Employee mental health concerns now at the core of workplace litigation

By Howard Levitt and Jeffrey Buchan

There has been a quiet but unmistakable shift in Canadian workplaces — one that many employers do not fully grasp until it is too late.

Employee mental health is no longer a peripheral concern confined to cases of harassment or abuse. Increasingly, it sits at the centre of workplace litigation. Claims rooted in psychological harm are emerging not from shocking misconduct but from the ordinary frictions of work: strained reporting relationships, clumsily handled performance reviews and, particularly, workplace investigations that drag on without clarity or resolution.

What employers once dismissed as routine workplace stress is now forming the backbone of constructive dismissal claims, human rights applications and occupational health and safety complaints.

The legal exposure is not coming from a single direction. It is converging.

More than ever, courts are willing to scrutinize not only what employers do, but how they do it. A heavy-handed disciplinary approach, public criticism or an abrupt and insensitive termination can ground findings of bad faith. Where those actions are tied to demonstrable psychological harm, damages may extend well beyond reasonable notice/severance into aggravated, moral and punitive damages.

Overlay that with human rights legislation, where mental health conditions are firmly recognized as disabilities, and the duty to accommodate to the point of undue hardship is triggered — a duty far easier to state than to apply. Mental health issues are rarely obvious and often disclosed incrementally. An employee may first present as underperforming or frequently absent with no immediate indication of an underlying medical issue. By the time disclosure occurs, decisions may already have been made that are difficult, if not impossible, to reverse.

The real risk for employers is not simply failing to accommodate but failing to recognize when the duty to accommodate has been triggered at all.

Workplace investigations present another growing pressure point.

Allegations of harassment increasingly include claims of psychological harm or toxic environments. Employers are legally obligated to investigate, yet the process itself has become a source of harm. Delays, poor communication, perceived bias and obviously predetermined results by investigators exacerbate the very issues the investigation is meant to address.

It is not uncommon for employees on both sides of a complaint to report deteriorating mental health as an investigation unfolds. And investigators are often just hired guns for the employer with the mission to find cause to terminate and develop evidence to do so. Workplace investigations have become the major boondoggle of employment law. They are often bad faith incarnate and something from which no subject employee ever returns. Without legal representation, investigated employees are simply sitting ducks.

At the same time, occupational health and safety obligations — particularly in Ontario — now explicitly encompass workplace harassment. While these regimes have not traditionally been associated with damages for mental distress, they impose real regulatory obligations that can lead to such an outcome. A failure to provide a psychologically safe workplace can attract consequences even where civil liability is not ultimately established.

None of this transforms employers into guarantors of employee well-being. The law does not require a workplace free of stress, conflict or difficult conversations. It does, though, require a workplace free from conduct that is unfair, discriminatory or carried out in bad faith. That distinction is critical, but in practice can be difficult to maintain.

Compounding the problem is a familiar but persistent issue: documentation — or the lack of it. Employers who manage performance informally often find themselves exposed when mental health allegations surface. Without a clear record of expectations, feedback and support, legitimate management decisions can appear arbitrary — or worse, punitive — when viewed in hindsight.

There are, however, practical steps employers can take to mitigate these risks.

Clear, well-drafted policies addressing harassment, discrimination and workplace violence are no longer optional. Whether standalone or embedded within broader employee handbooks, these policies must set out transparent reporting mechanisms and outline how complaints will be addressed. Equally important, employees must be trained on how to use them.

This is not merely formality. Its absence has real legal consequences.

It is increasingly common for dismissed employees to allege after the fact that they were subjected to harassment in an effort to bolster claims for bad faith damages. Those arguments carry significantly less weight where no concerns were raised during employment, particularly where the employer had clear policies and accessible reporting channels. In such cases, the absence of any complaint is difficult to reconcile with allegations of an ongoing toxic workplace.

The same logic applies to constructive dismissal claims. An employee who resigns and later alleges a poisoned work environment without having raised concerns beforehand faces an uphill battle.

But employers should take little comfort in that.

The moment an employee does come forward with a complaint, the legal landscape shifts. At that point, inaction becomes the greatest risk. Employers who fail to respond, or who respond superficially, often forfeit otherwise viable defences. A complaint left unaddressed can quickly transform a defensible situation into a costly legal problem.

The obligation is straightforward even if execution is not: act promptly, investigate fairly, document thoroughly and communicate throughout.

In today's workplace, mental health is no longer a side issue. It is a legal one. And employers who continue to treat it otherwise are inviting scrutiny — from courts, tribunals and regulators alike.

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practices employment law in eight provinces and is the author of six books, including the Law of Dismissal in Canada. Jeffrey Buchan is an associate at Levitt LLP.