Employer Liability and Mental Health Risk
The American Psychiatric Association reports that employees with unresolved depression experience a 35% drop in productivity, which costs organizations $210.5 billion annually.[1]
Mental health risk in the workplace is an ever-increasing problem. For instance, mental health-related leaves of absence have risen by 300% between 2017 and 2023.[2] And, in 2024 alone, 64 different bills were tracked on mental injury-related workers’ compensation across the country.[3]
Because of these issues, workplace mental health is a mainstream legal, financial, and operational risk. So multiple federal laws impose obligations on how employers must respond when mental health intersects with work.
On this page, you will learn what you, as an employer, are responsible for in terms of mental health legal risk and the laws that govern employer obligations. You’ll also discover practical steps you can take to reduce employer liability.
What Constitutes Workplace Mental Health Risk?
Work is a social determinant of mental health. Meaningful work contributes to a person’s sense of accomplishment and earnings, and also supports inclusion for those living with psychosocial disabilities.
A workplace mental health risk is any condition in the work environment that has the potential to cause psychological harm to an employee. Examples of such harm can be:
- Chronic stress
- Burnout
- Anxiety disorders
- Depression
- Post-traumatic stress
Workplace mental health risk is, unfortunately, very common. Work-related stress has been reported to cause 120,000 deaths in the US each year.[4] It is also reported that 83% of US workers deal with frequent stress at their workplace, 54% of whom think that it affects their home life.[5]
The US Surgeon General’s 2022 Framework for Workplace Mental Health and Well-Being also found that 84% of US workers said their workplace conditions had contributed to at least one mental health challenge.[6]
Types of Workplace Mental Health Hazards
Workplace mental health risks typically fall into three broad categories. These include:
- Organizational hazards that are built into the structure and management of work itself. These include:
- Job factors such as work overload, inadequate staffing and scheduling, lack of job training and control, shiftwork, and role ambiguity.
- Organizational factors including downsizing, mandatory overtime, and technology overload.
- Interpersonal hazards, in other words, the way people treat one another at work. Harassment and bullying are the two most significant interpersonal mental health risks.
- Environmental hazards referring to the physical conditions of the workplace and the degree to which employees are safe within them. They include physical violence, harassment, intimidation, or any form of hostile work environment causing mental health effects.
Federal Laws for Employer Liability
Employer liability is the legal responsibility an organization bears when its actions contribute to psychological harm to an employee. It is governed by several federal laws. These laws include:
Americans with Disabilities Act (ADA)
The ADA applies to private employers with 15 or more employees. It prohibits discrimination in hiring, promotion, pay, job assignments, and termination against qualified people with disabilities in the workplace.[7]
Mental health conditions, such as major depression, post-traumatic stress disorder (PTSD), and anxiety disorders, qualify as disabilities under the ADA.
The employer’s central obligation under the ADA is the duty to provide reasonable accommodation for mental health conditions, such as:
- Adjusted employee schedules
- Modified workloads
- Remote work if they can’t report on-site
- Additional break time
- Leave for mental health treatment
Family and Medical Leave Act (FMLA)
The FMLA requires employers to provide job-protected leave when a serious health condition makes it impossible for an employee to work. Mental health conditions qualify as serious health conditions under the FMLA.
Covered employers are required to provide 12 work weeks of FMLA leave each year. This applies to employers with 50 or more employees. And employees become eligible for it after working for the employer for at least 12 months and logging at least 1,250 hours in the prior 12 months.[8]
If the leave expires and an employee with a mental health condition is still unable to return, you can not treat non-return as automatic grounds for termination.
Occupational Safety and Health Act (OSHA)
General Duty Clause, Section 5(a)(1) of the OSHA requires employers to provide a workplace free from hazards that could cause death or serious physical harm to employees.[14] It applies to employers with 15 or more employees.
Title VII also covers harassment in the workplace, including:
- Offensive remarks
- Intimidation
- Ridicule
- Physical threats
- Interference with work performance
In April 2024, the US Equal Employment Opportunity Commission issued its first updated Enforcement Guidance on workplace harassment in 25 years.[10] It says that an employer is liable for harassment by a supervisor that results in a negative employment action (for example, termination, failure to promote, or loss of wages).
Employers will also be liable for harassment by non-supervisory employees, such as contractors or customers, on the premises.
Legal Theories of Employer Liability
The American court system also recognizes some tort law theories through which employers face liability for workplace mental health harm. They include:
Negligence in Duty of Care Towards Employees
Every employer has a basic legal obligation to keep the workplace reasonably safe for its employees. This obligation is called the “duty of care.”
Besides physical safety, employers also owe a duty to care to protect employee mental health.
Once you become aware of conditions that are likely to cause serious harm to employees, your obligation to act is triggered. Negligence in mental health employment law of duty can happen in the form of:
- Failing to deliver adequate psychological safety as per workplace laws
- Not addressing known hazards
- Ignoring reports of unsafe conditions from your employees
- Failing to offer mental health support to workers
Negligent Infliction of Emotional Distress (NIED)
NIED is a tort claim that holds employers liable for psychological harm caused by careless conduct.
Such claims most often arise when an employer fails to respond to a known problem. For example, if you receive repeated complaints of harassment against an employee and you do nothing about it, you will be liable under NIED. You do not need to have intended harm.
NIED is a state law tort, in other words, a civil wrong governed by state-level common law, so the liability rules can vary from state to state.
Some states allow a claim only if the employee was in a zone of physical danger. A few require at least some physical injury before the claim can proceed.
Intentional Infliction of Emotional Distress (IIED)
IIED is the most serious of the three theories. It requires deliberate conduct so extreme that courts treat it as a standalone legal wrong.
It happens when an employer intentionally causes their employees to suffer severe emotional distress, for example, due to racial insults, sex discrimination, insults, rough language, or bad manners.
Employers face exposure not just for their own conduct, but for what their managers and supervisors do. So you could be held responsible for your supervisor or co-worker if they act within the scope of your employment, and you fail to address complaints against them.
Workers' Compensation for Mental Health Claims
As of January 2024, 31 states plus the District of Columbia allow workers to file claims for mental health conditions arising from work-related factors.[11]
There are two main types of mental health claims under workers’ compensation:
- Physical-mental claim in which a mental health condition results from or is linked to a physical injury.
- Mental-mental claim, where a mental health condition was caused by work, but without any physical injury involved.
Workers’ compensation is governed at the state level, not federally. Some states, including…
- Alabama
- Arkansas
- Florida
- Georgia
- Idaho
- Kansas
- Kentucky
- New Hampshire
- North Dakota
- Ohio
- Oklahoma
- South Dakota
- West Virginia
- and Wyoming
…cover mental health claims only if they are caused by a physical work injury. Therefore, it’s good to understand what is compensated for in the state in which you reside.
If a mental health claim is accepted, the employer will be required to cover psychiatric treatment, therapy, medication, and also disburse temporary or permanent disability payments.
Employer Best Practices for Mitigating Mental Health Risk
Here are some practical steps you can implement to avoid heavy liabilities due to mental health claims.
ADA-Compliant Accommodation Policies
If you have an employee with a mental health condition, you must hold a good-faith, collaborative discussion with them to decide relevant accommodations. Some of these accommodations can be:
- Flexible work hours, including modified start and end times
- Telework, either full-time or on a hybrid schedule
- Reassignment to a different role
- Noise-canceling accommodations for employees with concentration difficulties
- Occasional leave for therapy or medical appointments
Your employees are not required to disclose a mental health condition unless they are requesting an accommodation.
But when they do, their information cannot be shared with others in the workplace.
It is recommended to have a formal written policy in place for handling accommodation requests. It should spell out how employees can make a request, who handles it, what documentation may be required, and how confidentiality will be maintained.
Training on Mental Health Recognition
Effective training equips your team to recognize a potential accommodation request and initiate the interactive process of arranging it.
If a manager observes that an employee is finding it hard to cope and that their difficulties appear tied to a health condition, they are supposed to arrange for accommodations. Untrained managers may miss these situations, and you will be held accountable.
Training should cover, at a minimum, the following areas:
- Recognizing the behavioral and performance indicators that suggest an employee is experiencing a mental health issue
- How to respond to employees without creating liability
- How to avoid retaliation
- Understanding how employers are expected to support an employee in return-to-work situations.
Employee Assistance Programs (EAPs)
An Employee Assistance Program is a voluntary, confidential benefit that gives employees access to professional support. It addresses substance use, stress, grief, family problems, and psychological disorders.
A 2025 poll of more than 2,000 US adults found that 26% of employees did not know whether their employer offered mental health benefits such as an EAP. Also, only 53% of employees knew how to access their employer-sponsored mental health benefits.[12]
Practical steps to implement an EAP include:
- Communicating EAP availability at onboarding, in annual benefits reviews, and during high-stress periods
- Having senior leadership visibly endorse the program
- Posting EAP contact information in multiple areas at the workplace
- Explicitly addressing confidentiality in all communications
Documentation/Recordkeeping
In any mental health risk law dispute, documentation decides your liability. Employers who have records of their decisions and accommodations are far better positioned to defend themselves.
Every accommodation request, regardless of how informal it begins, should be documented. The accommodation file should include the date and method by which the request was made, medical documentation that was requested, a summary of the decisions made, and follow-up reviews.
Under federal regulations at 29 CFR Part 1602, all records must be preserved for at least one year from the date the record was made.[13]
The information collected in disability-related inquiries, examinations, and the accommodation process must be stored as a confidential medical record. Only authorized personnel who have a legitimate business need should have access to it.
Build Your Mental Health Risk Action Plan With Mission Connection Healthcare
Employer mental health risk management is not a one-time project. It is a responsibility you must address in all your policies and insurance exposure.
Mission Connection Healthcare specializes in outpatient care for adults with complex mental health challenges. So we can offer your employees 24/7 structured support. Our facilities also have intensive outpatient programs (IOP) and partial hospitalization programs (PHP) for those who need a higher level of structured care without a full inpatient stay.
If you’re outside California, Virginia, or Washington, we provide online therapy options so geography is not a barrier to getting your workforce the help it needs.
Reach out to us to build your mental health action plan today.
