NSW Government proposes significant changes to Psychological Injuries and application of Workers Compensation Laws

The NSW government has released an exposure draft to amend its workers compensation legislation which will in summary provide:

• New definition of “psychological injury”

• New criteria for establishing an entitlement for compensation for psychological injury

• Additional criteria for establishing an entitlement for compensation for psychological injury caused by "sexual harassment", "bullying" or "racial harassment"

• Clarification of what constitutes “reasonable management action” and the circumstances in which compensation will not be awarded for psychological injury.

• Modernising benefits and compensation thresholds to better reflect the cost of living and community expectations (s 32AA).

The Workers Compensation Bill is intended to be passed and effective from 1 July 2025.

Our Take

We consider the NSW government acted because of the ‘burning platform’ that is the funding of psychosocial claims through workers compensation system. Whilst WHS commentators are shocked at the prevalence of psychosocial claims, financial commentators are equally as shocked at the unsustainability of the current system.

We consider the most significant of the above proposed reforms is that a worker will require “a copy of the finding of harassment or bullying made by the tribunal, commission or court” before they are able to make a workers compensation claim.

The ‘devil is in the detail’ however as the proposed changes also worryingly change, and in our opinion, significantly weaken and confuse the established definitions for both bullying and sexual harassment as contained in the Fair Work Act 2009 (Cth) and the Sex Discrimination Act 1984 (Cth).

For bullying there is no longer the threshold requirement that the behaviour must also create a risk to health and safety. Sexual harassment has removed the reference to the “reasonable person test”. We think this is tantamount to giving with one hand and taking away with the other. The definitions to both bullying and sexual harassment were difficult enough for most workplaces to deal with and it is unhelpful to now have further versions of the same topics.

There is some protection for employers with the proposed amendments seeking to confirm a worker is not entitled to workers compensation for psychological injury caused by the reasonable actions of the employer. The proposal goes slightly further than a restatement of the current law in that it requires the reasonable management action to be identified as a significant cause of the psychological injury whereas the current test only requires that the injury was wholly or predominantly caused by reasonable action.

Action Items

• Continue to train and refresh all of your workers regarding their obligations to effectively eliminate/manage psychosocial risks in the workplace

• Update your policies and procedures to demonstrate compliance

• Watch this space to assess the progress of this NSW only initiative - other states and territories may or may not follow.

Edge Legal

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