Written by Australian Business Lawyers & Advisors

On 8 May 2025, the NSW Government released an Exposure Draft Amendment for Workers Compensation Legislation in NSW (the Draft Bill). This marks an important step in the consultation process between stakeholders and the Government – as we can now see the first iteration of the proposal. This article provides a follow-up Australian Business Lawyers & Advisors' earlier article and an important rundown of the key proposals. 

 

Key proposals

The following proposals are expected to attract significant attention in the next phase of consultation:

  • 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.

Importantly, none of the above proposals represent the final version of the proposed reform. The Draft Bill has been released to ensure that the final iteration of the Bill that gets voted upon has been subject to stakeholder and community scrutiny. 

 

1. New definition of “psychological injury” 

The proposed definition of “psychological injury” is extracted below:

"In this Act, psychological injury means an injury that is a mental or psychiatric disorder that causes significant behavioural, cognitive or psychological dysfunction”.

By inserting a singular definition at the outset of the legislation, this proposal seeks to clarify and simplify the task of determining what is a “psychological injury” for the purposes of workers compensation legislation. 

The proposed definition would replace the current (and multiple) definitions of “psychological injury” that appear throughout workers compensation legislation. No express change is otherwise proposed to the existing definitions of “primary psychological injury” or “secondary psychological injury”. Aside from their scope being tied to the definition of “psychological injury”.

 

2. New criteria for establishing entitlement for psychological injury compensation 

The Draft Bill sets out new criteria for establishing an entitlement to compensation for psychological injury. The most significant change arising from the proposal is that the cause of the injury must be “a relevant event” – currently, an exhaustively defined term.  

 

New criteria

Establishing eligibility to make a compensation claim for a psychological injury (that does not arise as a consequence of a physical injury) requires three conditions to be present:

  • A relevant event or a series of relevant events caused the psychological injury
  • There is a real and substantial connection between the relevant event or series of relevant events and the worker’s employment
  • Employment is the main contributing factor to the psychological injury.

Additional threshold requirements apply to claims relating to sexual harassment, bullying and racial harassment (see below).  

 

What is a “relevant event”?

This is a new defined term. The Draft Bill includes the following exhaustive list of what constitutes a “relevant event” for the purpose of the establishing an entitlement to compensation:

  • being subjected to an act of violence or a threat of violence
  • being subjected to indictable criminal conduct
  • witnessing an incident that leads to death or serious injury, or the threat of death or serious injury, including the following:
    • an act of violence
    • indictable criminal conduct
    • a motor accident, a natural disaster, a fire or another accident
  • experiencing vicarious trauma (as defined by the legislation)
  • being subjected to conduct that a tribunal, commission or court has found is: 
    • sexual harassment
    • racial harassment 
    • bullying
  • another event prescribed by the regulations.

 

3. Additional criteria: psychological injury caused by sexual harassment, bullying or racial harassment

The Draft Bill proposes a separate pathway for seeking compensation in relation to a psychological injury caused by sexual harassment, bullying or racial harassment.

Most notably, an employee would be prevented from making a claim for workers compensation unless the worker provides “a copy of the finding of harassment or bullying made by the tribunal, commission or court”. 

That requirement would operate in addition to the new criteria set out above.

 

Which “tribunal, commission or court”?

The Draft Bill does not impose limitation on where a claimant must establish “the cause” of the injury meets the definitions of “harassment” or “bullying” as defined in the workers compensation legislation. 

As such the operation of this provision is not contingent on the establishment of a new bullying jurisdiction in the NSW Industrial Relations Commission. Details regarding the nature of that new jurisdiction will be the subject of a separate bill, expected to be released within the coming months (if not weeks).  

 

New definitions: “bullying” and “sexual harassment”

Interestingly, the Draft Bill departs from the established definitions for “bullying” and “sexual harassment” (see Fair Work Act 2009 (Cth), s 789FD; Sex Discrimination Act 1984 (Cth), s 28A;  Anti-Discrimination Act 1977 (NSW), s 22A). 

“Bullying” for the purposes of the workers compensation legislation means: 

"an individual or a group of individuals repeatedly behaving unreasonably towards the worker or a group of workers of which the worker is a member”.

This does not include the threshold requirement that the behaviour must also create a risk to health and safety. 

“Sexual harassment” for the purposes of the workers compensation legislation means: 

"a person who makes an unwelcome sexual advance, or an unwelcome request for sexual favours, to the worker or engages in other unwelcome conduct of a sexual nature in relation to the worker”.

The proposed definition removes the well-established reference to the “reasonable person” test recognised in both Federal and State anti-discrimination legislation. The reasonable person test is a critical third element of the current statutory definition that directs attention to the circumstance in which the conduct arose and whether a reasonable person, “having regard to all the circumstances, would have anticipated that the other person would be offended, humiliated or intimidated”. 

This departure impacts the nature of the requisite “findings” that a tribunal, commission or court must make (to remove the bar to seeking workers compensation). For example, as  proposed, the cause of the injury may not be sufficient to establish contravention of the Sex Discrimination Act 1984 (Cth) (see s 28A) or Anti-Discrimination Act 1977 (NSW) (see s 22A), but could establish a “relevant event” for the purposes of the workers compensation scheme.  

 

4. Clarification - what constitutes “Reasonable Management Action”

The Draft Bill proposes amendment to an existing provision regarding “no compensation for psychological injury caused by reasonable actions of the employer”. The amendments would drastically simplify the existing provisions. However, the most significant change proposed is the insertion of a definition of “reasonable management action” into the Act.

 

Proposed simplified provision

The proposed amendment regarding reasonable management action is as follows:

“(1) No compensation is payable under this Act in relation to a psychological injury if a significant cause of the psychological injury was—

(a) reasonable management action taken or proposed to be taken by an employer in relation to a worker, or

(b) a worker’s expectation of reasonable management action being taken in relation to the worker, or

(c) a worker’s perception of reasonable management action taken or being taken in relation to the worker.”

The proposed amendment is further simplified by requiring the “reasonable management action” to be identified as the “significant cause” of the psychological injury. By contrast, the existing test states that “the injury was wholly or predominantly caused by reasonable action”. 

The balance of the provision would remain unaffected. Importantly, this provision would continue to not affect any entitlement to compensation for an injury of a physical nature even it the injury is a physical symptom or effect of a psychological injury. 

 

New definition: “Reasonable Management Action”

As proposed, reasonable management action means management action: 

  • taken in a reasonable way; and 
  • that is reasonable in all the circumstances. 

Accompanying this new definition is a non-exhaustive list of management action that may meet the definition if that action is taken “in a reasonable way and reasonable in all the circumstances”. Although slightly repetitive, the description makes clear that simply referring to the items listed in the provision will not be enough.

Examples include:

  • feedback about the worker’s performance
  • counselling of the worker
  • disciplinary action taken in relation to the worker’s employment
  • dismissal of the worker
  • demotion of a worker
  • training a worker in relation to the worker’s employment. 

 

Should we expect more reform?

The accompanying explanatory notes suggest the proposed reform will not mark the end of a conversation about workers compensation and, relatedly, work health and safety in NSW. The Draft Bill is described as “the next step towards the NSW Government determining a final package of reforms”. 

Another bill is expected to be released addressing further industrial relations reform in NSW – including a potential new bullying jurisdiction in the  NSW Industrial Relations Commission.