This week is crunch time for the New South Wales ailing workers’ compensation system. A bill that will constrain claims for psychological injury at work as a result of trauma, PTSD, bullying and harassment has been introduced into state parliament and will be debated.
The government wants to limit the ability of NSW’s 4.5 million workers to claim compensation for psychological injury in a bid to rein in costs.
The government wants to raise the threshold when it comes to the level of injury required for compensation, and it will be harder to get lifetime payments.
Unions, the legal profession and medical experts were highly critical of the first draft, saying it was too draconian and would make it all but impossible for injured workers to claim for psychological injury.
Over the past month, the government has made changes to try and win over opponents. It has moved to better define injuries suffered by police and paramedics who witness traumatic events.
Labor also wants a fast track for people to receive compensation for harm caused by bullying and harassment, rather than needing an industrial relations commission ruling. It’s added excessive work demands as a compensable harm.
It has promised to spend $344m on preventing psychological injuries in the workplace, including more workplace inspectors.
Labor needs to convince the crossbench or the Coalition that the legislation is fair and workable to get the bill passed.
Why have claims for psychological injury increased so much?
People have become much more aware of psychological injuries. Workplaces are now legally obliged to recognise and deal with circumstances and behaviours that can lead to psychological harm, such as repeated witnessing of traumatic situations, as well as bullying in the workplace or sexual harassment. Rather than tolerate it, workers are encouraged to speak up.
This has also led to a surge of people seeking redress through the workers’ compensation system. The government is expecting another 80,000 claims over the next five years.
Unlike people with physical injuries – the majority of whom return to work within a year – 50% of those with psychological claims are still off work after one year, the government says.
Covid is thought to have further exacerbated psychological claims in the workplace because of the wave of mental health problems it spurred.
So what’s the big hurry?
The state workers’ compensation scheme is in big trouble financially. Over the past five years the NSW government has tipped $6bn into the scheme, Chris Minns says.
“That is money from hospitals, schools, public transport, farmers and flood relief going into a system that should sustain itself,” the premier told parliament last week.
The Icare nominal insurer’s workers’ compensation scheme recorded a net loss of $1.88bn last financial year.
With the state budget due to be delivered on 24 June, the treasurer, Daniel Mookhey, will be forced to reveal the latest losses and the expected financial trajectory of the scheme over the next four years. It will not be a pretty picture, but just how bad it is depends on whether the legislation is passed.
Mookhey says businesses are facing a 36% increase in workers’ compensation premiums due to increased claims, mainly for psychological injury.
What are the key changes the government has proposed?
The government wants to limit claims for lifetime financial support by changing the threshold for whole-of-person impairment from 20% to 30%.
The Australian Association of Psychologists’ vice-president, Katrina Norris, previously told the Guardian that raising the threshold of “permanent impairment” to above 30%, as had been proposed, would make successful claims nearly impossible.
“An impairment of 15% requires an individual to be unable to function independently in almost all domains of life,” she has said.
The government has introduced clearer definitions of vicarious trauma and acknowledged that psychological injuries arising from repeated exposure to other people’s traumatic experiences are compensable. The revised bill states that witnessing attempted suicide or suicide is such an event.
Initially, the government proposed tough rules around claims for psychological injury caused by alleged harassment or bullying, which would have first required a court or tribunal finding that such conduct occurred.
“This could act as a significant deterrent to workers seeking compensation for psychological injuries,” King & Wood Mallesons law firm said in a note to clients.
Now, there is a proposed eight-week pathway for assessing bullying and harassment claims, leading to limited payments. Workers can still choose the alternative route of heading to the Industrial Relations Commission first.
The government says it wants to recognise harm caused by bullying and harassment, but get people back to work as quickly as possible.
What sweeteners has the government offered?
The government says preventing these type of injuries at work is better than compensation.
It’s promoting preventive measures through a workplace mental health package worth $344m to provide additional support in the workplace, including more than 50 new inspectors specialising in psychological injury and wraparound psychological support services for people navigating the claims process.
What are the chances of the legislation passing?
Labor’s best bet is getting the Coalition onside. The crossbench and Greens in the lower house have expressed serious reservations even with the amendments proposed last week.
“The NSW workers’ compensation scheme needs reform, but it must not come at the cost to our most vulnerable workers,” the independent MP Alex Greenwich has said.
He has offered to work with the government and the union movement to improve the bill.
The opposition was meeting to discuss the legislation on Monday.
“We recognise the need to reform the workers’ compensation system to put major downward pressure on premiums,” the opposition leader, Mark Speakman, said on Sunday.
“Shadow cabinet has had the complex bill for less than a week. It has major changes from the exposure draft, which itself was hastily produced.”
In Australia, support is available at Beyond Blue on 1300 22 4636, Lifeline on 13 11 14, and at MensLine on 1300 789 978. In the UK, the charity Mind is available on 0300 123 3393 and Childline on 0800 1111. In the US, call or text Mental Health America at 988 or chat 988lifeline.org
• This article was corrected on 3 June 2025 to make clear that 50% of people with psychological claims are still off work after one year, not five years as previously stated.
