Labor’s Discussion Paper On WorkCover – Does It Matter?

With a reasonable amount of fanfare, Labor’s WorkCover Policy Statement was released on Friday 24 January 2014.  The following Friday morning the chances of Labor being in power after the March 14 election went from bad to worse.  The spectacular failure of the party to manage the pre‑selection fiasco which was to see Don Farrell parachuting into the safe seat of Napier has now seen the Liberals shorten to long odds-on favourites to win the election.

It is reasonable now to pose the question of whether there is any need to analyse Labor’s WorkCover Policy Statement, or whether it is an initiative that can be dismissed because they will not have the opportunity to take it any further.

The reaction from the Opposition when the policy was released suggests that the reforms may well be adopted to a considerable extent by a Liberal Government.

Iain Evans welcomed the reforms, but said that the Government should have introduced them years ago.  He asked:  “Why weren’t these reforms brought in in one of the five, six or seven attempts they had previously to fix what is the worst workers compensation scheme in Australia?

Any reforms to the scheme will likely need the support of the Opposition in the Upper House to be introduced.  Labor has nailed its colours to the mast and Unions SA, the business community and the Law Society have largely endorsed the proposed reforms.

It would make good political sense for the Liberals to adapt and adopt the reforms as the basis of their own package.

What are the Major Changes Proposed?

  • Seriously injured workers will have lifetime care and support and receive 100% of notional weekly earnings until normal retirement age.
  • The less seriously injured will have weekly payments for two years only and medical expenses for the period of weekly payments and a further 12 months.  Those less seriously injured will have the opportunity to pursue a Common Law Claim in circumstances where the injury has been caused as a consequence of an employer’s negligence.  There is no detail of the restrictions that will no doubt be imposed.
  • There will be a tightening of thresholds for compensability generally and in particular for psychiatric injuries.  In the case of psychiatric injuries, employment will need to be “the significant contributing cause of the injury”.
  • A “new approach to dispute resolution” is proposed, but again there is little detail of the “new approach”, save that it is proposed that income maintenance will continue to be paid when a dispute exists “(with payments recoverable if appropriate, once the matter is settled)”.
  • Medical panels will be replaced with “independent medical assessors, established within the jurisdiction of the Workers Compensation Tribunal…to provide advice on medical matters”.
  • “Current provisions” for supplementary payments and the requirement of employers to provide suitable employment “will be strengthened to include the worker’s right to request an investigation by WorkCover and to apply for reinstatement”.  The reference to “reinstatement” should sound alarm bells for employers.

What are the Changes Expected to Deliver?

The State Government is targeting an average premium rate of between 1.5% and 2%”.  By way of comparison, the current rate is 2.75% and in Victoria it is 1.298% and in NSW it is 1.68%.

The unfunded liability would drop from $1.4 billion to about $100 million, which would take us back to a position very much like that in 2001 when the unfunded liability was $56 million and the scheme 97% funded.

Businesses in South Australia would save $180 million a year in premiums.

Similarly optimistic statements have been associated with previous attempts to reform the Scheme.  The statements are easy to make, but in practice hard to achieve.

As always with change, there would be winners and losers.

Is There any Down Side?

On its face, the winners would appear to be those workers unfortunate enough to be catastrophically injured and the business community as a whole.

The losers would include those affected by a tightening of compensability thresholds and those less seriously injured workers who have significant permanent impairments but who do not have a Common Law claim or do not reach the threshold that will no doubt be imposed to limit access to a Common Law remedy.

As always, the devil will be in the detail and it can be expected that there will be a high level of permanent impairment before a worker will be entitled to income maintenance and medical expenses for life.

In NSW, weekly income benefits cease at five years for all but the most seriously injured and an assessment of a 30% whole person impairment (WPI) or 20% WPI and working 15 or more hours per week and earning $168.00 per week is required before an injured worker can establish an ongoing entitlement.  In a recent opinion piece in the Advertiser, Dr Kevin Purse suggested that a 30% permanent impairment threshold would be applied for ongoing entitlement to compensation after two years.  At that level, he suggests that:

Only those with catastrophic brain damage, quadriplegia, paraplegia or severe multiple trauma would be likely to meet this test.  Others with severe or serious injuries – such as workers with amputations, debilitating spinal injuries, burns and other types of disfigurement – would miss out.

There is no mention of whether the proposed changes would operate retrospectively, but we can safely assume that there will be some retrospective effect, as there has been in NSW, because otherwise it is impossible to see how the unfunded liability can be virtually wiped out within two years.

Similarly, there would need to be some transitional arrangements that would allow workers who are catastrophically injured before any legislation takes effect to be entitled to the same level of benefits as those who suffer catastrophic injuries after the legislation takes effect because it would be quite simply immoral if the legislation were to create a third category of effectively second class catastrophically injured workers who remain on 80% of notional weekly earnings whilst the first class catastrophically injured receive 100% of notional weekly earnings.

What Else Should be Amongst any Reforms?

In my view, there are other areas that need to be addressed in any reform.  The alarming increase in the number of psychological claims (40% higher than 2.5 years ago) for claims resulting in more than two week’s lost time needs to be addressed immediately.  Recent WorkCover initiatives which provide direction to the claims agents in relation to the investigation and management of psychological injury claims will have a positive impact, as will strengthening the threshold, but it is no coincidence that the dramatic increase in the psychological injury claim trend coincided with the introduction of provisional liability payments.  In my March 2008 report, I said that:

  • The introduction of provisional liability for weekly payments (up to 13 weeks) and medical expenses (up to $5,000.00)…(has the)…significant potential for spurious claims to be lodged, including claims for emotional upset, and compensation obtained without the prospect of a recovery against the worker if the claim was subsequently rejected.

I described the introduction of provisional liability as “A free kick for disgruntled employees” and I have no doubt that my prediction has been borne out.  The removal of provisional liability should be part of any reform package.  The Act already provides for interim payments to be made before a claim is finally determined and so the removal of provisional liability would not have any detrimental effect but may deter some from making a spurious claim for psychiatric injury.

While there is a proper emphasis upon return to work in the Policy Statement, nowhere is there a recognition of the fact that the single most important driver of the costs of the scheme is the unwillingness of the majority of General Practitioners to certify capacity for work.

General Practitioners are the main gatekeepers to workers compensation and disability benefits and a recent study in Victoria established that more than 70% of initial medical certificates issued by GPs advised injured and ill workers not to work, while less than a quarter of medical certificates recommended workers return to work on modified duties.  The researchers concluded that:  “The high proportion of medical certificates recommending complete absence from work presents major challenges in terms of return to work, Labor force productivity, the viability of the compensation system and long-term social and economic development”.

Any reform of the scheme should address the role of the General Practitioner and perhaps the ability to certify incapacity should be restricted to accredited medical practitioners who, by training and background, have an understanding of the fact that work is an important part of rehabilitation and is “generally good for physical and mental health and wellbeing”.

There is no doubt that the present scheme needs reform and it needs it quickly, but careful consideration needs to be given to various aspects of the Policy Statement by the Liberals if they intend to adopt the reforms.  In particular, I would counsel against the reintroduction of Common Law.

Lawyers love Common Law and the union movement has by and large pushed for its reintroduction, but I am not aware of any academic studies that favour Common Law, and I do not believe that it has a place in a No Fault scheme.  At various times in recent history the costs associated with Common Law claims have impacted significantly on the schemes in Queensland, NSW and Victoria and all have had to gradually restrict access and/or benefits.  I am yet to hear a valid argument for its reintroduction.

The reintroduction of Common Law would add an additional layer of complexity to the scheme and cost to employers in the State.  It would not have any impact upon Work Health and Safety Standards beyond that which has already been achieved by increasing penalties through Work Health & Safety Legislation.  Philosophically, it would run counter to the return to work objectives of any reform package and be of doubtful benefit to workers overall.  I urge the Liberals in their considerations to reject any thoughts of its reintroduction.

Kevin Purse rightly comments that, “While some of the Government’s proposals have merit, a lot more work needs to be done if a balanced package is to be achieved.

The Policy Statement provides a reasonable basis for reform but a lot more work needs to be done to ensure that any reform is meaningful, provides the requisite balance between fairness and affordability and avoids as many as possible of the unintended consequences which so often follow major legislative reform.

For more information, please contact:
John Walsh

John Walsh
p.  +61 8 8124 1951
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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