Psychological-injury regime transformed as laws pass

Fewer psychologically injured workers will have access to compensation or ongoing benefits in NSW, with the State Government's controversial workers' comp reforms passing Parliament after a year-long battle.

The Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 passed the Legislative Council with a string of technical amendments on Tuesday, and the Lower House agreed to those changes last night.

As reported by OHS Alert, NSW Treasurer Daniel Mookhey announced plans to overhaul the State's workers' comp scheme, including by significantly curtailing psychological injury claims, early last year (see related article).

In May, he introduced a wide range of reforms in the Workers Compensation Legislation Amendment Bill 2025 (see related article).

In a contentious move in August, the Government reintroduced many of the same reforms through the Reform and Modernisation Bill, after the first Bill was referred to an indefinite parliamentary inquiry (see related article).

That inquiry subsequently concluded that the Government's proposed laws amounted to an attempt to address the financial sustainability of the workers' comp scheme through "inconceivably lazy and unfathomably cruel measures" (see related article).

After that, a shrunken version of the first Bill passed Parliament (see related article), before the Government reached a deal with the Opposition, in December, to progress further changes through the Reform and Modernisation Bill (see related article).

Higher WPIs and new reasonable-action test

This week, Mookhey told Parliament the Bill "strikes a balance to provide the support needed to help injured workers recover and return to work, to ensure that the most seriously injured workers can continue to receive the lifetime care that they need and to secure the sustainability of the workers' compensation scheme".

He explained that the finalised reforms differ from the legislation introduced in May in a number of ways, including that they require decision makers to determine whether psychological injury claims linked to "excessive work demands" involved the claimant being exposed to "repeated and serious contraventions" of the State Work Health and Safety Act 2011.

Being "subjected to excessive work demands" is a "relevant event" under the reforms.

The others are: being subjected to indictable criminal conduct; witnessing certain traumatic incidents; experiencing vicarious trauma; and being subjected to sexual harassment, racial harassment or bullying.

When the changes take effect, a worker with a psychological injury will only be entitled to workers' compensation if: a "relevant event or a series of relevant events" caused the injury; there is a "real and direct connection between" the event/s and the worker's employment; and the employment is the "main contributing factor" to the injury.

Mookhey noted that injuries associated with "work stress and minor interpersonal conflict will not be compensable", claiming this change will enable the scheme to be "catered towards more serious workplace psychological harm".

Other significant reforms include capping weekly payments "for all but the most serious primary psychological injuries" at 130 weeks, instead of 260 weeks, and increasing the whole person impairment threshold (WPI) for psychological injuries to reduce the number of workers considered to have a "serious" condition.

On 1 July 2026, the WPI will be set at 25 per cent (compared to 15 per cent for physical injuries), before gradually increasing to 28 per cent by July 2029, Mookhey explained.

The Treasurer also highlighted amendments redefining "reasonable management action" that can block psychological injury claims.

The reasonable management action defence in the original Bill was modified so that it can only be used where the management action is the predominant cause of the claimed injury, Mookhey said.

"This change addresses a significant concern raised by the union movement and ensures that a compensation claim does not automatically fail where a reasonable management action was one of several events that led to an injury," he said.

The change also reflects part of the Government's December deal with the Opposition, he added.

This article has been reproduced with permission from OHS Alert, and the original version appears at OHS Alert.