Modernising the WorkCover Scheme – what this means for third party insurers?

On 31 March 2024, key amendments to the Workplace Injury Rehabilitation and Compensation Act 2013 (the Act) come into effect.  In certain cases, the amendments will impact on the amounts payable by insurers in defending common law claims brought by injured workers against non-employers or third parties and recovery actions brought by the Victorian WorkCover Authority (VWA).

Key amendments that will affect third party insurers are:   

• tighter eligibility requirements for workers claiming compensation for mental injuries,
• introducing a definition of ‘mental injury’ and linking eligibility requirements to entitlements to compensation to include a requirement that the mental injury predominantly arose out of or in the course of employment, and
• the introduction of an impairment threshold for assessing eligibility for weekly payments beyond a period of 130 weeks.

What is a “mental injury”?

To be entitled to compensation under the Act for a mental injury arising at work, a worker must be assessed as having a mental injury that satisfies the new definition under the Act, which is as follows: 

“ … an injury which causes significant behavioural, cognitive, or psychological dysfunction and is diagnosed by a medical practitioner in accordance with the latest version of the Diagnostic and Statistical Manual of Mental Disorders (DSM). Mental injuries may extend to the recurrence, aggravation, acceleration, exacerbation, or deterioration of any pre-existing mental injury.” 

To be eligible to compensation, employment must be the “predominant” cause of mental injury. Predominant is not defined but the intention is that it is the strongest or largest contributing factor that caused the mental injury. Workers are entitled to compensation for a mental injury predominantly caused by “traumatic events” that are usual or typical and reasonably expected to occur in the course of a worker's duties. 

What is not a “mental injury”?

Excluding bullying, harassment, or discrimination, a worker is not entitled to compensation if the mental injury is predominantly caused by work related stress or burnout arising from events that are “usual or typical” and reasonably expected to occur in a worker's employment. A mental injury arising out of a reasonable management action is also not compensable. Usual or typical work activities may include typical job demands, workload pressures and interpersonal interactions.

A worker’s entitlement to weekly payments post 130 weeks

Workers are entitled to weekly payments of up to 130 weeks if they have a compensable injury as defined under the Act. To be entitled to ongoing weekly payments after 130 weeks, a worker had to demonstrate that they had no current work capacity that was likely to be indefinite. Amendments to the Act introduce an additional test to a worker’s eligibility to ongoing weekly payments. To be entitled to ongoing weekly payments a worker must have:

• no current work capacity that was likely to be indefinite, and
• a whole person impairment of more than 20 per cent.

If a worker does not meet either of these tests, the worker will not be eligible to continue receiving weekly payments after 130 weeks. 

What the amendments mean for you?

By excluding stress, burnout, and reasonable management actions from the definition of mental injury fewer workers will meet the eligibility requirements that come into effect from 31 March 2024, thereby reducing payouts arising from such claims. Further, the introduction of a stringent eligibility criteria may also contain the number of claims being pursued for psychiatric injuries. Another significant effect will be in respect of the VWA’s entitlement to recover compensation paid to workers.  If a worker does not meet the statutory test for post 130 weekly entitlements, and assuming the worker does not successfully challenge the denial of ongoing weekly payments, weekly compensation recoverable by the VWA will be no more than 130 weeks. 

A word of caution, the introduction of a two tier statutory test for weekly payments post 130 weeks, does not automatically mean that a worker will be precluded from seeking loss of earnings at common law if a worker fails to satisfy the statutory test. A worker’s entitlement to damages at common law are unaffected by the legislative changes meaning a worker will still be entitled to seek damages for loss of earnings and loss of earning capacity at common law if the worker can demonstrate that they suffered a permanent 40% loss of earning capacity when compared against their pre-injury earnings. 

For more information on how these changes affect you, please contact the authors.