Looking into the Crystal Ball

What can we expect in Workers Compensation in the near future?

On 16 April 2018 State Treasurer Rob Lucas announced that the average workers compensation premium rate for businesses in the 2018/19 financial year will be 1.7%, down from 1.8% in the 2017/18 financial year. The announcement went on to note that there is more work to be done to bring premium rates into line with Western Australia, New South Wales, Victoria, and Queensland.

The Review mandated by Section 203 (‘the Review’) of the Return to Work Act 2014 (SA) (‘the RTW Act’) will provide an opportunity for the new State Government to make the South Australian scheme more competitive with other schemes nationally.

The Honourable John Mansfield AM QC is due to complete the Review in June this year, and by that stage the Supreme Court of South Australia will have hopefully heard a number of important appeals regarding the interpretation of the RTW Act.

Looking into my crystal ball, I have listed some of the areas I expect the State Government to take a close look at.

The Martin/Mitchell conundrum – to combine or not to combine?

The Full Bench of the Tribunal in the decisions of Martin and Mitchell found that the adverse consequences of surgery and medication (respectively) that arose as a consequence of a compensable injury are to be taken to arise from the same trauma for the purpose of determining the entitlement to a lump sum for non-economic loss pursuant to the Workers Rehabilitation and Compensation Act 1986 (SA) (“the WRC Act’).

Although the entitlement to compensation in both cases arose out the WRC Act, the importance of combining the injuries arises because of the potential to be classified as a seriously injured worker pursuant to the RTW Act and establish an entitlement to weekly payments until the Federal Retirement Age.

The Actuarial Review of the Scheme for 30 June 2017 states that the legal sensitivity for:

  1. WPI assessment increase by 2% as a result of the higher incentives under the RTW Act, resulting in extra Serious Injury claims and higher lump sum payments is $147,000,000; and
  2. Restrictions on multiple assessments (‘top ups’) do not work as expected is $133,000,000.

The decision of Mitchell is currently under appeal in the Supreme Court of South Australia. Having regard to the potential adverse impact of an unfavourable outcome on the viability of the Scheme, in the event that the appeal is not successful, it can be expected that the State Government will consider amendments to the RTW Act to limit the extent to which consequential injuries can be combined with the principle injury to determine a worker’s whole person impairment.

In this regard, it is interesting to note the Australian Medical Association (South Australia) Inc.’s submission to the Review which states that, amongst other issues, there is “…the absurd situation where South Australia now has the most constipated population of workers in the nation – apparently. Similar problems with dry mouth and reflux are being asserted, unchallenged, by impairment assessors. Invariably, the problems are said to arise as a consequence of prescribed medication, most particularly analgesic and antidepressant agents. The arguments are specious and most importantly, do not reflect the wealth of international evidence which suggests that these problems are usually mild, reversible and eminently treatable.

One of the key assumptions underpinning the funding of the scheme when the Return to Work Bill 2014 was introduced into the Parliament was the number of claimants expected to be deemed to be seriously injured workers. In 2014 Minister Rau told the House of Assembly that he had been advised that approximately 330 existing claims would be considered seriously injured workers pursuant to the RTW Act. Minister Hunter also advised the Legislative Council that he had been advised that of the new claims made each year approximately 35 of those workers will be deemed to be seriously injured workers.

At the end of the 2016/17 financial year, the number of claims considered by ReturnToWork SA to be serious injury claims was 119, or 1% of total claims. ReturnToWorkSA’s actuarial review for 2016/17 notes that “If half of the claims who have submitted applications to be accepted as serious injuries but who have been rejected are subsequently overturned, there would be around a $161 million increase to the OSC provision”.

There are still a large number of disputes before the Tribunal with respect to claims made by workers to be deemed seriously injured workers. It would be reasonable to assume that as these disputes are finalised, the number of workers deemed to be seriously injured will increase above 1% of the number of total claims, which will exacerbate the impact of any adverse decisions made by the Supreme Court. It may be that the State Government will be required to consider a legislative amendment to the RTW Act, such that only a worker’s primary injury (that is the injury that arises directly as a result of the workplace trauma) can be considered for the purpose of determining whether, or not, a worker is a seriously injured worker.

Seriously injured workers – a ticket to early retirement

As soon as an injured worker establishes a whole person impairment of 30%, there is a distinct lack of any incentive within the RTW Act for that worker to continue to make any attempts to return to work.  Given the key aim of any workers compensation scheme is to return workers to the workplace, this is an absurd situation.

In my experience employer concerns regarding the cost of an injured worker meeting, or exceeding, 30% whole person impairment, are exacerbated by the knowledge that (unless the injured worker wishes to continue working) there is no ability to mitigate the costs of such a claim by providing suitable employment.

It may be still too early to tell, but given that it is widely acknowledged that unemployment leads to increased rates of overall mortality, and poorer physical and mental health[1], it seems reasonable to conclude that seriously injured workers who choose to cease engaging in employment will have poorer health outcomes than those who elect to try and remain in the workforce.

The removal of Section 25(11) of the RTW Act is one way in which an amendment could lead to both reducing costs and improved health outcomes in the long term.

Number of disputes

The statistics published by ReturnToWorkSA[2] note that the number of disputes open at the end of 2016 was 1,661. At the end of 2017 this number was 2,492. ReturnToWorkSA asserts that this is due to a lengthening of time taken to resolve disputes (as well as an increase in dispute numbers).

The removal of the ability to code an injury as a ‘secondary injury’ and thus avoid any direct premium impact on a registered employer has removed one of the most important mechanisms by which disputes with registered employers are resolved in the South Australian Employment Tribunal. In my experience, the ability to code an injury as a ‘secondary injury’ is particularly useful in the context of an ageing workforce in which many people have pre-existing degenerative conditions that present a risk for any potential employer.

The submission of the Law Society of South Australia to the Review states that a greater number of disputes have been generated as a result of a combination of:

  1. The introduction of new provisions which have not been judicially interpreted previously and which are both individually and in the context of the Act as a whole poorly worded and difficult to construe.
  2. The reluctance of the Corporation to negotiate a settlement of claims involving the construction of a provision of the RTW Act until the provision has been finally construed by the Full Court of the Supreme Court of South Australia.
  3. The refusal of the ReturnToWork Corporation, generally, to enter into negotiations to resolve disputes by way of a lump sum settlement including a redemption of future liabilities with respect to weekly payments and medical expenses.

Greg McCarthy in his paper “Insights for success in work injury insurance” makes a number of relevant points including the complacency with which redemptions had been approached for a significant period of time. He does go on to state, however, that “… before you draw the conclusion that redemptions should be avoided like the plague. That does not have to be the case… But you have to use redemptions carefully”.

Unfortunately, it appears that the pendulum has swung in the other direction too dramatically and my own observation is that representatives of the claims agents usually have no mechanism by which they can reach a compromise on a claim, other than a “closed period” acceptance; which creates its own difficulty with employers becoming increasingly aware of the ongoing liability they will have to provide suitable employment under Section 18 of the RTW Act.

Anecdotal feedback is that the claims agents have become increasingly bureaucratic and process driven and the perception is that this is as a result of ReturnToWork SA micromanaging their performance.

Interestingly, ReturnToWorkSA manages all claims in which a worker has been determined as a seriously injured worker and I understand will soon do the same for all claims in which an injured worker has been in receipt of weekly payments for greater than 52 weeks.

It may be time to revisit the relationship between ReturnToWorkSA and its agents to, at the very least, allow them some more flexibility to utilise the settlement mechanisms offered by the RTW Act in an appropriate manner.

Limitation on the time for injured workers to be reimbursed for the costs of treatment and medication.

Concern has been raised by a number of interested parties about the impact that the cessation of the entitlement to medical and like expenses is having on the health of injured workers.

My own observation is that there is an increased sense of urgency around workers being referred for, and having, surgery within the entitlement “window”.

There is also conflicting authority in the Tribunal as to the level of certainty required regarding future surgery for an application to be approved pursuant to Section 33(21) (b) of the RTW Act.

Subject to other changes that may be contemplated with the RTW Act, I would expect the State Government to consider amending the restrictions imposed on the time period for medical and like expenses as a way of improving benefits to injured workers, without placing undue stress on the scheme. The argument for doing so is particularly compelling in circumstances where such medication, or surgery, would have the effect of improving an injured worker’s capacity to undertake employment.

Setting the goalposts – who is, and is not, a ‘seriously injured worker’

In reviewing the submissions to the Review, there appears to be a general consensus that utilising the Impairment Assessment Guidelines and AMA 5 has led to a number of unfair outcomes in which some workers who retain significant capacity for employment will receive weekly payments through to their retirement age and medical expenses for life, and some workers who will never re-enter the workforce fall below 30% whole person impairment and therefore lose their entitlement to weekly payments after 2 years.

A number of parties have proposed substituting the current use of whole person impairment with a ‘narrative test’ to determine which workers will continue to receive weekly payments after 2 years.

Whilst such a test is appealing for its flexibility, the Scheme’s experience with trying to bring the entitlement to weekly payments to an end through Section 35B of the WRC Act, suggests that any narrative test will have the result of significantly increasing levels of disputation and result in far more workers being deemed to be ‘seriously injured’ under the RTW Act.

At this time, Victoria is the only jurisdiction which applies a ‘narrative test’ in determining which workers should receive ongoing benefits. In Victoria this has become a widely used means by which to obtain access to additional compensation.

ReturnToWorkSA, in its submissions to the Review, refers to a paper by Mr Geoff Atkins ‘Sustainability of Common Law’ which suggests that the most sustainable model for determining access to additional benefits in time limited schemes is Whole Person Impairment based on the AMA Guides.

Any alternative method of determining which workers should continue to receive weekly payments after 2 years will need to satisfy the Government that it will not only be fairer than the current method, but will not result in a cost blowout to the Scheme.

Summary

Without so many appeals currently before the Supreme Court of South Australia, it is difficult to argue for any immediate changes to the RTW Act. Decisions in cases such as Mitchell, Li, Robinson, and Preedy are likely to have significant impacts on the financial status of the scheme, as well as our understanding as to how it operates.

Once these decisions have been handed down and the State Government has been provided with the recommendations of the Honourable John Mansfield AM QC we can expect a lot of debate around making changes to the RTW Act!


[1] Waddell G, Burton A. Is work good for your health and well‐being? London, UK: The Stationery Office; 2006.

[2] https://public.tableau.com/profile/rtwsa#!/vizhome/ReturnToWorkSA-InsurerStatisticsFY2017/ReturnToWorkSA-InsurerStatisticsFY2017

For more information, please contact:
Patrick Walsh

Patrick Walsh
Director
p.  +61 8 8124 1941
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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