiritual leader? Sure. But not deciding that someone hopeless case. You'll have to find another source of authority if you want to claim that.
(1) https://www.biblegateway.com/passage/?search=Matthew+7%3A1-5...