Objective: We sought to investigate the contextual effect of workplace bullying on subsequent individual psychological distress and intention to leave. Methods: A longitudinal study was conducted among 3142 Japanese employees in the public sector. Both the baseline and follow-up questionnaires inquired about demographic and occupational characteristics, workplace bullying, psychological distress, and intention to leave. Results: The results of three-level (individual—division—department) multilevel analyses revealed that division-level workplace bullying was associated with increased individual-level psychological distress after adjustment for individual experience of workplace bullying, while the association between individual experience of bullying and psychological distress was not statistically significant in the same model. Conclusion: The results of the current study suggest that the presence of bullying in the workplace can have a detrimental effect on employees’ mental health even if they are not personally victimized.