30 Apr 2025The NSW government has foreshadowed changes to workers compensation legislation that will tighten access for psychological injuries.
Massive upsurge in claims
The state government has warned the NSW workers compensation system is “unsustainable” unless it cuts back on victims’ eligibility for payments for workplace psychological injuries. These can include PTSD, anxiety and depression.
Treasurer Daniel Mookhey said there had been an upsurge in awareness of mental health issues and while the number of claims for psychological injury was relatively small, it had doubled in the past six years. (Please see Workers Compensation Ministerial Statement, NSW Government, 18 March 2025.)
“Psychological claims now make up 12% of total workers compensation claims, but 38% of the total cost,” Mr Mookhey told parliament in March 2025.
“The average cost of a psychological injury claim has increased from $146,000 in 2019-20 to $288,542 in 2024-25,” he said while announcing the coming legislation to reform the workers compensation system.
Mr Mookhey said under the changes, workers will first have to establish a bullying and harassment claim before they can make a psychological injury claim for workers compensation benefits.
Raising threshold for psychological injuries
While there was little detail on how the government will tighten access to compensation for psychological injury, it is likely to increase the impairment threshold.
The NSW government is looking to how South Australia and Queensland raised their thresholds for psychological injury and is likely to adopt a 30 per cent Whole Person Impairment (WPI) threshold for psychological injury.
There is no threshold in Queensland for a damages claim to be prosecuted under common law. In South Australia, a 30% threshold exists for a worker to be categorised as a “seriously injured worker” under section 21 of the SA Return to Work Act 2014.
The current NSW threshold of 15% WPI is onerous enough. The threshold exists first, for the prosecution of a lump sum under section 66 of the Act, and secondly, with reference to the availability of a work injury damages claim, also known as a common law claim, for a NSW worker.
This could have a devastating impact on workers who suffer from psychological injury resulting from a workplace incident or series of incidents, such as bullying, harassment, prejudice or unfair treatment.
New legislation could threaten workers’ rights and entitlements
Such an imposition represents a threat to the rights and entitlements of thousands of workers reporting psychological injury. The Labor government should impose effective regulations on employers to prevent such injuries, instead of removing workers’ rights.
Even though Mr Mookhey said there will be consultation with unions and businesses on the changes, there needs to be much further investigation of how these changes will work in practice.
I come into regular contact with people suffering from psychological injury stemming from their workplace. Every person’s situation is unique, and the injury to their mental health manifests itself in many different ways.
Unlike a physical injury, like a broken bone, it will be nigh impossible to determine the level of WPI for a psychological injury, let alone decide whether a person has a WPI of 29 per cent, which would put them just under the threshold for assistance, or 31 per cent, which would put them over the threshold.
Legislation to provide certainty around definitions
The government has said the coming legislation will define both “psychological injury” and “reasonable management action”, to provide workers and businesses with certainty, “rather than let the definitions remain the subject of litigation”.
The NSW government move follows a landmark High Court decision last December to order an employer to pay $1.4 million to an ex-employee for psychological injury incurred through a defective disciplinary process.
The judgement Elisha v Vision Australia overturned a century-long legal precedent for courts to deny workers damages for such injuries. The High Court ruled psychological injury is part of a class of physical or personal injury for which damages are recoverable for breach of contract.
Anybody who believes they may be eligible to receive workers compensation for psychological injury should contact a specialist compensation lawyer as soon as possible, and act before the NSW legislation is introduced in coming months.
