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A toxic employee can have far-reaching negative effects on the workplace, impacting not just individual coworkers but the entire organizational culture and overall productivity.

Toxic behaviour may include persistent negativity, manipulation, bullying, gossip, insubordination, or a lack of accountability, all of which could damage the reputation of the business.

“If you’re a company that has high turnover rates, a lot of that often has to do with the environment,” says Stephen Mitchell, President of Innersee Initiatives Inc.,  a Cambridge-based consulting firm that focuses on group and leadership development and organizational transition. “Is it a toxic environment I’m working in? I don’t enjoy coming to work and that can be within what I do at work and within the people I work with. Are they creating the environment that I can’t fit in or assimilate into?”

Quite often, organizations may have employees who are quick to react and as a result, other employees or even those in leadership roles, feel intimidated to make practical suggestions or be more productive because they get drawn down.

“That’s kind of like bullying,” says Stephen, adding it can work the opposite for a more introverted employee. “Maybe you’re not as driven so you don’t work as hard if your work environment allows you to get away things, such as leaving early. You may not intentionally be creating a toxic environment, but other employees may resent it.”

One of the most immediate and visible effects of a toxic employee is the decline in team morale. Their behaviour often creates tension and mistrust among colleagues. 

Erosion of trust in management

For example, if an employee frequently gossips or undermines coworkers, it can lead to a toxic atmosphere where people feel the need to watch their backs instead of collaborating openly. This can reduce team cohesion, increase conflicts, and make it difficult for employees to work together effectively.

Toxic employees can also erode trust in management if their behaviour is allowed to continue unchecked. When coworkers see that bad behaviour is tolerated or ignored—especially if the employee is high-performing—it can lead to feelings of unfairness and resentment.

This perception of favouritism or negligence can further demoralize staff and lead to disengagement.

Stephen says leaders who do not react to situations like these and allow them to simmer could result in further complications.

“Not addressing it is the reason why you’re going to start to see higher turnover,” he says, adding speculation in the workplace can be even more harmful, especially surrounding the roles employees play in the organization. 

Stephen refers to workshops he has facilitated with clients in which employees with different duties are paired with each other to participate in a ‘fun exercise’ in effort to create an open dialogue and create a better understanding of each other’s roles.

Communication key for success

“Communication is key to everything,” he says. “I think that one of the biggest things leaders and managers forget is the importance of communication. It is important to communicate the health of the business and communicate the direction of the business.”

Stephen says the economic pressures many businesses are facing due to the geopolitical climate makes this even more imperative. 

“We have all these questions around what’s going to happen next. What’s going to happen with these tariffs? Are we going to have a job next year? What is our action plan for new markets and looking for new business?” he says, adding how easy it is for gossip to spread. “Make sure that as a leader you’re communicating where the direction of the business is taking everyone.”

Stephen also recommends the need for leaders to acknowledge the work of employees, which can be a boost to their mental health.

“As leaders we get focused on making sure the next job comes in or that paycheques are going to be there at the end of the week,” he says. “But we forget sometimes that recognition goes a long way to retaining associates.”

Organizations must take proactive steps—such as setting clear behavioural expectations, offering support, and being willing to take disciplinary action—to address toxic behaviour before it undermines the entire workplace. Addressing the issue early is essential not just for the health of individual employees, but for the long-term success of the organization.

Tips on how business leaders should handle toxic employees

Recognizing toxic behaviour

Toxicity may manifest in several ways: persistent negativity, gossiping, passive-aggressive communication, bullying, manipulation, resistance to teamwork, or undermining authority. These behaviours not only affect interpersonal dynamics but can also discourage high performers, create division, and reduce overall engagement. Leaders should differentiate between a difficult employee—who may be underperforming or struggling—and a toxic one, whose behaviour actively harms the team. This distinction is important because it determines the course of action: development versus discipline.

Direct and constructive feedback

Avoiding conflict is one of the most common leadership pitfalls when dealing with toxic employees. Instead, leaders should initiate a private, respectful, and direct conversation with the individual. Use specific examples of the toxic behaviour, its impact on the team or company, and explain why it is unacceptable.

Offer support but set boundaries

If the employee is open to change, leaders should provide support through coaching, training, or even professional counselling if appropriate. Sometimes toxic behaviour is a result of unresolved conflict, miscommunication, or a mismatch between job role and skill set. However, support must be balanced with accountability. Make it clear that change is non-negotiable, and that ongoing toxic behaviour will lead to further disciplinary actions.

Involve HR early

Human Resources should be involved as early as possible in handling toxic behaviour, especially if the issues are serious or recurring. HR can offer guidance on legal considerations, help with formal documentation and performance improvement plans (PIPs), and mediate between employees or between employee and leadership.

Take decisive action when needed

If a toxic employee fails to change despite feedback and support, leaders must take decisive action. This may include demotion or role reassignment, probation or a final warning, or t termination of employment.

Build a preventive culture

Beyond individual cases, leaders should foster a culture that discourages toxicity promote open communication and psychological safety and reinforce core values regularly. Also, it’s important to recognize and reward positive behaviours and conduct regular team check-ins and anonymous feedback surveys.