NSW Workers’ Comp Reform Sparks Legal Backlash

The New South Wales Government has proposed sweeping changes to the state’s workers’ compensation scheme, triggering significant backlash from legal experts, unions, and mental health advocates.

A major point of contention is the proposal to introduce a 31% permanent impairment threshold for psychological injury claims. Critics argue that this would create an almost insurmountable barrier for workers seeking compensation for mental health issues stemming from bullying, harassment, trauma, or chronic workplace stress. For context, this threshold is significantly higher than the threshold required for many physical injuries — a disparity that advocates say ignores the debilitating and lasting nature of psychological harm.

If passed, the reforms would also force many affected workers — particularly those subjected to sexual harassment or workplace bullying — to pursue justice through courts or tribunals instead of the workers’ compensation system. This change has raised concerns over accessibility and affordability, especially for vulnerable workers in under-resourced industries.

Unions, including the NSW Nurses and Midwives’ Association, have slammed the proposals, warning that essential workers such as teachers, paramedics, and healthcare professionals — already facing unprecedented stress levels — would be among the hardest hit. Many of these frontline workers experience psychological trauma on the job yet may not meet the proposed threshold despite clear need for support.

Legal experts have echoed these concerns, describing the reforms as unjust and out of step with modern understandings of psychological injury. The Law Society of NSW stated the changes could create a “two-tiered system” where mental health is treated as less legitimate than physical health in the eyes of the law.

The Government, however, has defended the proposals, saying they are necessary to address the $1.8 billion deficit in the state’s workers’ compensation scheme. NSW Treasurer Daniel Mookhey argued that changes are vital to ensure long-term sustainability of the system and avoid further cost blowouts.

But many stakeholders believe the financial burden should not be passed onto injured workers. Mental health organisations have urged the government to rethink its approach and focus instead on better prevention, early intervention, and improved return-to-work strategies.

At the heart of the controversy is a philosophical debate over what workplace health and safety should look like in the 21st century. As mental health becomes an increasingly recognised component of overall wellbeing, the question remains: should financial sustainability come at the cost of support for vulnerable workers?

The proposed legislation is currently under review, with public submissions open and parliamentary debate expected in the coming weeks. Unions and advocacy groups are encouraging workers and the public to contact their local MPs and make their voices heard.

If passed in its current form, the reforms could significantly reshape how psychological injuries are treated under NSW’s workers’ compensation laws — with wide-ranging implications for workplace culture, employee rights, and mental health outcomes.

‍

‍

‍

Source:

NSW Workers' Comp Reform Sparks Legal Backlash - NSCA Foundation, May 19th 2025