Recently, the NSW Treasurer Daniel Mookhey announced the Government will be proposing reforms that will amend NSW’s current Workers Compensation and anti-bullying laws. While no Bill has been officially presented to Parliament, the Treasurer highlighted some key reforms we can expect to see in an upcoming Bill, which will impact both businesses and workers.
Key Takeaways
- The NSW Industrial Relations Commission will have jurisdiction over workplace bullying and harassment claims which must be heard before they can proceed as a workers compensation claim.
- The reforms will establish ‘inclusive’ statutory definitions of ‘psychological injury’ and ‘reasonable management action’ to enhance legal certainty.
- The reforms intend to incorporate elements from other States and Commonwealth systems as well as implement changes to Safe Work NSW.
- The reforms are ultimately aimed at curbing the increasing costs of psychological injury claims which is negatively impacting the workers compensation scheme and businesses, as well as helping those with psychological injuries return to work.
Why Reform?
The Treasurer highlighted multiple key reasons as to why the Government believes reform is needed to current workers compensation and bullying laws.
Within NSW, psychological injury claims have doubled over the past six years, compared to a 16% increase in other workplace injury claims over the same period. Psychological injury claims make up 12% of all workplace injury claims, but constitute 38% of total scheme costs. The average cost of a psychological injury claim has also skyrocketed, rising from $146,000 in 2019-20, to $288,542 in 2024-25. Not only are the costs of psychological injury unsustainable for the system, it also appears the system is not effectively allowing workers to return to work – while 88% of workers who suffer from physical injuries return to work within 13 weeks, 40% of workers with psychological injuries are still in the system after one year of not working.
The Treasurer indicated these statistics highlight that the current system is not effectively returning claimants to work and is costing businesses. The Treasurer noted that over the last three years, premiums have increased 8% for businesses, and will only increase as time goes on. Further, the Treasurer emphasised the system ‘severely disrupts’ businesses as it prevents staff from working, and prevents businesses from managing interpersonal conflicts and run productive workplaces.
Accordingly, the reforms are intended to modernise the system, help reduce unsustainable costs, and assist businesses and workers.
The Proposed Reforms
The Treasurer outlined the key reforms the Government intends to introduce in their Bill. One of the critical changes is that the NSW Industrial Relations Commission will have to hear bullying claims before the complainant can lodge a workers compensation claim. This would mean bullying claims will be examined on a more rigorous evidentiary basis, providing a deterrent to unmeritorious claims and a better forum for businesses to challenge bullying allegations.
It was also indicated that there will be a new statutory definition of ‘psychological injury’ and of ‘reasonable management action’. The Treasurer argued this was key in reducing the uncertainty both employees and business face and emphasised this will be ‘an inclusive definition’. This may reduce costs and time spent by businesses and workers in determining whether there is a basis for a claim.
The Treasurer also announced the Government would be looking to other states, namely South Australia and Queensland, for new reforms, in particular the whole-person threshold. It was also stated that some of the Commonwealth’s anti-fraud measures adopted to protect the National Disability Insurance Scheme will be included in the proposed reforms. Finally, it was proposed that there will be changes to Safe Work NSW in line with recommendations made by Robert McDougall in his independent review, the State Insurance Regulatory Authority, and the NSW Government’s Law and Justice Committee.
What do the Reforms Mean for Businesses?
The reforms, while not specific, appear to significantly impact how businesses manage workplace bullying and psychological injury workers compensation claim. The requirement for bullying claims to be heard by the NSW Industrial Relations Commission on the one hand provides a better avenue for businesses to challenge such claims and act as a deterrent for workers, but on the other hand may also place greater responsibility on businesses to resolve such issues internally. As such, it is important for businesses to review their internal dispute resolution processes to ensure effective management to reduce the risk of cases progressing into workers compensation claims. Further, businesses will likely need to review their claim management policies and procedures to align with the new statutory definitions of ‘psychological injury’ and ‘reasonable management action’. It is hoped these definitions will provide more clarity and certainty for businesses when assessing psychological injury claims.
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Craig Higginbotham and Charlotte Bathgate
18 September 2025
