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august 2008

Peter Hanks QC
aCCIDENt
COMPENsatION
aCt REVIEW
final rePort
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CONTENTS
Abbreviations 4
Introduction and acknowledgements 7
Recommendations for change 21
Benefit improvements 35
Chapter 1 Improving understanding and clarity of the legislation 37
Legislation and the scheme 38
Amendments 38
A new Act 40
Chapter 2 Workers entitlement to compensation 43
Who is a worker? 45
Contribution of employment to injuries 60
Stress-related and psychiatric injuries 69
Chapter 3 Ensuring timely access to benefits and support 89
Delays in injury notification and determination of claims 92
Introduce provisional liability and streamline injury notification 93
Reduce formalities 111
Introduce electronic lodgement 113
Improve access to medical information 115
Clarify employer obligations 116
Providing greater protection against discrimination 118
Chapter 4 Supporting workers to get back to work after injury 127
The importance of early and durable return to work 128
How should the AC Act support return to work? 131
A new approach to the legislative framework 132
Planning return to work 137
Providing pre-injury or suitable employment 140
Exemption from the obligation to provide pre-injury or suitable employment 144
Risk management and occupational rehabilitation programs 146
Return to work coordinators 148
Labour hire 152
Compliance and enforcement 155
Workers right of action 162
Roles of other workplace parties involved in return to work 164
Issue resolution 172
Return to work incentives 173
Chapter 5 Better income replacement 185
Pre-injury average weekly earnings 190
Step-downs and entitlement periods 193
Weekly benefits after 130 weeks for partially incapacitated workers 199
Weekly benefits for workers who undergo medical procedures after 130 weeks 201
Payments pending receipt of funds from common law settlements 202
The relationship between annual and long service leave and weekly benefits 203
Accrual of leave while in receipt of weekly benefits 204
Notional earnings 205
Superannuation 209
Section 96 212
The method of calculating entitlement periods 215
Redemption of weekly benefits 217
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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CONTENTS continued
Chapter 6 Treatment expenses 219
Timeframes for determining liability 223
Notice of termination of claims 224
Reasonable costs 225
Prior approval of expenses 227
Fee setting 229
Gap payments 231
Duration of benefits 232
Coordinated care programs 234
Ordinary daily living costs 237
Regulation of medical and like providers 238
Chapter 7 Lump sum benefits for significantly injured workers 243
The adequacy of current impairment benefits 249
Hearing loss injuries 260
Gradual process injuries 264
Multiple injuries 264
Two separate systems 268
Delays in lodging claims 270
Delays in processing claims 272
Impairment benefit assessment process 274
Chapter 8 Access to justice for seriously injured workers: common law 277
Assessing proposals for change 285
The deeming test 287
The narrative test for economic loss damages 291
Review of the method of assessing permanent impairment 295
Psychiatric/psychological consequences of physical injuries 296
The impact of ongoing weekly payments on statutory offers 299
Terminally ill workers 302
Access to medical information 303
One application 306
Reduction in scale costs 308
Appeals 310
Chapter 9 Benefits for dependants following work-related deaths 313
Adequacy of current death benefits 318
Eligibility for compensation 322
Accessing death benefits 328
Chapter 10 Transparency in decision-making and the efficient resolution of disputes 333
Performance of the current dispute resolution process 345
A modified approach to dispute resolution 349
Lodging a dispute 350
Internal review of statutory benefit decisions 351
A modified role for the ACCS 355
Arbitration 365
Medical questions 367
Medical Panel referrals by courts 372
Reasons 374
Accountability 375
Composition of Medical Panels 377
The Magistrates Court 378
Review of agent decisions by employers 380
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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CONTENTS continued
Chapter 11 Employer premiums 385
Premium calculation 386
Principals and contractors 396
Employer excess 401
Remuneration 404
Premium disputes and appeals 408
Enforcing premium-related obligations 412
Independent review of premium-setting 413
Trustees 418
Uninsured Employers and Indemnity Scheme 419
Chapter 12 Recovery from third parties 423
The recovery formula 425
Application of the recovery provision 427
Labour hire 429
Hold harmless clauses 433
Reimbursement to employers following recoveries 436
Impact of recoveries on premium 436
Chapter 13 Self-insurance 439
The role of self-insurance 440
How should self-insurance be managed 441
Eligibility and approval 442
Ongoing requirements 447
Contributions 448
Audit program 458
Claims management 459
The need for greater flexibility 462
Appendices 1. Amendments to inoperative, irrelevant or superfluous provisions 467
2. Taylor Fry Report 473
3. Access Economics Report 487
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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ABBREVIATIONS
AC Act Accident Compensation Act 1985
AC Regulations Accident Compensation Regulations 2001
ACCS Accident Compensation Conciliation Service
AMCA Air Conditioning and Mechanical Contractors Association
ACWI Act Accident Compensation (WorkCover Insurance) Act 1993
AEU Australian Education Union
AHEIA Australian Higher Education Industrial Association
Ai Group Australian Industry Group
ALA Australian Lawyers Alliance
AMA Australian Medical Association
AMA-2 American Medical Association Guides to the Evaluation of Permanent Impairment
2nd edition
AMA-4 American Medical Association Guides to the Evaluation of Permanent Impairment
4th edition
AMA-5 American Medical Association Guides to the Evaluation of Permanent Impairment
5th edition
AMIEU Australasian Meat Industry Employees Union
ANF Australian Nursing Federation
APA Australian Physiotherapy Association
ARPA Australian Rehabilitation Providers Association
AWU Australian Workers Union
CCP Coordinated Care Program
CFA Country Fire Authority
CIP Community Integration Program
COCA Chiropractic and Osteopathic College of Australia
CPSU Community and Public Sector Union
DEECD Department of Education and Early Childhood Development
ESC Essential Services Commission
GEPIC Guide to the Evaluation of Psychiatric Impairment for Clinicians
HSG Health Services Group
HWCA Heads of Workers Compensation Authorities
IDSA Industrial Deaths Support and Advocacy Inc
INSG Injured Nurses Support Group
LIV Law Institute of Victoria
MAV Municipal Association of Victoria
MBS Medical Benefits Schedule
MDT Multi-Disciplinary Team
MGA Master Grocers Australia
MUA Maritime Union of Australia
NAB National Australia Bank
NAL National Acoustic Laboratory
PAGE 4
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
ABBREVIATIONS
NUW National Union of Workers
NZACC New Zealand Accident Compensation Commission
OHS Act Occupational Health and Safety Act 2004
OHS Occupational Health and Safety
OM Originating Motion
Panel Medical Panel
PETP Priority Education and Training Program
PIAWE Pre-injury average weekly earnings
PTSD Post traumatic stress disorder
PWC PricewaterhouseCoopers
RCSA Recruitment and Consulting Services Association
SCE Statistical case estimate
SDA Shop, Distributive & Allied Employers Association
SI Serious injury
SIAV Self Insurers Association of Victoria
SRC Act Safety, Rehabilitation and Compensation Act 1998
TA Act Transport Accident Act 1986
TAC Transport Accident Commission
TCFUA Textile Clothing and Footwear Union of Australia (Victoria Branch)
VACC Victorian Automobile Chamber of Commerce
VBIRA Victorian Brain Injury Recovery Association
VCAT Victorian Civil and Administrative Tribunal
VCEA Victorian Congress of Employer Associations
VECCI Victorian Employees Chamber of Commerce and Industry
VFF Victorian Farmers Federation
VIEU Victorian Independent Education Union
VTHC Victorian Trades Hall Council
VWA Victorian WorkCover Authority
WC Act Workers Compensation Act 1958
WIC Workplace Industry Classification
WOHC Workers Occupational Health Centre
WPI Whole person impairment
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
ABBREVIATIONS
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ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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INTRODUCTION
Areas for reform
A consultative review
Overview of the Victorian
WorkCover scheme
The way forward
1. On 10 December 2007, I was commissioned by the Minister for Finance, WorkCover and the
Transport Accident Commission, the Hon Tim Holding, to conduct an independent review of the
Accident Compensation Act 1985 (the AC Act) and associated legislation. My terms of reference
were to provide advice and recommendations in relation to:
the need to provide fair and effective benefit and premium regimes, having regard to workers
compensation schemes in other jurisdictions and the need to secure long-term positive
outcomes for injured workers;
the fundamental need to protect the operational and financial viability of the scheme;
identifying and resolving anomalies in the AC Act and in the operation of the scheme;
improving employer and employee understanding of the AC Act;
reducing the regulatory and administrative burden on employers, including through improved
alignment, where appropriate, with related administrative arrangements both within the State
of Victoria and with other jurisdictions; and
improving the usability of the legislation through the removal of inoperative, irrelevant or
superfluous provisions.
How to read this report
2. My report is arranged in chapters that address the various components of the legislation and
the scheme. In particular, the chapters cover
clarity of the legislation;
workers entitlement to compensation;
workers access to benefits and support;
workers rehabilitation and return to work following injury;
income replacement benefits for injured workers;
treatment expenses for injured workers;
lump sum benefits for significantly injured workers;
access to common law for significantly injured workers;
benefits for dependants following work-related deaths;
decision-making and the efficient resolution of disputes;
employer premiums;
recovery from third parties of benefits paid to workers; and
self-insurance.
3. Immediately following this Introduction are two tables. The first table provides a summary of
each recommendation in the report, with a cross-reference to the location of that
recommendation in the report. The second table lists only those recommendations that involve
the improvement of benefits.
4. I appreciate that reading over 500 pages is a daunting task for even the most committed reader
and I have therefore developed a separate guide to the report. The guide provides a summary
of the reports more significant recommendations plus an overview of all the benefit
improvements. The guide also includes a full list of the reports recommendations and the list of
prioritised benefit improvements.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 8
AREAS FOR REFORM
5. My proposed package of recommendations seeks to address four areas of reform, namely:
better rehabilitation and return to work outcomes;
fair and accessible benefits;
greater accountability and transparency; and
improved understanding and usability of the legislation.
Improving return to work is the central objective
6. All stakeholders were united in supporting the importance of improving return to work for
injured workers; and this was a central consideration for me in assessing proposals for reform.
7. An injured workers return to work after workplace injury is much influenced by their
relationship with their employer and workplace, as well as by the workers recovery from injury.
Although that relationship is a workplace matter, it can be enhanced by the rights and
responsibilities established by the legislation, and can be compromised by the compensation
system.
8. My recommendations for recasting the return to work provisions in the AC Act aim to support
return to work outcomes by setting clear expectations for all parties involved in the return to
work process, without prescribing a one-size-fits-all approach, and supporting the development
of comprehensive guidance material tailored to the needs of participants in different industries
and sectors of the economy.
9. My recommendation for the introduction of provisional liability aims to ensure that workers
receive short-term income support and work with their employer on return to work, without the
divisive issue of establishing liability being the initial focus of a compensation claim, potentially
damaging an employers relationship with a worker.
Priorities for benefit reform
10. The Reviews terms of reference indicated that the Review would provide some scope to
examine the benefits available to injured workers having regard to the need to protect the
long-term financial viability of the scheme.
11. I have balanced the competing considerations of providing benefits to injured workers and
maintaining the financial viability of the scheme by recommending a package of benefit
improvements that I believe could be funded within existing premium rates.
12. In December 2007, the valuation of the WorkCover scheme indicated that the margin between
the average premium rate and the annual cost of funding the schemes liabilities was around
$93 million an amount commonly referred to as the implied margin.
13. I have used the implied margin as a guide to the amount that the scheme may be able to afford
in additional benefits without putting upward pressure on premiums, or requiring that the
Victorian Workcover Authority (VWA) use investment returns to fund compensation for injuries.
14. The implied margin can only be used as a guide because, by the time the Minister receives my
report, the next valuation of the scheme will be underway and that valuation may significantly
affect the implied margin. The implied margin will also be affected by any initiatives that the
Government decides to fund outside the Review.
15. The actuaries advising me have estimated that, not including administrative costs, the net cost
of my package of recommendations will be in the range of $88.9-$137.1 million a year. It may
be that all the benefit improvements recommended in my report cannot be implemented in one
financial term; nevertheless, I believe that all the benefit improvements should be implemented
by Government even if implementation occurs over more than one financial term.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 9
16. My recommendations for benefit enhancement reflect a number of principles and priorities.
17. The fair, adequate and efficient compensation of the families of deceased workers should
be our first priority. For that reason, I have made a number of recommendations to increase
benefits to the families of deceased workers, to cut the red tape and delays in the delivery
of those benefits and to remove anomalies that could deprive family members of benefits
in some cases.
18. Secondly, increasing benefits paid to injured workers who suffer a permanent impairment is
a high priority. Currently, many of those workers have to begin court proceedings to access
adequate compensation a time-consuming and costly process. My recommendations will
give permanently impaired workers access to higher benefits quickly, and without the daunting
prospect of going to court.
19. Finally, a key priority should be income support for long-term injured workers. For that reason,
I have recommended that Victoria become the first Australian jurisdiction to compensate long-
term injured workers for the superannuation they would have accrued if they had continued
working. It is also the reason that I have recommended an increase in the level of compensation
for injured workers from 75% to 80% of pre-injury average weekly earnings after the first
13 weeks of incapacity.
20. My recommendations for benefit reform reflect my preference for increasing benefits paid
through the statutory benefit scheme, rather than through common law. That preference
reflects the reality that the statutory benefit scheme provides no-fault compensation and
therefore treats all injured workers equally, and delivers benefit more quickly and at lower
cost than common law.
Greater accountability and transparency
21. Stakeholders also sought greater accountability and transparency, both for decisions made by
the VWA and its agents and for the conduct of other participants in the WorkCover system
namely employers and medical providers. As a result, I have recommended a new model for the
resolution of disputes about WorkCover claims and premiums, among other recommendations.
Improved understanding and usability of the legislation
22. The AC Act has been amended on 80 occasions, and it now prescribes a series of separate
accident compensation schemes, each covering a different period since 1985. Some of the
early legislative provisions are obsolete, and should be removed. There are also anomalies and
inconsistencies between provisions that have been added at different times.
23. Accordingly, I have recommended that the current accident compensation legislation including
the Accident Compensation (WorkCover Insurance) Act 1993 (the ACWI Act) be recast into a
comprehensive AC Act, arranged more rationally and coherently, and expressed in a more user-
friendly language.
24. I am conscious that my package of recommendations represents a substantial program of
reform, and that the task of moving to a new AC Act will be very demanding. For that reason, I
have recommended a staged approach to legislative change, with significant policy and benefit
changes to be legislated as soon as possible, and the transformation to an entirely new AC Act
occurring within three years.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 10
25. Overall, my review has found that the accident compensation legislation is generally working
well. However, the Review has identified many reform opportunities that will cut red tape for
employers and improve compensation for the most disadvantaged the families of deceased
workers, workers with a permanent impairment and long-term injured workers. There is a
considerable consensus among stakeholders in support of many of these reforms although
some remain contentious. I encourage the Government having taken the brave step of
commissioning the first independent review of the AC Act in 20 years to seize this opportunity
to improve outcomes for injured workers and employers.
A CONSULTATIVE REVIEW
26. My proposed package of reforms is very much the outcome of stakeholder feedback. In my
view, the quality and success of the final recommendations largely belongs to all those who
have taken the time to engage and be involved with the Review.
27. I did not approach this Review with a back to the drawing board approach. Rather, I was
guided by the terms of reference which expressed the Victorian Governments view that the
underlying principles of the accident compensation laws remain sound, and then sought the
views of stakeholders and practitioners as to how the legislation and the scheme could be
improved, based on their vast experience.
28. To assist me, the Minister appointed a Stakeholder Reference Group (the SRG), chaired by
Ms Elana Rubin, Chairperson of the VWA. The SRGs members were:
Brian Boyd Secretary, Victorian Trades Hall Council;
Graham Bird Federal and Victorian Secretary, Australasian Meat Industry Employees Union;
Cesar Melham Victorian Branch Secretary, Australian Workers Union;
Wayne Kayler-Thomson CEO, Victorian Employers Chamber of Commerce and Industry;
Tim Piper Victorian Branch Director, Australian Industry Group;
Steve Irving Chairperson, Self Insurers Association of Victoria;
Jane Stephens CEO, Australian Medical Association, Victorian Branch;
Michael Brett Young CEO, Law Institute of Victoria; and
Marcus Fogarty Representative, Australian Lawyers Alliance.
29. The SRG proved invaluable in assisting me to define the issues for the Review, and in acting as
a sounding board for all of the draft chapters of the report, and commenting on the package of
final recommendations.
30. I am very grateful for the time and commitment given by the SRG members throughout the
Review and for the quality of their contributions to the Review.
31. In December 2007, I wrote to over 130 organisations asking them for their initial views on
opportunities for reforming the accident compensation legislation. Their responses helped me
to develop a Discussion Paper, released in March 2008. In that Paper, I called for detailed
submissions on a series of issues and questions. In total, 100 organisations and individuals
made submissions in response to my initial letter and discussion paper. I also held over 100
hours of face-to-face consultation with stakeholders to discuss the issues raised in the Review.
32. I engaged independent expert advisers on a number of technical issues, namely:
Taylor Fry, who were engaged to provide independent actuarial costings of all
recommendations (Appendix 2); and
Access Economics, who were engaged to advise on pricing of self-insurance contributions
(Appendix 3).
1
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
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1 Appendix 1 is a table of recommended amendments to inoperative, irrelevant or superfluous
provisions in the legislation.
Acknowledgements
33. I was greatly assisted in this Review by Counsel Assisting, Michael Fleming, and a Review
Secretariat, formed from the Department of Treasury and Finance and the VWA. Indeed,
the preparation of this report would have been impossible without the stimulation and
support provided by Michael and by the Secretariat.
34. I wish to record my sincere thanks to Michael and all members of the Review team for their
assistance to me. Michael brought to the Review a great deal of experience with legal issues
arising under the AC Act, and a good understanding of the social and economic implications
of workers compensation. The members of the Secretariat brought to the Review many years
of practical and policy-oriented experience in the public sector. The commitment, insight and
diligence of both Michael and the members of Secretariat have made it possible for my task
to be completed in the short time available, and for the task to be completed so thoroughly
and accurately.
35. I am particularly grateful for the assistance given me by Dave McQueen, the outstanding leader
of the Review Secretariat, Megan OHalloran, communications and stakeholder manager for the
Review and Linda Timothy, manager of legal and policy for the Review. I do not underestimate
the hard work, support and clear thinking provided by other members of the Secretariat; but
I must express my appreciation for the daily support and clear advice provided by those
three over the past eight months. I should also record the extraordinary level of support,
encouragement and constructive criticism provided throughout my work on the Review by
my personal assistant, Lou Coffey.
36. I would also like to record my sincere appreciation to Elana Rubin, VWA Chairperson, and
Greg Tweedly, Chief Executive, VWA, and all employees of the VWA.
37. Since the beginning of the Review, the VWA has provided full cooperation in answering limitless
requests for information and queries.
38. I hope the recommendations in this report will assist the VWA achieve its mission of working
with the community to deliver outstanding workplace health and safety, together with quality
care and insurance protection to workers and employers.
OVERVIEW OF THE VICTORIAN WORKCOVER SCHEME
39. Workers compensation schemes are designed to mitigate and, as far as possible, remove the
serious disadvantage that is so frequently caused by work-related injury or illness.
40. The Victorian WorkCover scheme provides employers with compulsory insurance against the
impact of loss suffered by injured workers. The scheme provides a range of benefits to injured
workers, for life if required, regardless of fault, including weekly compensation, medical and
paramedical treatment, attendant care and lump sum payments.
41. Where death occurs as a result of a work-related injury or illness, support is also provided for
dependants in the form of lump sum compensation and periodic pension payments, counselling
for immediate family members and funeral expenses.
42. The VWA acts as the regulator of Victorias workplace occupational health and safety (OHS)
and return to work requirements and as the underwriter of the workers compensation scheme.
It administers the scheme through private insurance agents, who manage claims and collect
premiums on behalf of the VWA. Agents are authorised by the VWA to provide services to
employers and injured workers in accordance with the legislation and the standards and
procedures set by the VWA.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
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43. The VWAs statutory obligations are spelt out in several Acts of Parliament including:
health and safety at work under the OHS Act;
workers compensation and the rehabilitation of injured workers under the AC Act;
employer insurance premiums under the ACWI Act;
explosives and other dangerous goods under the Dangerous Goods Act 1995;
the transport of dangerous goods by road under Road Transport Reform (Dangerous Goods)
Act 1995; and
high-risk equipment used in non-work-related situations under the Equipment (Public Safety)
Act 1994.
44. Broadly, the responsibilities of the VWA are to:
help prevent workplace injuries;
enforce Victorias OHS laws (including selected Commonwealth laws);
provide reasonably priced insurance against liability for workplace injuries and disease for
employers;
help injured workers back into the workforce; and
manage the workers compensation scheme by ensuring the prompt delivery of appropriate
services and adopting prudent financial practices.
45. In the VWAs 2006/2007 Annual Report, the following safety, business and financial performance
was recorded:
less than 30,000 workplace injury claims for only the second time in its history;
the lowest workplace injury rate on record (it has reduced by 19% in the past five years);
fourth successive 10% cut to average premium rates;
performance from insurance operations of $729 million;
sixth successive year of full-year actuarial release of $394 million; and
commencement of a return to work inspectorate.
46. The VWA is governed by a board which is accountable to the Government, stakeholders and the
Victorian community.
A brief history of Victorias accident compensation legislation
47. Workers compensation legislation in Victoria started in 1914, with benefits payable to workers
for injuries arising out of and in the course of employment. The Workers Compensation Act
1946 changed the scope to injuries arising out of or in the course of employment.
48. In June 1983, the Victorian Government established a Committee of Enquiry into the Victorian
Workers Compensation Scheme chaired by Mr BC Cooney. The Cooney Report
2
led to the
introduction of the AC Act, with the establishment of WorkCare, a single government insurance
scheme to underwrite workers compensation, replacing the previous scheme underwritten by
52 private insurers, and the creation of the Accident Compensation Commission to administer
the scheme.
49. The AC Act made sweeping changes to the workers compensation system, including public
underwriting, vocational rehabilitation, OHS reforms, and a new dispute resolution system.
50. The AC Act has been amended 80 times since 1985, including, in 1987, changes aimed at
tightening up the system, and focusing particularly on the poor return to work performance.
A new remuneration system for claims agents was introduced and the ability of employers to
change insurance agents was enhanced.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 13
2 B C Cooney, Report of the Committee of Enquiry into the Victorian Workers Compensation System
1983-84, Victorian Government Printer, 1984.
51. In 1992, the Accident Compensation Commission was abolished and the current VWA was
established to administer the new system. Weekly benefits for workers with a partial work
capacity were restricted, a non-adversarial dispute resolution system through conciliation was
introduced, expert Medical Panels to determine medical questions were established, access to
common law was limited to seriously injured workers and the right to sue for economic loss
was reinstated.
52. In 1993, the ACWI Act was introduced. It required employers to obtain and maintain an
insurance policy with an authorised insurer who was required to reinsure its liability with the
VWA and it required the VWA to establish and maintain a statutory fund for each authorised
insurer.
53. Under the ACWI Act, the insurance risks of authorised insurers were pooled. The rationale was
to ensure that all liabilities could be met under the policies. It was the Governments intention
for the authorised insurers to bear the insurance risk after full privatisation; however, this
privatisation never occurred. The VWA is now the sole insurer and underwriter of the scheme,
and has appointed agents to determine and collect premiums for individual employers based
on a set formula.
54. In 1996, responsibility for the administration of Victorias OHS legislation was transferred to
the VWA.
55. In 1997, the rights of injured workers to pursue common law damages were removed, the
structure of weekly benefits was significantly changed, impairment benefits were introduced to
replace the Table of Maims and compensation for a workers death was restructured.
56. In 2000, the rights of seriously injured workers to pursue common law damages were restored
with a new threshold for economic loss; to be effective from 20 October 1999.
57. In 2004, the efficiency of the claims process was improved and early and sustainable return to
work was facilitated.
58. In 2005, provision was made for previously injured workers whose employers exit the Victorian
scheme and enter the Comcare scheme.
59. In 2006, existing benefits were improved including compensation for the death of a worker,
the extension of the weekly benefits entitlement period from 104 to 130 weeks and increased
payments for workers with a partial work capacity
60. In 2007, the financial guarantee requirements on employers who exit the Victorian WorkCover
scheme (or Victorian self-insurer arrangements) and enter the Comcare scheme were spelt out,
and arrangements were made for the management of tail claim liabilities for Victorian self-
insurers who cease their self-insurance arrangements.
61. Other changes introduced since 2000 included:
an increase in the minimum lump sum benefits from $5040 to $10,250 to improve access to
benefits for those injured workers unable to obtain common law damages;
an increase to weekly benefits to include regular overtime and shift allowances for the first
26 weeks of payments;
changes to the way in which overtime is included in the calculation of pre-injury average
weekly earnings, including clarification of shift allowances after concerns were raised that the
prior method did not reflect modern work arrangements;
introduction of limited entitlement to weekly benefits for workers over the age of 65 in certain
circumstances; and
increases in compensation for the death of a worker to a total of $265,590 and the inclusion
of overtime and shift allowances in weekly pensions for surviving family members.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
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62. Since the 2003/2004 financial year, there have also been four consecutive annual 10% cuts
to the average premium rate payable by Victorian employers. The average premium rate has
reduced from 2.22% of wages in 2003/2004 to 1.46% of wages in 2007/2008.
The Australian context
63. Victorias workers compensation scheme is one of 10 schemes within Australia. Each State
and Territory in Australia has its own workers compensation scheme, which is governed by
respective legislation. There are also two national schemes: Comcare, which primarily covers
Commonwealth Government employees, and Seacare, which covers maritime workers.
64. The State, Territory and national schemes vary markedly in design, coverage, benefit
entitlements, compliance and premiums. Each scheme has developed since the introduction of
workers compensation legislation in the early 1900s, in the context of its own political, social
and economic environment, and it is not surprising that the schemes are significantly different
in nature, application and content.
65. The differences between the various schemes have driven a variety of reform initiatives aimed
at national uniformity, which gained momentum during the 1970s.
3
66. The more recent reform initiatives can be traced back to the Industry Commission reports of
1995 into workers compensation in Australia.
4
In 1989, the Federal Government requested
that the Industry Commission examine whether existing workers compensation arrangements
ensured appropriate safety and accident prevention incentives for both employers and
employees in the context of a federal system and sought advice on any changes that should
be implemented. The Industry Commission recommended several changes to workers
compensation schemes and strongly recommended the establishment of a national framework
for workers compensation.
67. As part of the agenda for national consistency, the Australian Safety and Compensation Council
was established to develop policy advice on workers compensation and engage State and
Territory governments in progressing nationally consistent workers compensation
arrangements. Currently the arrangements vary in the following main areas.
Scheme model
68. Workers compensation schemes can be broadly categorised as no-fault or common law, or
a hybrid of both.
69. No-fault schemes pay compensation to injured workers without any inquiry into the question
of who was at fault for the injury. Schemes which adopt this model are the South Australian,
Northern Territory and Commonwealth (Comcare) schemes.
5
70. In some Australian jurisdictions, compensation is available for more serious injuries at common
law on the basis of fault. In these schemes, access to common law is sometimes limited by
an impairment threshold or an irrevocable election between accepting no-fault benefits and
exercising common law rights. Queensland is an example of a model with both these limitations.
71. Schemes with a hybrid of both models provide long term statutory benefits on a no-fault basis
and allow access to common law damages on a fault basis. Schemes that operate under this
model include the Victorian, New South Wales, Western Australian and Australian Capital
Territory schemes.
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INTRODUCTION
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3 Guthrie, R, Purse, K & Meredith, F, Workers Compensation and Self-Insurance in Australia National
Priority or Trojan Horse?, (2006) 17 Insurance Law Journal, 256 at 256.
4 Industry Commission Workers Compensation in Australia, Report No. 36, February 1994; Industry
Commission Work, health and safety: An inquiry into occupational health and safety, September 1995.
5 Northern Territory for injuries after 1987; and Victoria between November 1997 and October 1999.
Scheme funding
72. Workers compensation schemes are funded in three ways: centrally funded, privately
underwritten or a combination of the two.
73. In centrally funded schemes, a single public insurer (the Government) both underwrites and
administers the scheme. Centrally funded schemes include the Commonwealth (Comcare) and
Queensland schemes.
74. In privately underwritten schemes, approved insurance companies underwrite and primarily
administer the scheme. Privately underwritten schemes include the Seacare, Western
Australian, Tasmanian, the Northern Territory
6
and the Australian Capital Territory schemes.
75. In combination schemes, public insurers underwrite the scheme and are responsible for funds
management and premiums, but other administrative functions are primarily carried out by
private bodies (including private insurers). The Victorian and New South Wales schemes are
hybrid schemes.
Premium
76. The majority of employers in Australia pay workers compensation insurance premiums.
However, some smaller employers are exempt by reason of their structure or size and some
larger employers, who meet various prudential requirements, self-insure their liability in respect
of workplace injury. Although self-insurers contribute an amount to help administer the scheme
in the jurisdiction where they operate, they do not pay premiums.
77. Premiums fund each of the schemes liabilities. However, cross-jurisdictional comparison is
complex, due to a number of factors. Premiums are set based on actuarial forecasts of claims
liabilities. Generally they are set according to the risk profile of a particular industry, but there is
a multitude of risk profiles. Premium rates are typically fixed as a percentage of an employers
remuneration and the definition of remuneration varies. Some States have higher levels of
self-insurance (for example, South Australia) and others have lower levels (for example, the
Australian Capital Territory); and excesses apply in certain jurisdictions (for example, in Victoria
the excess is the first 10 days of incapacity with the first $564 of medical costs, with a buy-out
option). Claims liabilities also vary across the States and Territories due to a number of complex
factors considered in further detail below.
78. As a comparison, the Commonwealth scheme, Comcare, had the highest average premium
level for 2006/2007 at 3.03% of aggregate remuneration, closely followed by South Australia at
3.00%.
7
Queensland had the lowest level at 1.20%, and Victorias premium rate of 1.62% was
the second lowest of the schemes.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 16
6 In the Northern Territory scheme, a public insurer also competes in the private market.
7 No comparable figure was available for the Australian Capital Territory, but was 3.32% for 2004/2005.
Coverage
79. Whether or not a worker is entitled to compensation for an injury at work is dependent on
a number of factors:
whether the person is a worker as defined in the legislation (including where a person
would otherwise not be a worker but is a deemed worker);
whether the person has suffered an injury (as defined by the legislation);
whether there was a sufficient nexus between the workers injury and employment, that
is whether the injury arose out of or in the course of employment;
to what extent the employment has contributed to the injury (for example, employment
in Victoria has to be a significant contributing factor for certain types of injuries, and in
New South Wales it has to be a substantial contributing factor);
what constitutes work (for example, recess and journey claims are treated differently across
the States and Territories: the New South Wales, Queensland, the Australian Capital Territory
and Seacare cover journey claims with some restrictions, Victoria and South Australia do not);
whether the worker is entitled to coverage having regard to age (many jurisdictions have
retirement provisions which restrict access to compensation, particularly weekly benefits);
whether there are any exclusionary provisions which may apply (for example, self-inflicted
injury); there are specific exclusions in each jurisdiction for psychiatric or psychological
injuries (for example, most jurisdictions exclude psychiatric or psychological injury caused by
reasonable administrative or management action).
80. As illustrated above, there are vast differences in the schemes, which determine whether
employers will be responsible for injuries sustained by workers.
Benefits
81. Schemes vary widely in the benefits that workers are entitled to receive. The benefits fall
primarily into four categories:
weekly benefits (income replacement);
lump sum benefits (permanent impairment);
medical treatment; and
benefits for the death of a worker.
Weekly benefits
82. Weekly benefits are periodic payments intended to replace income and are common to all
schemes. However, the amount, levels and duration of weekly benefits vary markedly between
the schemes. Broadly speaking, most of the schemes decrease the weekly benefits over time
with one or more step-down periods.
83. Some schemes have a cap, being the maximum amount of weekly benefit allowed. Some
schemes also have a maximum period for which weekly benefits are payable (such as
Queensland, where the maximum period is five years).
84. All of the schemes use various step-down provisions in which a workers weekly benefits
are decreased over time. Some schemes compensate workers 100% of their weekly earnings
(subject to different rules about how those earnings are calculated). In the initial period of
incapacity for work,
8
the Commonwealth (Comcare), New South Wales, South Australia,
Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory pay 100%
of weekly earnings to injured workers (subject to maximum levels imposed in some
jurisdictions). Victoria pays 95% of a workers pre-injury average weekly earnings initially, and
Queensland pays 85%. Some schemes with higher initial compensation levels significantly
reduce benefits after the initial period, either by imposing low long-term weekly compensation,
or by means of a capping provision.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 17
8 The initial period varies from one scheme to another: see Chapter 5, Better income replacement,
Table 5.2.
85. Weekly payments are calculated differently in each jurisdiction. Some are based on award rates
(where they still exist) or other industrial instruments; some include overtime bonuses or other
allowances or both.
86. Each jurisdiction has different circumstances and methods for terminating or suspending
weekly payments and provides for cessation of weekly benefits in different circumstances.
Victoria and New South Wales have similar provisions relating to the cessation of payments
after 130 or 104 weeks of incapacity, where the worker has a capacity for suitable employment.
Most jurisdictions have suspension or termination provisions to deal with a worker who does
not comply with rehabilitation and return to work obligations or does not attend medical
examinations.
87. In all States and Territories, so-called redemption of weekly benefits is permitted. That is,
injured workers may redeem their entitlements to weekly benefits (and all statutory benefits)
in one lump sum amount instead of continuing to receive entitlements in the form of weekly
payments. However Victoria, New South Wales and the Commonwealth (Comcare) only do
so on a very limited basis and subject to restrictions.
Lump sum benefits
88. Where a worker suffers a permanent impairment, lump sum payments are available in all
jurisdictions. Lump sum payments compensate a worker for permanent impairment to a body
part or function. This payment is made in addition to any entitlement to weekly benefits.
89. Some jurisdictions operate with thresholds to the entitlement (for example, Victoria has a
10% whole person impairment (WPI) threshold for physical and 30% WPI threshold for
psychiatric or psychological injury, New South Wales has 1% WPI threshold for physical and
15% WPI threshold for psychological or psychiatric injury), and other jurisdictions have no
thresholds (Western Australia and Queensland). Each jurisdiction has a statutory maximum
(a cap) for lump sum payments.
90. The lump sum amount in each jurisdiction is primarily calculated by reference to the AMA
Guides for the Evaluation of Permanent Impairment, although some jurisdictions use different
editions of the Guides. Western Australia uses its own guides as does Comcare, although
those guides are based on the AMA Guides 5
th
edition.
Medical treatment
91. Fundamentally, all jurisdictions cover all reasonable costs associated with treatment,
rehabilitation and hospitalisation. However, the services which are covered and limits
on any amounts payable vary between jurisdictions.
Compensation following the death of a worker
92. If a worker dies because of a workplace injury, all jurisdictions provide access to death benefits
so that the workers surviving domestic partner or dependant is entitled to a lump sum, ongoing
living expenses by way of periodic payments and payment of funeral expenses. Coverage varies
between the schemes based on the definition of dependant, as do the amounts payable.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 18
Common law
93. Access to common law varies between the jurisdictions and has been a continuing area of
contention in the schemes.
94. Before the introduction of no-fault statutory schemes, workers had to begin common law
proceedings for negligence or breach of statutory duty to receive any benefits (in the form of
damages). Initially, the damages available at common law were open-ended, but currently
common law entitlements (where available) are restricted. Negligence (or breach of a statutory
duty) has to be established; and, in some jurisdictions, there are threshold tests (Victoria has a
threshold of 30% WPI or a complicated narrative test for serious injury ultimately determined
by a court, and New South Wales has a threshold of 15% WPI). The types of damages that can
be awarded have been restricted (Victoria requires a worker to establish a 40% economic loss
before the worker can sue for economic loss) and caps or upper limits have been placed on
awards in some jurisdictions.
95. In some jurisdictions a worker must make an irrevocable election between statutory benefits
and common law damages. South Australia and the Northern Territory have removed access to
common law damages entirely. Victoria removed access to common law damages in November
1997, but reinstated that access from October 1999.
96. One of the biggest differences between the schemes is their relative reliance on common law
or no-fault statutory benefits for compensating injured workers. That relative reliance
determines the scheme model. Generally, those schemes that provide access to common law
have less generous no-fault benefits. The primary example is Queensland. The other schemes
with access to common law are Victoria, New South Wales (with low limits for weekly benefits)
and the Australian Capital Territory.
Regard for other jurisdictions
97. Several jurisdictions have conducted reviews into various aspects of their workers
compensation schemes. Although the objectives and recommendations made following the
reviews have varied in content, all appear to have considered harmonisation between schemes
as a key outcome.
98. The Reviews terms of reference required the Review to consider workers compensation
arrangements in other jurisdictions, as well as complementary statutory schemes, in order
to identify opportunities for alignment, with a view to providing fair and effective benefit and
premium regimes, and easing the administrative burden for employers.
99. In the course of developing recommendations, the Review considered the design and delivery
of the various State, Territory and national workers compensation schemes that operate in
Australia.
100. The Review also considered complementary schemes, such as that administered by the
Victorian TAC, noting that those schemes have similarities in design, purpose and processes to
those in the WorkCover scheme. Statutory schemes that interact with the WorkCover scheme,
such as Federal income taxation and social security, were also considered to identify
opportunities for administrative alignment and efficiency,
101. To ensure a best practice workers compensation scheme, international experiences were also
considered throughout the course of the Review. Comparisons with the United States and
Canada were drawn because they have State-based (or Province-based) workers compensation
schemes
9
similar to the Australian schemes.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 19
9 K Purse, The Evolution of Workers Compensation Policy in Australia, Health Sociological Review (2005)
14, 8 at 8.
102. Further, Victorias Charter of Human Rights
10
became fully operational on 1 January 2008.
Amongst other requirements, the Charter requires all statutory provisions to be interpreted,
and imposes an obligation on the VWA to act in a way that is compatible with human rights.
Accordingly, the Review has considered the impact of the Charter on the current provisions
of the WorkCover scheme and any new provisions which may be recommended.
THE WAY FORWARD
103. Workers compensation has long aimed to provide fundamental protection for workers and their
dependants against the risk of injury in the workplace. As workers compensation schemes
have developed, they have also provided protection for the interests of employers, by providing
a degree of predictability in the costs of compensating injured workers, by giving financial
recognition to those employers who develop and maintain safe workplaces, and by facilitating
a relatively stable workforce through enhanced rehabilitation and return to work policies.
104. The recommendations made in this report are aimed at strengthening those fundamental
aspects of workers compensation. Because my report is made to the Victorian Government,
through the Minister for Finance, WorkCover and the Transport Accident Commission, it will be
the Government that will decide which recommendations will be implemented and how the
program for implementation should be developed.
105. I have no doubt that the Government, in identifying and implementing its priorities, will continue
to emphasise the fundamental scheme objectives of delivering fair and effective benefit and
premium regimes while maintaining the schemes operational and financial viability. I believe
that my recommendations can provide a basis for strengthening those objectives and ensuring
that the Victorian workers compensation scheme continues its strong performance in delivering
security to workers and employers.
PETER HANKS QC
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
INTRODUCTION
PAGE 20
10 Charter of Human Rights and Responsibilities Act 2006 (Vic).
RECOMMENDATION
SUMMARY
Recommendations for change Reference
Chapter 1 Improving clarity and understanding of the Act paragraph
1 Recast Victorias accident compensation legislation into a comprehensive Act, arranged
logically and expressed in plain language.
1.24
Chapter 2 Workers entitlements to compensation
2 Streamline and consolidate the provisions in the AC Act that determine when persons are
regarded as workers and employers, in order to make the provisions easier to understand.
2.17
3 Simplify the deeming provisions in the AC Act relating to contractors in order to improve
clarity and promote compliance.
2.46
4 Clarify the operation of the provisions in the AC Act relating to outworkers, together with the
deeming provisions, by deeming all outworkers to be workers.
In addition, the VWA should provide better information about the situations where
outworker arrangements will be deemed to create employment relationships, and the
responsibilities of employers in those situations.
2.99-
2.107
2.108
5 Extend scheme coverage under the AC Act to municipal councillors. 2.130
6 Reduce weekly benefits paid to workers injured as a result of driving a motor vehicle
where they are found to have a blood alcohol concentration above 0.05 and below 0.24,
aligning the AC Act with the relevant provisions in the TA Act.
2.203
7 Amend section 82(2A) of the AC Act to exclude from compensation psychiatric injuries that
arise from an employers reasonable management actions.
Management actions should be defined to include performance appraisals, disciplinary
action, demotions and counselling of employees.
2.311-2.313
8 Introduce mediation or workplace counselling at the request of any party before the
determination of liability for stress-related and psychiatric claims.
2.322-2.331
Chapter 3 Ensuring timely access to benefits and support
9 Introduce a more flexible approach to injury notification and making a claim, whether by the
worker, the employer, a person on the workers behalf or a doctor, including allowing
notification and lodgement to the employer, or directly to the VWA or its agents.
3.183
10 Introduce systems to enable electronic and telephone notification of injury and lodgement
of a claim.
3.184
11 Ensure that claim forms are regarded as valid unless the VWA or employer is unable to identify
adequate information to enable a decision about payment or liability. In addition remove the
distinction between a claim for weekly benefits and a claim for medical and like expenses.
3.163-3.166
12 Implement a system of provisional liability in Victoria, in conjunction with a streamlined
injury notification process.
Provisional liability should cover both weekly payments, medical and like expenses.
A ceiling on the duration and amount of provisional payments should be imposed.
Provisional payments should not continue beyond the time when the agent decides whether
to accept the claim (assuming that the payments have not already ceased because the
ceiling has been reached).
Guidelines should set out the application (and any limitations on the application) of
provisional liability.
Agents should be able to refuse provisional liability payments in certain circumstances.
Eligibility for provisional liability for stress claims and other psychiatric injuries should be
guided by the schemes experience after the introduction of provisional liability.
Agents should be authorised to deny provisional payments where there is an increased risk
of fraud or likelihood of a claim being denied.
Where a claim is denied and fraud is established, any provisional payments should be
recoverable from the worker (either as a debt or from accrued leave).
Where a claim is ultimately denied, the employer should be able to deduct the amount of
weekly benefits paid from the workers accrued sick leave entitlements.
The cost of provisional liability payments on accepted claims should be treated in the same
way as any other cost on a claim: the cost should count toward the employers premium.
The cost of provisional payments on claims that are subsequently rejected or closed before
liability is determined should count towards the employers premium but should not be
taken into account in assigning estimates of the future costs of claims.
The period for determining liability should be extended to promote better initial decision-making.
3.128-3.150
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 22
Recommendations for change Reference
Chapter 3 Ensuring timely access to benefits and support continued
13 Allow VWA and self-insurers to access the necessary medical information relating to a
claimed injury, without requiring the consent of the worker.
3.196
14 Amend the additional liability provision (section 108(4) of the AC Act) for late lodgement
of claims by employers so as to calculate the penalty by reference to the period between
the date when the claim was forwarded to the employer and the date when the claim was
received by the VWA or the agent.
3.211
15 Remove the current offence of refusal to receive a claim for compensation in section
242(3)(a) of the AC Act.
Include an express requirement for service of the claim on an employer (either personally or
by post or electronically).
3.204
16 Provide greater protection for workers who experience discrimination for making or
pursuing compensation claims by amending section 242(3) of the AC Act to ensure that:
a wider range of detrimental conduct, falling short of dismissal (such as demotion,
transfer or reduction in hours) is punishable consistent with OHS, Equal Opportunity and
Long Service Leave Acts;
prospective employees are protected in addition to current employees and other deemed
workers;
an offence is committed by an employer where the proscribed reason was the
dominant reason for the discriminatory conduct, aligning the test for liability with the
test under the OHS Act;
where the prosecution has proved all the facts constituting an offence under section
242(3), other than the reason for the alleged discriminatory conduct, the onus of proof
should shift to the defendant to prove that the dominant reason for the conduct was not
a proscribed reason, further aligning the test for liability with the test under the OHS Act;
the maximum financial penalty for an offence under section 242(3) is equivalent to the
financial penalty for the comparable offence under the OHS Act, but should not be
punishable by imprisonment; and
orders for reinstatement and compensation and, in the case of prospective employees,
orders requiring employment should be available to the Court when sentencing for a
discrimination offence.
3.241-
3.248
17 Include a provision in the AC Act, along the lines of section 131 of the OHS Act, allowing a
worker to request that the VWA bring a prosecution for an alleged offence in relation to
dismissal or discrimination for pursuing a compensation claim.
3.250
18 Amend the EO Act to ensure that workers who suffer discrimination arising from making or
pursuing a workers compensation claim can make complaints to the Equal Opportunity and
Human Rights Commission as the first step in seeking redress.
3.252
Chapter 4 Supporting workers to get back to work after injury
19 The AC Act should include a set of principles that apply to return to work. The principles
would help guide employers, injured workers and other stakeholders in interpreting the
legislative requirements, and foster the type of relationship between the various parties that
is essential to a successful return to work process.
4.71-
4.72
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 23
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 24
Recommendations for change Reference
Chapter 4 Supporting workers to get back to work after injury continued
20 Reframe return to work obligations as performance-based duties, allowing duty holders
more flexibility to suit the circumstances of the parties involved in the return to work
process and in ensuring compliance with obligations.
The core employer obligations for employers should be as follows:
take all reasonable steps to return an injured worker to work as soon as possible;
take all reasonable steps to provide an injured worker with pre-injury or suitable
employment for a period of 12 months;
consult as far as is reasonably practicable with the injured worker and treating practitioner
on the injured workers return to work;
take reasonable steps to plan an injured workers return to work from the date
of the injury;
for employers with remuneration of $2 million or more, maintain the appointment of a
person of appropriate seniority to manage return to work at the employers workplace
a return to work co-ordinator;
for employers with remuneration below $2 million, appoint a return to work co-ordinator
(of appropriate seniority) following an injury in the employers workplace;
develop and make available to the employers workers such information about
return to work and occupational rehabilitation as is prescribed by the regulations; and
take reasonable steps to co-operate with labour hire employers on the return to work
of injured labour hire workers (host employers).
The AC Act should continue to require workers to make reasonable efforts to participate
in the return to work process (where currently required under the AC Act), including:
participating in an occupational rehabilitation service and return to work planning;
returning to work in suitable employment, either at the pre-injury workplace or at
another place of employment; and
participating in assessments of capacity, rehabilitation progress and future employment
prospects when requested to do so.
4.242-4.245
21 The VWA should, in consultation with stakeholders, develop subordinate instruments that
set out how to comply with the requirements imposed by the principal legislation, and deal
with issues such as:
how employers should plan for a workers return to work, including the development of
more formal plans for workers who remain incapacitated for longer periods;
how and when employers should consult with injured workers and treating practitioners;
what policies and procedures should be maintained by employers to manage return to
work and occupational rehabilitation in their workplaces;
how those policies and procedures should be made available to workers;
how employers should maintain a safe and healthy working environment for workers
returning to work following injury;
how each of the participants in the return to work process (employers, workers, health
and safety representatives (HSRs), treating practitioners and the VWA) should work
together to promote return to work outcomes;
how host employers should cooperate with labour hire agencies on return to work; and
what constitutes reasonable efforts to return to work by a worker.
4.246-4.247
22 Require employers to notify an injured worker before the employers obligation to provide
employment comes to an end. The notice period should be prescribed in an appropriate
subordinate instrument.
4.144
23 The AC Act should specify the competencies required of each person appointed to manage
return to work, without demanding training as the only way of achieving competence.
4.213-4.214
24 Return to work co-ordinators should be protected against personal liability by including in
the AC Act a provision equivalent to section 58(3) of the OHS Act.
4.217
25 To avoid duplication of regulation, the requirement to establish a risk management program
should be removed from the AC Act, given that the duties set out in OHS legislation clearly
encompass that requirement.
4.181
26 An appropriately proportionate regime of sanctions should be constructed to underpin the
recommendation that a new compliance framework be adopted to support injured workers
returning to work.
4.262
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 25
Recommendations for change Reference
Chapter 4 Supporting workers to get back to work after injury continued
27 The sanction for workers who fail to make reasonable efforts to participate in the return
to work process should initially involve suspension of weekly benefits, with termination
to follow if the failure is not remedied within 28 days.
4.260-4.261
28 The powers of the return to work inspectorate should be expanded and the inspectorate
should be provided with appropriate tools to monitor and encourage compliance with the
AC Act. In particular, inspectors should be authorised to direct employers to remedy
contraventions on the spot, rather than having to rely on voluntary compliance or the
threat of prosecution.
4.288
29 The return to work inspectorate should be substantially expanded to a level where the
inspectorate can conduct a credible workplace intervention program.
4.310
30 Consideration should be given to whether the two inspectorates (OHS and return to work)
should continue to operate as separate entities.
4.313
31 The processes for review of decisions made by the OHS and return to work inspectorates
should be the same, to ensure consistency and improve transparency and accountability.
The AC Act should identify which decisions are reviewable and which parties are entitled to
request a review of each decision.
4.308-4.309
32 The VWA should retain the exclusive right to prosecute parties for breaches of the AC Act.
However, the AC Act should be amended to allow any person to seek a review of the VWAs
decision not to prosecute an offence, consistent with section 131 of the OHS Act.
4.327
33 The AC Act and the OHS Act should be amended to extend the role of Health and Safety
Representatives, so that they can also represent workers in the return to work process.
A Health and Safety Representative should be permitted to act as a workers representative
only where the worker consents to that representation.
4.339-4.353
34 A similar framework to the OHS Act should be adopted for resolving issues arising in the
workplace about return to work. The framework should allow for issues to be resolved
using an agreed workplace procedure or, if no such procedure has been agreed, a
prescribed procedure set out in the AC regulations.
4.409
35 The time within which a worker must choose an occupational rehabilitation provider from a
list provided by the employer or agent should be reduced from 14 to seven days.
4.365
36 Additional guidance material should be developed so as to assist and support healthcare
professionals in their treatment of injured workers.
4.386
37 The VWA should pay treating practitioners for their time in facilitating return to work, incuding
by telephone consultations between a healthcare professional and the agent or employer.
4.389
38 Repeal section 113 of the AC Act which allows employers to direct workers to a
health professional selected by the employer to provide a certificate where capacity for
work is in dispute.
4.397
39 The VWA should promote the advantages of the JSA and WISE programs to
employers and workers and proactively identify eligible workers to promote access to these
programs.
4.440-4.445
Chapter 5 Better income replacement
40 The Government should commission a further review of the method of calculating
pre-injury average weekly earnings (PIAWE) with a view to incorporating changes and
trends in current remuneration arrangements.
5.46-
5.52
41 Increase weekly benefits from 75% of PIAWE to 80%, after the first 13 weeks. 5.81
42 Require the VWA to pay superannuation contributions for injured workers receiving weekly
benefits after 52 weeks, for as long as the worker is eligible to receive weekly benefits with
the contributions being made directly to the workers chosen fund rather than reimbursing
the employer for making superannuation payments. Payments should be based on the
superannuation guarantee percentage (currently 9%) of the workers weekly benefit.
5.181-5.193
43 Clarify that annual leave and long service leave can be taken in addition to weekly benefits. 5.130
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 26
Recommendations for change Reference
Chapter 5 Better income replacement continued
44 Remove the notional earnings provisions of the AC Act which give agents a broad
discretion to reduce or cease weekly benefits.
5.151-5.154
45 Consistent with the approach taken in NSW and Queensland, agents should be able to
adopt a staged approach to motivating a worker to comply with the workers return to
work obligations:
A worker should be given notice of the intention to cease or reduce payments unless the
worker complies within a specified period with her or his return to work and rehabilitation
obligations.
If the worker continues to fail to comply with her or his obligations, payments should be
able to be suspended or reduced for a further period (of up to 28 days), during which time
payments will be reinstated if the worker complies with her or his obligations.
If the worker continues to fail to comply with her or his obligations following the
suspension period, the agent or self-insurer should be able to cease payments with a
discretion to reinstate payments where the worker subsequently complies.
Under the proposal, payments during the suspended period will be forfeited and will count
towards the calculation of entitlement periods.
Workers should have the right to seek a review of any suspension or termination decision or
any refusal to reinstate payments.
Repeal the provisions, making it a criminal offence for a worker to fail to attend an interview
to discuss employment opportunities or to fail to notify the VWA or a self-insurer that they
have returned to work whilst in receipt of benefits.
5.159-5.165
46 Subject to appropriate limits, provide weekly benefits to workers who have returned to
work, but who must take time off work for surgical treatment for a work-related injury, after
the expiry of the 130 week entitlement period.
5.114-5.115
47 Allow for payment of weekly benefits between the date of settlement of a common law
claim and receipt of the settlement payment by the worker.
5.119
48 In relation to the payment of weekly benefits after 130 weeks for workers who have a partial
capacity to work, and who have returned to work (section 93CD), amend the AC Act to:
clarify that benefits can be accessed at any time when the worker returns to work;
ensure that, where a worker is receiving the benefit and the workers employment is
withdrawn, the worker is given 13 weeks notice of termination of the benefit;
clarify that temporary fluctuations in capacity or the availability of work do not affect the
workers entitlement; and
reduce the time within which the VWA must decide whether to accept or reject such a
claim from 90 days to 28 days.
5.103-5.105
49 Section 96 (which provides that a worker is not entitled to receive weekly benefits in
conjunction with certain other income benefits) should be amended to ensure that:
workers may access additional insured benefits for loss of earnings or disability up to
100% of their pre-injury actual earnings;
if workers access additional insured benefits for loss of earnings or disability beyond
100% of their pre-injury actual earnings, the VWA may offset the excess against the
workers weekly benefits;
the scope of section 96 should be broadened to include all disability pensions, including
pensions paid out of income protection insurance, irrespective of whether they are related
to the injury employment;
offsets are not to apply where a worker accesses superannuation savings in the form of a
pension or a lump sum payment; and
offsets are not to apply where a worker receives a redundancy, severance or termination
package.
5.216
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 27
Recommendations for change Reference
Chapter 6 Treatment expenses
50 The timeframe for determining liability on claims for medical and like expenses should be
fixed in line with the time for determining weekly benefits claims (28 days).
6.37
51 Prescribe that 28 days notice be provided to a worker when terminating a medical and like
expenses claim.
6.44
52 Provide consistent information (in the form of guidelines) on the determination of
reasonable costs and make the information easily available to all parties.
6.54-
6.55
53 Introduce a discretionary power permitting the VWA to require prior approval for some
medical and like expenses.
6.67-
6.74
54 An independent review of medical and non-medical fees payable by the VWA should be
conducted as soon as possible.
The review should include consideration of the provision of appropriate financial incentives
for service providers to treat injured workers and support return to work.
6.93-
6.94
55 The provisions in the AC Act relating to co-ordinated care plans (section 99AAA) are
redundant and should be repealed.
6.144
56 In line with the TA Act, the AC Act should be amended to authorise the Governor in Council
to fix limits on the contributions payable by the worker for the cost of supported
accommodation.
6.155
57 The provisions in the AC Act for referring health care providers to their professional bodies
where there are concerns about their behaviour should be maintained. However, the
sanctions available to the VWA should be strengthened. In particular, the VWA should have
the power to suspend future payments to service providers who are found to have engaged
in unprofessional conduct.
6.185-6.187
Chapter 7 Lump sum benefits for significantly injured workers
58 Increase the maximum benefit awarded for a permanent injury under the impairment
benefit regime to the equivalent of the maximum common law damages payable for pain
and suffering that is, from $396,690 to $484,830, to be indexed annually.
7.59
59 Workers assessed at 81% WPI or greater should be awarded an impairment benefit equal
to the maximum amount of common law damages paid for pain and suffering that is
$484,830. The amount paid to workers assessed between 71% WPI and 80% WPI should
be increased proportionately.
7.59
60 The 2003 amendments relating to WPI of the spine, upper extremity, lower extremity and
the pelvis should remain as a permanent adjustment to the method of assessing
musculoskeletal injuries for the purpose of calculating impairment benefits.
7.70
61 Increase by 10%, the impairment benefit awarded to an injured worker with a spinal injury. 7.82-7.85
62 Increase the impairment benefit awarded for a 30% psychiatric impairment to the level
of impairment benefit awarded for a 30% physical impairment. Similar adjustments
should be made to the payments for psychiatric impairments assessed between
31% and 70% WPI.
7.103
63 The VWA should initiate a review of the method of assessing permanent impairment,
with all relevant stakeholders across the Victorian compensation schemes participating
in the review.
7.124
64 Impairment benefits should be calculated at the date of the determination of a claim rather
than at the date of injury, bringing the calculation into line with the current practice of the TAC.
7.132
65 Introduce consistent terminology for hearing loss claims and injuries, simplify and
rationalise the provisions relating to hearing loss injuries.
7.142
66 Define the date of injury for gradual process injuries as:
the last day of the workers employment out of which, or in the course of which, the
injury arose, or
the date of the claim (if the worker is still employed in that employment at the date of the
claim).
7.168
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 28
Recommendations for change Reference
Chapter 7 Lump sum benefits for significantly injured workers continued
67 The VWA should use the provision in the AC Act that allows it to initiate impairment
benefit claims on behalf of injured workers.
7.238
68 The VWA should consider the feasibility of introducing a one-stop shop for the
management of impairment benefits. The one-stop shop could be structured in a manner
similar to the Medical Panels, so that there would be a central location where all impairment
benefit claims could be processed and where all independent medical assessments could
occur.
7.270-7.273
Chapter 8 Access to justice for seriously injured workers: common law
69 Lower the common law deeming test to 20% whole person impairment (WPI) for physical
injuries only.
8.93
70 Once the assessment of permanent impairment has been reviewed (see recommendation
62), with the percentages of impairment produced by that assessment reflecting more
accurately the level of impairment suffered by injured workers, a further analysis of the
relevant deeming threshold for all injuries should be undertaken. If that analysis shows that
the new impairment assessment tool can fairly and accurately identify the seriously injured,
it might be possible to abandon the narrative test and rely on a measure of impairment as
the sole gateway to common law damages (after further consultation and consideration of
the effectiveness of the new assessment tool). Even if the narrative test is not abandoned, a
more accurate impairment assessment tool should enable the majority of seriously injured
workers to access common law through the deeming test, rather than the narrative test, as
was intended when the two tests were introduced.
8.134-8.135
71 Amending section 134AB(28) of the AC Act so that all weekly payments received after
the workers statutory counter-offer during the section 134AB(12) process are disregarded
when comparing the judgment, settlement or compromise with the workers statutory
counter-offer.
8.184
72 Allow a serious injury application to continue where a worker dies before the application is
heard by providing that, where the claimant dies before the determination of significant
injury from a cause unrelated to the injury to which the claim relates, the Court may make
a determination of serious injury.
8.192
73 Where a worker lodges a serious injury application, the worker should be taken to have
given authority for the VWA to request and obtain relevant medical information.
The AC Act should include a framework that:
sets clear parameters for the type of information that can be requested and the extent
of the authority;
provides a mechanism for dealing with disputes that may arise about the provision of
information in an efficient and effective manner, bearing in mind the relevant timeframes;
enables the serious injury decision-making timeframe to be extended by a further (say)
30 days in the event that vital information has not yet been provided; and
ensures appropriate and proportionate methods of dealing with non-compliance with the
authority by healthcare providers.
The current legal costs order will also need to be amended as all workers would be required
to provide a medical information authority and thus no financial incentive or sanction need
be included in the costs order.
8.214-8.215
74 Amend the AC Act to clarify section 134AB(21). The sub-section should make it clear that,
where an application for serious injury has been denied or accepted, or has resulted in a
determination of serious injury (including a deemed determination), or has otherwise been
resolved, a worker may not make a further application for the same cause of action.
8.232
75 A review of legal costs in work-related injury litigation is recommended in order to
determine the impact of the 20% scale cost reduction on injured workers and whether the
abolition of the scale cost reduction supported by legal groups is justifiable.
8.252-8.253
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 29
Recommendations for change Reference
Chapter 9 Benefits for dependants following work-related deaths
76 Increase the maximum lump sum death benefit payable from $265,590 to the maximum
impairment benefit of $484,830.
9.35
77 Amend the AC Act to ensure that weekly pensions for dependants are indexed annually. 9.57
78 Ensure that a surviving partner, as defined in section 5(1) of the AC Act, who is residing
with a worker at the time of the workers death, is deemed to be dependent on the
deceased worker.
9.93
79 At a minimum, the AC Act should provide for a lump sum payment of reasonable
expenses incurred as a result of the workers death, including the reasonable cost to a
non-dependant of administering the will of a deceased worker.
Also, the AC Act should be amended to provide for lump sum payments to family members,
other than dependants, who suffer financial hardship as a result of a workers death. The
entitlement to payment should only arise where the deceased worker leaves no dependants.
A Court should be given power to determine the reasonable amount of compensation
that is payable and whether financial hardship has been established as a result of the
work-related death.
9.99-
9.101
80 Continue eligibility for pensions for dependent children to the age of 25 years, where they
are engaged predominantly in learning, whether study or an apprenticeship, with
such pensions to be subject to an appropriate income cap, and indexed annually.
9.108
81 Allow a child of a deceased worker who is born after the workers death to be treated as a
dependant of the worker, where paternity can be proved.
9.114
82 Allow for the provisional payment of:
weekly pensions to dependants;
the reasonable costs of medical and like expenses incurred between the date of injury
and the workers death;
the reasonable costs of family counselling services; and
the cost of burial/cremation pending the determination of liability for a death
benefits claim.
9.134
83 Reduce the role of the Courts in the approval of lump sum entitlements, however, retain
a role for the Magistrates Court:
where vulnerable dependants are to be paid their maximum entitlement under the
AC Act, specifically for the purpose of appointing an appropriate trustee;
where vulnerable dependants are paid a compromise amount, to ensure that the
settlement is fair and reasonable in all the circumstances; and
where dependants are not legally represented, to ensure that the agreed settlement is
fair and reasonable in all the circumstances.
9.144
and
9.149
Chapter 10 Transparency in decision-making and the efficient resolution of disputes
84 Provide that internal review by the VWA of agents decisions (or by a self-insurer of its
decisions) be a mandatory step following lodgement of a dispute with the ACCS, with
internal review to be completed within 14 days and be limited to the evidence available to the
original decision-maker (including the entire claim file).
10.126
85 The internal review should be completed within 14 days and be limited to the evidence
available to the original decision-maker (including the entire claim file). The review could
involve steps to clarify the available information with all parties but reviewers would not
have power to seek or receive additional information.
The task of internal review will be to consider whether the original decision was the correct
or preferable decision, having regard to the material that was available to the original
decision-maker, the relevant provisions of the AC Act and the VWAs (or self-insurers) policies.
10.156-
10.164
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 30
Recommendations for change Reference
Chapter 10 Transparency in decision-making and the efficient resolution of disputes continued
The review unit (or self-insurer) will not have the power to substitute a new decision but, at
the conclusion of the review, the review unit (or self-insurer) will report the outcome to the
ACCS, with a brief statement of reasons, as one of the following alternatives:
the original decision is confirmed because, on the material before the original
decision-maker and having regard to the legislation and the VWAs (or self-insurers)
policies, the decision was the correct or preferable decision;
the original decision is not confirmed because the material before the original
decision-maker is insufficient to enable any decision to be made, having regard to the
legislation and the VWAs (or self-insurers) policies;
the original decision is not confirmed because, on the material before the original
decision-maker and having regard to the legislation and the VWAs policies, the decision
was not the correct or preferable decision.
Where the review unit (or self-insurer) finds that the material before the original decision-maker
is insufficient to enable any decision to be made (the second alternative), the review unit
(or self-insurer) will be required as part of its reasons, to specify any additional information
considered necessary to resolve the dispute, including the opinion of a Medical Panel.
86 The review units conclusion and the statement of its reasons should be provided to the
injured worker, the employer, the VWA and its agent. The self-insurers conclusion and the
statement of its reasons should be provided to the injured worker.
10.166
87 Ministerial guidelines should be developed, which set out the procedures to be followed on
internal review, and those guidelines will assist self-insurers to perform their equivalent
review function.
10.167
88 The AC Act internal review unit should be operationally separate from the VWA and report
directly to the CEO.
10.171
89 Require the ACCS to notify the parties of the outcome of internal review within seven days,
together with information setting out the next steps for the injured worker.
10.179-
10.180
90 Require workers to request continuation of the conciliation process within 14 days
of that notification (although an extension of time should be possible in
exceptional circumstances).
10.181
91 Require the conciliation officer to request within seven days that the parties produce
specified information necessary for conciliation to proceed.
10.182
92 Remove the prohibition on a party, who refuses or fails to produce any document or
provide any information requested by the conciliation officer, from tendering the document
or information as evidence in any proceedings that relate to the dispute before the ACCS
section 56 (9A) of the AC Act.
10.186
93 Require an outcome certificate be provided by ACCS within seven days of conclusion of
the conciliation conference, with the certificate setting out any terms on which the dispute
was resolved and certifying that the parties acknowledge their intention to be bound by the
result. The AC Act should provide that the certificate be treated as conclusive.
10.188
and
10.209
94 Where matters remain unresolved, require the outcome certificate to set out any bases for
agreement and identify the issues that remain in dispute and that require determination.
10.210
95 Remove the powers of conciliation officers to make directions. 10.205
96 Clarify that parties may not be represented at conciliation by a person who
is a legal practitioner; or
holds a tertiary degree in law or legal studies; or
is otherwise eligible to be admitted to practice;
unless the conciliation officer and each party to the dispute agree.
10.230
97 Provide for reimbursement of reasonable costs incurred by workers for attending
conciliation, limited to reasonable travel expenses and related time lost from work.
10.242
98 Require the VWA and self-insurers to pay the reasonable costs of medical reports
obtained and used for the purposes of conciliation where the medical reports have been
obtained both with the consent of the worker and at the request of the conciliation officer.
10.248-
10.249
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 31
Recommendations for change Reference
Chapter 10 Transparency in decision-making and the efficient resolution of disputes continued
99 Revise the ACCSs governance structure, including the establishment of a Board to give
general directions to the ACCS and monitor its performance.
10.257
100 Confer increased powers on the Senior Conciliation Officer to ensure that:
conciliations are conducted expeditiously and consistently;
conciliation officers comply with appropriate protocols; and
transparency and accountability measures are introduced.
10.260
101 Clarify the power of a Medical Panel to return a medical question to the referring body
where the referral is unclear or otherwise inadequate. That power should be in addition to
the Panels power to return questions that relate to non-medical matters.
10.302
102 Amend the definition of medical question to address anomalies identified by stakeholders
so as to provide greater clarity and certainty about the matters which may properly be the
subject of a referral to a Medical Panel.
10.303
103 Provide rights of assistance to persons with a disability (including minors) when attending a
Medical Panel, similar to those contained in sections 26LZD(2) and (3) of the Wrongs Act 1958.
10.305
104 Provide the Courts with discretion to refuse to refer medical questions to Medical Panels
where the proposed question involves non-medical matters, and where the referral would
not be in the interests of the proper administration of justice.
10.316
105 Place a time limit on referral by the Courts of medical questions to Medical Panels, with a
power to refer after that time limit where exceptional circumstances exist.
10.318
106 Require Medical Panels to provide written reasons together with their opinions on a medical
question.
10.323
107 Ensure that the Ombudsman has effective oversight of the Medical Panels Convenors
administrative functions.
10.335
108 Repeal the current restriction in section 63(4) of the AC Act on the permitted number of
Medical Panel members.
10.344
109 Remove the restrictions on the jurisdiction of the Magistrates Court with respect to
disputes over statutory benefits.
10.348
110 Establish an exception to the mandatory requirement for conciliation before proceedings
are issued. Subject to the views of the Court, and an appropriate Court order, parties to the
dispute should be permitted to amend their pleadings to ensure that all outstanding issues
between the parties are brought before the Court in a timely manner.
10.355
111 Employers should have limited rights to seek internal review of decisions. In particular, they
should have the opportunity to seek review of initial decisions to accept liability for a claim.
The form of internal review for employers should be more extensive than the internal review
contemplated for worker disputes, given the limited impact of any decision made on
internal review and the fact that the employer would not be able to take the matter to the
ACCS or to the Magistrates Court.
10.367-
10.368
112 The review unit should report its conclusion to the employer and to the VWA, which in
turn would be required to apply a conclusion that the agent decision was not confirmed
in the calculation of the employers premium.
10.371
113 The outcome of employer applications for review must be limited to premium impacts, and
not affect benefits already granted to a worker.
10.372
114 Given that the outcome of employer applications for review would be limited to premium
impacts where the agents decision is not confirmed, an employers and workers return
to work obligations should continue to apply.
10.373
115 Employers should be given the right to request, from their agents, written reasons for
decisions, particularly in relation to initial liability, as well as at appropriate points throughout
the life of a claim.
10.374
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 32
Recommendations for change Reference
Chapter 11 Employer premiums
116 The VWA should improve its information and advice to employers regarding Statistical Case
Estimates (SCEs) by:
ensuring that claim statements disclose the timing of information used in determining the
SCEs for individual claims; and
including all estimates of future costs against individual claims, rather than grouping the
estimates in one combined amount at the end of the statement (unless the grouped
amounts are small).
Improved information should be supported by:
including information with the premium statement that explains the key drivers of SCEs
(safety, speedy return to work, and staying at work) and tells employers what they can
do to reduce their premiums and where they can get more information;
providing more detailed and up-to-date information on the VWA website about how
premiums are set, what drives SCEs and how employers can reduce their premiums; and
making the premium simulator available to employers on the VWA website
whenever possible.
11.53-11.54
117 Only new claims received to the end of December should be included in the calculation
of premium for the following financial year.
11.59
118 Employers should have the right to seek a review of their SCEs. However, that right should
be limited to data errors that lead to erroneous estimates.
11.60-11.66
119 Amend the contractor provisions so that only the deemed employer would declare rateable
remuneration for the deemed worker. The deemed worker would be entitled to make an
injury claim only against the deemed employers WorkCover insurance policy.
11.126
120 The scheme should provide employers with the option of a higher excess of $1,000 for
medical expenses and $15,000 for weekly payments, equivalent to around 16 weeks of
salary.
11.135-
11.139
121 Alignment of the definitions of remuneration for workers compensation and for payroll tax
within Victoria should commence. Alignment of the definitions of remuneration for the
workers compensation schemes in Victoria and NSW should also commence, with a long
term objective of aligning the definition across all Australian jurisdictions.
11.174
122 There should be transparent and robust mechanisms for review of premium decisions made
by the VWA with:
a formal internal VWA premium review process, which aims to provide a non-adversarial
system for the prompt and low-cost resolution of premium disputes; and
a codified premium dispute resolution system which allows employers recourse to
independent review (for example, VCAT, the Magistrates Court or the Supreme Court),
based on the model for Victorian State taxes.
The dispute resolution system should include:
the right of an employer to object to a premium notice (including an adjusted premium)
within a prescribed time period;
the requirement for the VWA to determine an employers objection within a prescribed
time period (for example 60 or 90 days);
the requirement for the VWA to provide written reasons for its decision so as to ensure
transparency; the reasons would be provided through a formal premium review process
by a VWA internal review unit with parameters codified in legislation; and
the right of an employer, aggrieved by a decision made by the VWA (or the failure to make
a decision), to seek an independent review within a prescribed time (for example, 60 or 90
days).
11.201-
11.204
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 33
Recommendations for change Reference
Chapter 11 Employer premiums continued
123 The VWA should be obliged to pay interest where a review finds that a lower amount of
premium is payable.
11.214
124 To encourage voluntary disclosure of non-compliance and help reduce the VWAs
administrative burden, include provisions allowing the remission of penalties in cases of
voluntary disclosure in the ACWI Act.
11.223
125 Introduce penalties for employers who enter into premium avoidance schemes and for the
promoters of such schemes.
11.224
126 Introduce a statutory requirement for review of the VWAs premium-setting by an
independent expert body, such as the Essential Services Commissioner.
11.257
127 Amend the ACWI Act to overcome the situation where a trustee would be in breach of the
legislation by holding multiple WorkCover insurance policies because the trustee is
classified as the single employer for different independent businesses run under trusts.
11.274
128 Amend the ACWI Act to allow the VWA to integrate any penalties for an uninsured period
into the employers ongoing premium account, and to give the VWA the power to
backdate an employers insurance policy to the commencement of employment to cover
an uninsured period. The amendment would remove the need for the current legislative
provisions relating to the UEIS.
11.299
Chapter 12 Recovery from third parties
129 Hold harmless clauses in arrangements between labour hire companies and host
employers should be void and unenforceable for the purposes of the workers
compensation scheme.
12.93
130 Allow the VWA (with an employers consent) to recover from third parties the amount of
any excess paid by the employer, with the amount recovered to be paid by the VWA to
the employer.
12.99
Chapter 13 Self-insurance
131 A two-step approach, similar to that for licensing major hazard facilities as set out in the
Occupational Health and Safety Regulations 2007, should be used for self-insurance
arrangements, with eligibility applications remaining valid for a set period. The VWA should
be able to charge a fee for the eligibility process.
13.35-
13.37
132 The VWA should be given the power to set guidelines under the AC Act to support the
management of self-insurers, similar to the power it has to make guidelines under the
OHS Act.
13.42
133 Applications for self-insurance should be completed within 12 months of the application
being made, or longer at the discretion of the VWA.
13.51
134 The formula for setting the self-insurance application fee should be modified, to allow
estimates of remuneration to be used where there has been no actual remuneration paid
by an employer in the relevant period.
13.54
135 The AC Regulations should also be amended to require the employer to provide the VWA
with the information on which the VWA can base its estimate.
13.54
136 Extend the term of approval for self-insurance to six years, following the first approval, to
reward good performance.
13.61
137 Allow the VWA to review a self-insurers approval where the self-insurer:
becomes a subsidiary of an Australian parent company;
fails to meet any of the requirements for approval as a self-insurer; or
fails to meet any of the prerequisites for approval as a self-insurer.
13.69
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
RECOMMENDATION SUMMARY
PAGE 34
Recommendations for change Reference
Chapter 13 Self-insurance continued
138 Remove the 28-day notice period required where the self-insurer requests revocation of
its self-insurance approval.
13.70
139 Contingent liability insurance excess requirements should be relaxed, allowing self-insurers
to choose a higher or lower excess to suit their individual needs. In addition, the minimum
amount for a bank guarantee that a self-insurer must hold should be removed and the
maximum increased to $5 million or an amount advised by actuaries.
13.82
140 Amend the self-insurance contributions formula in line with the formula proposed by
Access Economics, namely:
Recovery from self-insured (SI) firm I equals:
[SI Specific Costs + (Scheme insured specific fixed costs + Common Costs) Y/Z] (X
i
/Y) r
i
where:
Y is total remuneration for self-insured firms;
Z is total remuneration for scheme-insured and self-insured firms;
X
i
is self-insured firms remuneration; and
r
i
is the self-insured firms risk weighting.
13.137
141 A CPI-X cap should be applied to increases in VWAs costs (with factor X to be initially set at
2% and refined over time by reference to a self-insurer cost index based on a study of
self-insurers costs of operating their workers compensation schemes).
In addition, an independent audit of VWAs cost base should be undertaken to ensure that
costs are properly identified and categorised.
13.138
142 Self-insurer contributions should be included in the issues that can be reviewed by the
independent expert body that reviews premiums.
13.140
143 Retain the OHS audit requirement for self-insurers and implement the national OHS audit tool. 13.154
144 Self-insurers should be required to document their claims management policies, provide the
policies to the VWA and make them available to workers to ensure greater transparency and
accountability in decision-making.
13.163
145 Remove a self-insurers requirement to advise the VWA annually of common law
proceedings and pursue recoveries from the AC Regulations.
13.172
146 Amend the AC Act to provide that, as a condition of approval, self-insurers notify the VWA
within 28 days of commencement of common law proceedings and provide any additional
information relating to those proceedings as requested and within any specified time.
13.173
147 Align the requirement that self-insurers provide details of rateable remuneration with other
data provision requirements, so that it is due by 31 August of each year.
13.176
148 Allow increased flexibility for self-insurance in the event of major corporate restructures.
Specifically, the following should be allowed:
the extension of licence periods for specific times; and
a non-eligible entitys application for self-insurance in limited circumstances.
13.200
149 The AC Act should be amended to allow employers who move from scheme insurance to
self-insurance to elect to retain responsibility for their existing claims.
13.204
150 Align the provisions governing the movement of self-insured employers to scheme-insurance
or to self-insurance under the Commonwealth scheme by setting a single period over which
liabilities are measured (of six years with an interim step at three years).
Introduce a defined process for resolving disputes about the value of those liabilities,
to ensure certainty for self-insurers and the VWA.
13.206
151 Costs borne by the VWA in revoking a self-insurers licence (such as the cost of the
actuarial services used to determine the outstanding liabilities at the time of revocation)
should be borne by the self-insurer, and the AC Act should be amended to ensure that the
VWA is able to recover those costs.
13.210
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
BENEFIT IMPROVEMENTS
PAGE 35
Rank Proposed benefits Annual cost
1.
Impairment benefits
Increase maximum impairment benefit to upper limit of common law pain and suffering
damages that is, from $384,180 to $484,830.
$600,000
2.
Death benefits
Increase maximum death payment to maximum impairment benefit payment that is,
from $265,590 to $484,830.
maximum
$12 million
3.
Superannuation
Amend the AC Act to allow superannuation contributions to be paid into a fund
for workers who continue to receive weekly payments after 52 weeks.
$25.5 million
1
4.
Amend second step-down entitlement
Amend the AC Act so workers continue to receive 95% of PIAWE for the first
13 weeks and 80% thereafter.
$25 million
5.
Serious spinal injuries
Maintain the amendments made to the AC Act in 2003 relating to the modifier for WPI
assessments for spinal, upper extremity, lower extremity and pelvis impairments.
Consistent with the approach taken by NSW, increase the entitlement awarded for spinal
impairments by 10% that is, a 5% NPI entitlement would increase from $10,250 to $11,275.
$5 million
(in addition to
the cost of
maintaining the
2003 amendments)
6.
Psychiatric impairments
Maintain the 30% WPI psychiatric threshold.
Maintain the distinction between secondary and non-secondary psychiatric injuries.
Increase the benefit awarded for 30% psychiatric impairment to the benefit awarded for a
30% physical impairment that is, from $12,810 to $66,120.
$3 million
7.
Medical procedures after 130 weeks
Amend the AC Act to extend weekly benefits to workers who undergo surgical treatment after
the expiry of 130 weeks in certain circumstances.
$2-5 million
8.
Pensions for dependent children
Amend the AC Act to increase pensions for dependent children to the end of their 25th year,
where they are engaged predominantly in learning, whether study or an apprenticeship.
The pension should be subject to an appropriate income cap, indexed annually in accordance
with CPI.
$300,000
9.
Compensation for those persons who are not dependants
The AC Act should provide lump sum payment for persons, other than dependants, who suffer
financial hardship as a result of a workers death. The entitlement to payment should only arise
where the deceased worker leaves no dependants.
less than
$2 million
10.
Lower the physical injury deeming threshold for access to common law damages to 20%
Reducing the deeming threshold would allow faster access to benefits for those workers who
would ultimately succeed under the narrative test in any event.
Cost neutral
11.
Preferred date used to calculate lump sum entitlements
The method of calculating impairment benefits should be brought into line with the current
practice of the TAC, that is, entitlement amounts should be based on the value of the
entitlement when the claim is finalised, not the value of the entitlement as at the date of injury.
$5-15 million
RECOMMENDED BENEFIT IMPROVEMENTS
1 This cost takes into account the impact of amending the second step down ($1.5m).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
PAGE 36
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IMPROVING
UNDERSTANDING
AND CLARITY OF
THE LEGISLATION
Legislation and the scheme
Amendments
A new Act
1.1. The Reviews terms of reference require me to provide advice and recommendations to identify
and resolve anomalies in the AC Act and in the operation of the scheme, improve employer and
employee understanding of the AC Act and improve the usability of the legislation through the
removal of inoperative, irrelevant or superfluous provisions.
LEGISLATION AND THE SCHEME
1.2. The Review is directed at the AC Act and associated legislation, which includes the ACWI Act
and the WC Act, which the VWA also administers.
1.3. Because the terms of reference mention the AC Act, associated legislation and the scheme, the
Review also covers regulations made under those Acts, other statutory instruments such as the
Premiums Order made under the ACWI Act, and documents such as VWA-approved guidelines
and the Claims Manual.
1.4. I believe the basis for any successful statutory benefits regime is the existence of
comprehensive, user-friendly supporting legislation.
1.5. One of the key frustrations with the current workers compensation system is the overly
complex legislation which set outs the rules that govern the scheme.
1.6. Two significant features of the legislation make it particularly difficult to understand and use:
the many amendments to the legislation; and the absence of a hierarchy of scheme legislation.
AMENDMENTS
1.7. The AC Act has been amended on 80 occasions. The ACWI Act has been amended on
19 occasions.
1.8. The AC Act and the ACWI Act now prescribe what is in effect a series of accident
compensation schemes, directed at different periods since 31 August 1985.
1.9. Some of the early legislative provisions are spent or obsolete that is, they no longer have any
effect and should be removed from the Acts. There are also anomalies as between provisions
that have been added at different times.
1.10. The amendments to the AC Act and the ACWI Act operate from a variety of dates. This is
because definitions, rights and liabilities (including benefits and premiums) have been changed
by successive amendments to the Acts, and almost all of the changes operate prospectively
(that is, from a specified commencement date and not retrospectively).
1.11. To seek to change rights or liabilities retrospectively, particularly to a persons detriment, is
generally regarded as inappropriate: governments generally do not sponsor retrospective
amendments;
1
the Parliament is usually reluctant to pass retrospective legislation; and the
courts apply a general presumption that, unless legislation is clearly expressed to operate
retrospectively, it should not be given a retrospective effect. For that reason, the AC Act in
particular includes a complex and often repetitive set of provisions that set out entitlements
and obligations that apply only for particular periods.
1.12. Although the ACWI Act is less affected, it too contains provisions that only apply for particular
periods.
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1 An exception to that general practice was the amendment of the AC Act made by s 24(1) of the
Transport Accident and Accident Compensation Acts Amendment Act 2007 (which excluded employer
superannuation contributions from the calculation of PIAWE).
1.13. This serial nature of the two Acts makes the legislation particularly difficult to understand.
An employer or employee is not likely to know that to find the date from which a provision
operates often requires searching the table of amendments in the endnotes at the back of
the relevant Act.
Hierarchy of scheme legislation
1.14. Most of the detail of the scheme is in the Acts, the Premiums Order and the Claims Manual.
There is comparatively little in regulations. This is unusual, because Acts typically set out broad
rules and leave the detail to be prescribed in regulations.
1.15. Statutory guidelines made under the Subordinate Legislation Act 1994 (Vic) require policy or
principle to appear in Acts and the detailed implementation of policy or principle to appear in
subordinate legislation, such as regulations.
1.16. From the VWAs perspective, it may be better to have one source of information. It seems that
this is what the Claims Manual has become, as the Act has become increasingly difficult to
understand.
1.17. I believe the AC Act and the ACWI Act should answer broadly and clearly the basic questions:
Which injured workers are to be compensated?
What they are to be compensated for?
How they are to be compensated?
1.18. It is doubtful that, by reading the AC Act and the ACWI Act, a person could understand the
basic tenets of the scheme, such as:
Who is covered?
What is an employer required to do?
What sorts of illnesses, injuries or diseases are covered?
What different types of benefits are available?
How and when is a claim to be made?
What happens if there is a dispute?
1.19. Because of the constant amendments and the lack of a hierarchy of scheme legislation, the
AC Act does not flow in a logical or chronological sequence. Ideally, reading an Act should be
like following a narrative, with sequential provisions outlining the necessary matters in the order
in which they typically occur. Alternatives, such as the different types of benefits, should be
dealt with in distinct parts or divisions of the legislation. Currently, Part IV of the AC Act jumps
between the different types of compensation, even within single provisions.
Cost and compliance
1.20. There is a cost and compliance implication in having legislation in such an unattractive (and
frequently impenetrable) form. It is extremely unlikely that employers or employees would
persevere in reading the AC Act and the ACWI Act from beginning to end
2
assuming that they
could gain any insight into the scheme from that exercise. They therefore have to resort to the
VWA (or its agents) or to lawyers and other professional people for information or advice,
costing time and money.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 1 IMPROVING UNDERSTANDING AND CLARITY OF THE LEGISLATION
PAGE 39
2 Compensation Law Bar Association Submission, 2 May 2008, at p 26, points out that when the AC Act
was first commenced it consisted of 214 pages; at the last reprint on 26
th
July 2006 it consisted of
644 pages.
A NEW ACT
1.21. To my mind, there is an overwhelming case for rewriting the AC Act and the ACWI Act, with
the objective of developing legislation that is arranged in a logical, intelligible and functional
structure and that eliminates obsolete and contradictory provisions.
1.22. In recasting the legislation, there will always be a tension between precision and simplicity.
A framework law can state general principles, leaving the details to be filled in by the courts,
by delegated legislation or in some other way. A law that states general principles has one
advantage: it is relatively easy to read and its general purpose is easy to understand. But it
has one substantial disadvantage: its precise meaning may be uncertain.
3
The OHS Act is
an example. Much of the detail relating to the main principles set out in that Act is contained
in voluminous regulations.
4
1.23. The size of the task of moving to a new Act is daunting. For that reason, structuring the
transition from the current legislation to a new Act so that the transition proceeds in stages
has particular advantages and should result in a better product:
Immediate benefits can be delivered to injured workers through the amendment of the
current AC Act, without waiting for the development of a complete new legislative package.
The complex areas that involve specialised input (through the reviews recommended in my
Report)
5
will benefit from allowing the necessary time and expertise for considered analysis.
Staged development will mean that stakeholders can be engaged in the course of the
re-writing exercise and participate most fully with those areas of greatest interest to their
constituencies.
Implementation can be rolled out progressively, so that cost impacts can be managed, for
stakeholders and for the VWA.
A staged program allows for the infusion of national harmonisation elements from time to
time, as harmonisation with other Australian jurisdictions is developed.
1.24. Therefore, I recommend that the entire current accident compensation legislation should be
recast (with the caveat that the wording of those sections that have been the subject of regular
judicial interpretation through litigation should be retained) into a comprehensive Act, arranged
more logically and coherently and expressed in a more accessible fashion in plain language.
1.25. I also recommend that the creation of the new Act be undertaken in stages through legislative
amendment.
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PAGE 40
3 Australian Government, Office of Parliamentary Counsel 2008, Plain English Manual, viewed 27 May
2008, <www.opc.gov.au>.
4 Occupational Health and Safety Regulations 2007.
5 Chapter 5, Better income replacement, recommends that the Government commission a further
review of the method of calculating PIAWE with a view to incorporating any further reforms as part
of any legislative changes following this Review.
Chapter 7, Lump sum benefits for significantly injured workers, proposes that the VWA initiate a review
of the use of the AMA Guides as the means by which permanent impairment is assessed.
Chapter 6, Treatment expenses, recommends an independent review of the fees payable by the VWA,
covering both medical and like service. That review should consider financial incentives for health
professionals to achieve better return to work outcomes, bearing in mind market rates and scheme
viability.
Design considerations
1.26. The new Act should include the following features:
a logically sequenced narrative, with provisions outlining the necessary matters in the order
in which they typically occur in practice the current claims manual may provide a model for
sequencing for some topics;
grouping together of provisions with a common subject matter;
grouping of related concepts in a way that makes the relationships easy to understand;
provision for compulsory WorkCover insurance for employers under WorkCover insurance
policies and the payment of premiums for those polices that is, the content of the ACWI Act;
savings and transitional provisions for the various provisions in the current AC Act and ACWI
Act, where necessary, to save their application from, or limit their application to, the date(s) of
commencement of the provisions of the new Act, as well as maintaining any earlier
grandfathering or savings in those Acts;
particular care given to the presentation of the savings and transitional aspect of the
legislation, with each set of provisions that has a limited operation placed in a separate
division or sub-division, clearly marked with the relevant date(s) of operation, with extensive
use of cross-references;
aids to comprehension and navigation, including objectives provisions, examples, diagrams,
tables, notes to some sections with explanations and cross-references, and possibly the
devices used in some complex Commonwealth legislation of a readers guide and
simplified outlines preceding chapters and parts of the Act; and
provision for the making of general guidelines, both mandatory guidelines and non-binding
guidelines, as identified in the parts of the new Act authorising their making.
6
1.27. The new Act should be based on a fully-worked preparatory plan that records and outlines the
material that is to be contained both within and outside the primary legislation and records the
degree of generality or specificity to be used.
1.28. The use of a legislative plan will ensure that the emphasis is placed on substance rather than
form. In such an extensive piece of legislation, it will be imperative that a complete detailed
plan be settled before any drafting commences. That approach is the best insurance against
having to make band aid fixes to a poorly planned piece of legislation.
[A] draft Bill prepared without previous planning may be more complicated and less clear than
a Bill prepared with the benefit of a detailed draft. By settling a detailed plan before starting to
draft, you can select the drafting structure, terminology and approach that best suit the
function of the draft.
7
1.29. My view is that a transformation of the current legislation into an entirely new Act could be
finalised within three years. I recommend that progress towards such a transformation occur
in stages:
the first stage should consist of the legislative amendments that are necessary to effect my
recommended policy changes, including changes in benefits;
a further stage should involve removing anomalies and spent provisions in the AC Act and
the ACWI Act (and any unintended consequences that might flow from the first stage); and
a later stage should achieve a new Act, to include any legislative changes not contained in
the first stage, together with a re-ordering and reshaping of the AC Act and the ACWI Act
into one streamlined piece of legislation.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 41
6 For a discussion of characterisation of guidelines see Smoker v Pharmacy Restructuring Authority and
Others (1994) 53 FCR 287 at 298-301 (Hill J).
7 Plain English Manual <www.opc.gov.au>.
WorkSafe branding
1.30. Under the AC Act, the VWA is established legally as the Victorian WorkCover Authority.
In 2007, the VWA began re-branding with the intention that the organisation become known
as WorkSafe Victoria rather than the VWA or WorkCover, to build on the community
awareness that the WorkSafe brand had generated. As a matter of course, there were a number
of potential legal implications associated with making those changes to the brand and the use
of the WorkSafe logo.
1.31. I understand that most WorkCover branding has been replaced with WorkSafe Victoria
branding, on the condition that the new branding is accompanied by a tagline, such as
WorkSafe Victoria is a trading name of the Victorian WorkCover Authority, or a similar
expression.
1.32. In a new Act, the further step could be taken to change the legal name of the VWA to WorkSafe
Victoria. This would require the current Authority to be reconstituted with the new name and
made the successor in law to the Victorian WorkCover Authority. The legislation would need to
provide the necessary transitional provisions (including, for example, the retention of entities
created under the AC Act, such as the VWAs Board of Management).
1.33. A new Act would provide an opportunity to rename the VWA legally and should be taken up
to complete the change that so far has been taken up at the administrative level.
1.34. Therefore, I recommend that the Victorian WorkCover Authority be reconstituted with the new
name of WorkSafe Victoria, as the successor in law to the current VWA.
Amendments to inoperative, irrelevant or superfluous provisions
1.35. The issues outlined in Appendix 1 to my Report propose possible amendments to the AC Act
or the ACWI Act as currently in force. If a new Act is ultimately to replace those Acts, many of
the concerns outlined in Appendix 1 will be irrelevant other than to act as a warning for the
drafters of the new Act.
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WORKERS
ENTITLEMENT TO
COMPENSATION
Who is a worker?
Contribution of employment to injuries
Stress-related and psychiatric injuries
2.1. Section 82(1) of the AC Act provides that a worker is entitled to compensation if the worker
sustains an injury arising out of or in the course of employment. In this chapter, I examine the
criteria that identify who is entitled to compensation and the circumstances in which the
entitlement to compensation arises.
2.2. Two issues are central to determining whether there is an entitlement to compensation, namely,
whether
the injured person fits within the definition of a worker under the AC Act; and
the persons injury is sufficiently work-related.
2.3. In the first part of the chapter, I examine who is considered to be a worker for the purposes
of the AC Act. In particular, I discuss the complex provisions governing the circumstances in
which contractors are deemed to be workers under the AC Act, and recommend clarification
of the provisions relating to contractors and outworkers. I also examine the reasons why
self-employed persons are not covered by the scheme. Lastly, I recommend that municipal
councillors should be entitled to compensation.
2.4. In the second part of the chapter, I discuss the level of work-related contribution required before
an injury is compensable, including the current extension of scheme cover to injuries arising
during authorised work recesses, and the current exclusion of injuries arising during journeys
to and from work.
2.5. In the third part of the chapter, I recommend that the reduction in weekly payments for workers
who sustain an injury (not resulting in serious or permanent disablement) while driving a motor
vehicle with a blood alcohol content (BAC) level of 0.05 or greater be aligned with comparable
provisions in the TA Act.
2.6. In the final part of the chapter, I discuss the provisions relating to stress-related and psychiatric
injuries. I consider the particular illnesses or disorders of the mind that constitute an injury
under the AC Act, the exclusionary provisions which provide that compensation is not payable
for an illness or disorder of the mind caused by stress where the stress arose wholly or
predominantly from specific reasonable actions of the employer, and the decision making
processes for stress-related claims. I discuss the complexities and difficulties in determining
liability in response to, and managing, stress-related and psychiatric claims.
2.7. Lastly, I recommend that the AC Act be amended to exclude all psychiatric injuries that arise
from reasonable or appropriate management actions by an employer in relation to a worker,
and to allow for the suspension or adjournment of claims relating to such injuries in special
circumstances, with payments to be made to the worker in the interim. I also recommend that,
as a matter of policy, mediation and/or workplace counselling should be encouraged before
liability is determined for claims relating to psychiatric injuries.
2.8. The broader the definition of a worker, and the greater the range of circumstances that are
regarded as making an injury work-related, the greater the demands on the scheme. On the
other hand, covering fewer workers and narrower categories of injuries under the scheme,
and requiring a stronger link between employment and an injury, would result in more
demands on private insurance and the social security safety net to protect injured workers.
2.9. In considering who should be entitled to compensation and in what circumstances the
entitlement should arise, it is important to balance the goals of:
ensuring injured workers receive the assistance and support they need to obtain fair benefits;
and
maintaining a stable and competitive workers compensation scheme.
2.10. To help people understand how workers and employers are defined in the AC Act, and when
associated entitlements and obligations arise, it is particularly important that this aspect of the
AC Act be as clear and concise as possible.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 44
2.11. No fundamental changes are required for the provisions identifying the persons entitled
to compensation and the circumstances in which an entitlement may arise, apart from the
provisions governing psychiatric and stress-related injuries. Essentially, the focus of this
chapters recommendations is on improving the clarity of the provisions governing entitlements,
so as to enable workers and employers to better understand their entitlements and
responsibilities under the AC Act.
WHO IS A WORKER?
2.12. Under the AC Act, workers include employees, as well as people who are deemed to be
workers or deemed to be working under a contract of service.
1
2.13. As at June 2006, some 2,249,300 people were covered by the Victorian accident compensation
scheme.
2
The Victorian scheme provides cover to a wider range of people than most other
Australian jurisdictions.
3
However, there are considerable difficulties in determining the exact
proportion of people in paid employment covered by the scheme, mainly because a persons
status can change depending on the terms of the particular contract governing the persons
working relationship.
2.14. ABS statistics show an increasing diversity of employment arrangements and significant
increases in non-traditional employer-employee relationships in recent years.
4
Although
the definition of a worker has been expanded to include many contractors working under
non-traditional contract-for-service arrangements (primarily by way of deeming provisions),
there is some concern that, over time, the current definition could cover a diminishing
proportion of the working population.
2.15. Currently, in order to determine whether a person is a worker for the purposes of the scheme,
the definition of that term in section 5(1) needs to be considered, together with provisions
which deem some categories of people to be working under a contract of service
5
(effectively
deeming them to be workers) and other provisions which directly deem some people to be
workers.
6
2.16. The definition of worker in section 5(1) does not cross-refer to the sections that operate as
deeming provisions. Given that the sections that operate as deeming provisions are not headed
as such, it would be difficult for anyone with limited knowledge of the AC Act to know which
sections are relevant to determining whether a person is considered a worker or employer
under the scheme.
2.17. There seems to be scope to consolidate some of the deeming provisions to make them more
user-friendly. I recommend streamlining and grouping the provisions relating to the definitions
of worker and employer to make them easier to find and understand.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 2 WORKERS ENTITLEMENT TO COMPENSATION
PAGE 45
1 AC Act, s 5(1).
2 Australian Safety and Compensation Council, Comparison of Workers Compensation Arrangements,
Australian Safety and Compensation Council, Canberra, 2006, p 15.
3 This is because of the deeming provisions which extend scheme cover to incorporated contractors
in some circumstances; most other jurisdictions do not provide cover for incorporated contractors.
See paragraphs 2.37 to 2.41 below for further discussion.
4 Australian Bureau of Statistics, Forms of Employment, reissue, ABS cat no. 6359.0, Australian
Government Publishing Service, Canberra, 2006.
5 AC Act, ss 6, 7, 8 and 9.
6 AC Act, ss 10, 11 and 12, 13, 14 and 16.
Contractors
2.18. Whether they operate as individuals or under a company structure, contractors who provide
services to another person (the principal) can be regarded as workers, and therefore covered by
the AC Act, if they meet the conditions set out in the deeming provisions in sections 8 and 9 of
the AC Act.
7
2.19. Section 8(1) of the AC Act deems a natural person engaged by a principal to perform any work
not being incidental to a trade or business regularly carried on by the contractor in the name of
the contractor or under a firm or business name to be a worker in certain circumstances.
2.20. When applying section 8, it is necessary to review the contractors business history in order to
identify the steps taken by the contractor to establish an independent business. The review will
be wide-ranging and not limited to the financial year in which the contract is made.
2.21. Section 9 deems certain incorporated contractors (as well as natural persons) to be workers;
that is, the section allows companies, and not only individuals, to be deemed workers. In effect,
section 9 removes the legal fiction of corporate structures to reveal the working relationships
between the people behind the companies. The test in section 9 limits the review of a
contractors business history to the relevant financial year.
2.22. Section 9 was originally taken from payroll tax legislation,
8
although it has been amended over
the years. (Its purpose in the payroll tax legislation was to prevent employers from avoiding
payroll tax by engaging new staff as contractors rather than as employees.)
2.23. The deeming provisions aim to prevent the creation of artificial arrangements that would
inappropriately exclude certain contractors from the scheme. The VWA provides guidelines and
rulings to assist in determining the contracts that are covered by the deeming provisions and
the contracts that are not covered.
2.24. The provisions are quite complex and can create difficulties for employers, possibly leading
to accidental non-compliance. In addition, determining whether a contractor is a worker for
the purpose of a principals premium can depend on information that may not be available
to the principal.
Stakeholder views
2.25. The VTHC submits that
The present provisions relating to independent contractors are both confusing and
cumbersome. We support a re-writing of these sections to improve their clarity.
It is however critically important that the deeming provisions are retained to ensure
independent contractors who are controlled by others are captured by the scheme.
9
2.26. It has been acknowledged judicially that provisions attempting to define the circumstances in
which a contractor will be deemed a worker are notoriously difficult to simplify. In World Book
(Australia) Pty Ltd v Federal Commissioner of Taxation,
10
Meagher JA said:
However, once one takes the view that whilst the statutory definitions are apt to catch
payments to some independent contractors but do not extend to all independent contractors,
one is faced with the extraordinarily difficult question of where to draw the line. I do not think
any formula is capable of enunciation which will answer that question.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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7 The relatively recent Commonwealth legislation, the Independent Contractors Act 2006 (Cth), which
came into effect in March 2007, relates primarily to workplace relations matters and has no effect on
the provisions relating to independent contractors in the AC Act.
8 Payroll Tax Act 1971 (Vic) (as amended), s 3C.
9 VTHC, Submission, 2 May 2008, p 12.
10 (1992) 27 NSWLR 377 at 382.
Retain and simplify the deeming provisions
2.27. In paragraphs 11.118-11.126 of Chapter 11, Employer premiums, I recommend the
amendment of the method for calculating premiums for incorporated contractors. My proposal
would exclude the wages paid by the incorporated contractor to the deemed worker from the
deemed employers remuneration, with the deemed employer declaring remuneration based
on the contract amount paid by the deemed employer to the incorporated contractor. It would
follow that the deemed worker would be entitled to make an injury claim only against the
deemed employers WorkCover insurance policy, not against the incorporated contractor.
2.28. My recommendation in relation to premium collection would address the perceived double
dipping of premium that can arise where contractors are deemed to be workers. However,
it would not address other problems related to the complexity of the provisions and, on that
basis, I consider that the deeming provisions should be simplified, as discussed below.
2.29. The contractor provisions not only deem certain people to be workers, but also deem others
(the principals) to be employers and certain payments to be remuneration.
11
Accordingly, the
provisions have a significant effect on premium.
2.30. Under section 8 of the AC Act, a contractor who engages an employee or subcontractor to
perform work on the contract can still be deemed a worker if the contractor performs some
of the work. Under section 9 of the AC Act, a contractor will not be deemed to be a worker if
the contractor engages arms-length labour. However, the provisions do not provide specific
guidance on the amount of labour that will determine when a contract is exempt.
2.31. The Income Tax Assessment Act 1997 (Cth) (the ITA Act) contains a provision to the effect that,
if 80% or more of a contractors income derives from the same entity, the contractor will not
be regarded as an independent contractor.
12
Including a similar provision in the AC Act would
provide greater certainty and assist workers and employers to understand the contractor
provisions.
2.32. It would be preferable for such a provision to relate both to contractors who are natural persons
and to incorporated contractors. On the face of it, the amendment could reduce the scope of
coverage, by excluding a small number of natural person contractors from the deeming
provision in section 8. However, in practice, it is estimated that only a very small number of
contractors would be affected. The advantage of the certainty to be gained from introducing
such a provision is expected to outweigh the possibility of excluding those contractors, who
may otherwise have been deemed to be workers.
2.33. Introducing the 80% rule into the AC Act would not remove the difficulty inherent in the
principal having to base its assessment of whether an independent contractor is a worker on
information that is not readily available to the principal. However, employers are required to
make similar assessments of who is an employee for the purposes of payroll tax and Federal
income tax, and the 80% rule is a concept already familiar to many employers because of its
use in the ITA Act.
2.34. Section 9 of the AC Act, in part because of its origins in payroll tax legislation, has been
described as convoluted, obscure, involved and, at the very least, its meaning in the AC Act
is difficult to construe.
13
The difference between the definition of a worker in the AC Act and
the definition of an employee in the Payroll Tax Act 1971 (the PT Act), a difference which is
appropriate given the different objectives of the two Acts, gives rise to the difficulties in
applying section 9 in the context of the scheme.
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PAGE 47
11 See generally Mayne Nickless Ltd v McIntosh [1989] VR 878 (Murphy J).
12 Income Tax Assessment Act 1997 (Cth), s 87-15(3).
13 Mayne Nickless Ltd v McIntosh [1989] VR 878 at 881 (Murphy J).
2.35. An unintended effect of taking section 9 of the AC Act from the PT Act is that both sections 8
and 9 of the AC Act provide for the deeming of natural persons as contractors, creating some
overlap between the sections (although section 8 can deem contractors to be workers in
circumstances where section 9 will not). This appears to be an anomaly, which may contribute
to the lack of clarity in the deeming provisions.
2.36. Removing natural persons from the operation of section 9 of the AC Act would move away from
harmonisation of the deeming provisions with the PT Act. However, given that the amendment
would not result in any practical change to scheme coverage or premium, this effect would not
outweigh the benefits of simplifying the provision.
2.37. Other Australian jurisdictions provide cover to natural person contractors to varying degrees,
but do not generally provide for incorporated contractors to be deemed workers.
2.38. In New South Wales, incorporated contractors are not deemed to be workers (and therefore the
principal does not pay premium for them), but an incorporated contractor is required to hold its
own WorkCover insurance policy (on behalf of its own employees). Similarly, in Queensland,
only individuals (not incorporated entities) can be regarded as workers,
14
and a person is not
regarded as a worker if the person performs work under a contract of service with a company
of which the person is a director.
15
2.39. South Australia deems certain classes of natural-person-contractors (such as builders, cleaners,
outworkers, taxi drivers and apprentice jockeys) to be workers if they do the work themselves
and do not employ anyone else to do any of the work;
16
and, in limited circumstances, South
Australia provides cover to incorporated contractors.
2.40. In Tasmania, if a contractor enters into a contract to do work (that is not incidental to a trade or
business regularly carried on by the contractor) exceeding $100 in value, the contractor can be
deemed to be a worker employed by the person with whom the contract has been made.
However, the deeming only applies if the contractor does not sublet the contract or employ any
workers and does not have personal accident insurance.
17
2.41. In Western Australia, a contractor operating through an incorporated entity can only be regarded
as a worker of the principal if the use of an incorporated entity by the worker is found to be part
of an avoidance arrangement.
18
2.42. The approaches taken by the other jurisdictions, although simpler for workers and employers
to understand, could provide additional incentives for principals to pressure contractors to
incorporate, and could enable the use of corporate entities to avoid employer obligations under
the AC Act. As discussed in paragraph 2.13 above, Victoria has broader scheme coverage than
most other jurisdictions, with an estimated 93% of employed people covered, as compared to
90% in New South Wales and 82% in Queensland.
19
Therefore, amending Victorias deeming
provisions to align with those of New South Wales or Queensland could disentitle a significant
number of workers.
2.43. To prevent those contractors being deemed to be workers could leave people currently covered
by the scheme without access to scheme cover. In effect, it could shift the burden of bearing
the cost of insurance for injured contractors from the principal (generally larger employers) and
the scheme, to the contractor (often small businesses with fewer resources and expertise).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 2 WORKERS ENTITLEMENT TO COMPENSATION
PAGE 48
14 Workers Compensation and Rehabilitation Act 2003 (Qld), s 11(4).
15 Workers Compensation and Rehabilitation Act 2003 (Qld), schedule 2, part 2, cl 1(a).
16 Workers Rehabilitation and Compensation (Claims and Registration) Regulations 1999 (SA), reg 5(1).
17 Workers Rehabilitation and Compensation Act 1988 (Tas), s 4B(1), (2).
18 Workers Compensation and Injury Management Act 1981 (WA), s 175AA.
19 Australian Safety and Compensation Council, Comparison of Workers Compensation Arrangements in
Australia and New Zealand , Department of Employment and Workplace Relations, Canberra, 2006,
p 15. Employed in this context refers to people in gainful employment, rather than the common law
meaning of an employee-employer relationship.
2.44. The complexity of the deeming provisions derive partly from the need to balance providing
cover for people who would, but for the legal fiction of operating through a company, be
regarded as workers with collecting an equitable amount of premium to cover the risks and
claims costs of injured workers.
2.45. In order to provide as much guidance as possible in determining when contractors will be
deemed to be workers, some complexity may be required. Provisions that are not sufficiently
detailed may be too easily misapplied. Consideration should be given to whether the more
detailed elements for determining whether a contractor is to be deemed a worker should be
included in regulations or in a schedule to the AC Act, rather than forming part of the main
body of legislation.
2.46. I recommend retaining the deeming provisions relating to contractors and independent
contractors, but simplifying the provisions to improve clarity, assist understanding and promote
compliance.
2.47. Any changes to simplify the provisions will require careful analysis in order to ensure that
simplifying the provisions does not have the unintended consequence of reducing scheme
coverage to workers or unintentionally reducing or increasing the premium payable by principals
or contractors.
Self-employed people
2.48. A self-employed person (or owner-manager) is someone who operates a trade or business
under her or his own name or a registered business name and draws an income from the trade
or business.
20
Nationally, self-employed people make up an estimated 10% of the working
population, and there has been little change in this figure over recent years.
21
2.49. Self-employed people who work as contractors can be treated as workers if they fall within
the deeming provisions.
22
However, the deeming provisions do not cover self-employed people
who are not working as contractors.
2.50. While self-employed persons may engage others to work for them, they cannot contract with
themselves, either under their own names or under their business names.
23
2.51. To protect themselves against injury or illness, self-employed persons may choose to obtain
private insurance, such as income protection or disability insurance, trauma insurance or total
and permanent disability insurance.
Stakeholder views
2.52. VECCI recommends that
. . . research be conducted to consider the feasibility of offering self-employed workers
compensation insurance. A particular price or range of prices could be applied as separate
Workplace Industry Classification (WIC/WICs). An option of mandatory or voluntary registration
could also be considered. That way a person able to show coverage would absolve the
principal from paying premium.
24
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 49
20 Business Victoria 2008, Department of Innovation, Industry and Regional Development, Victoria,
viewed 14 April 2008, <www.business.vic.gov.au>.
21 Australian Bureau of Statistics, Forms of Employment, reissue, Australia, ABS cat no. 6359.0, 2006.
There are significant limitations on estimates of the proportion of self-employed people for present
purposes, because the ABS statistics include owner-managers of incorporated and unincorporated
enterprises as self-employed. For workers compensation purposes, an unquantified proportion of
these people would be deemed to be workers or employers under sections 8, 9 and 10 of the AC Act.
22 AC Act, ss 8, 9, 10.
23 VWA, Determining Rateable Remuneration for Contractors Under the Accident Compensation Act 1985,
guideline, 2004. The guideline states that self-employed people cannot employ themselves in a
separate capacity.
24 VECCI, Submission, April 2008, p 15.
2.53. Freehills submits
Many self-employed persons have expressed a desire to be covered by the WorkCover
system . . .
The AC Act [should] be amended to permit self-employed people in business to take out
individual workers compensation policies . . .
25
2.54. The only Australian jurisdiction that has provided for the extension of workers compensation
cover to the self-employed is Queensland, which allows self-employed individuals, company
directors, contractors, business partners and trustees who satisfy the definition of eligible
person
26
to obtain a workplace personal injury insurance policy. Eligible persons who take out
this type of insurance are covered for loss of salary and medical expenses but, unlike workers,
are not entitled to payment of damages for their injuries.
2.55. However, Queensland has much narrower deeming provisions for contractors than Victoria;
so that, without eligible person coverage, a significant number of contractors would not be
covered by the Queensland scheme.
2.56. WorkCover SA also has the power to extend scheme coverage to self-employed people who
apply for an extension of coverage,
27
although no such applications have ever been received
and the South Australian scheme does not actually offer policies to the self-employed.
28
2.57. There appear to be several significant difficulties in extending cover to the self-employed.
2.58. First, the AC Act is predicated on the existence of two parties an employer and a worker
each of whom has specific rights and responsibilities. The AC Act requires that each worker
must have an identifiable employer, to provide cover for that worker under the scheme.
2.59. If brought within the Victorian scheme, a self-employed person would be considered both an
employer and a worker, with corresponding rights and responsibilities. For example, the person
would have an employers obligation to pay premium and a workers entitlement to
compensation.
2.60. Although (as is presently the case under the OHS Act
29
), it would be possible for additional or
distinct duties to be created for self-employed workers, that could require substantial
amendments to the AC Act to ensure that its provisions were expressed so as to apply sensibly
to self-employed workers.
2.61. If a self-employed person were to be injured and incapacitated for work, no premium would be
payable while the worker continued to receive weekly benefits because the worker and
employer are the same person. In effect the scheme could incur a double cost.
2.62. As a result, the premium for self-employed people would need to take into account the
additional risk to the scheme, which could result in a prohibitively high premium rate. VECCI has
noted that overseas, where workers compensation coverage has been offered to the self-
employed, it has proven expensive for the scheme.
30
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PAGE 50
25 Freehills, Submission, 11 February 2008, p 9.
26 Workers Compensation and Rehabilitation Act 2003 (Qld), s 23.
27 Workers Compensation and Rehabilitation Act 1986 (SA), s 103.
28 WorkCover SA 2008, Employer Frequently Asked Questions, WorkCover Corporation of SA, Adelaide,
viewed 1 May 2008, <www.workcover.com>.
29 OHS Act, s 24.
30 VECCI, Submission, February 2008, p 38.
2.63. As long as the premium charged to self-employed persons covers the cost of paying them
compensation, there should be no net cost to other employers in the scheme.
31
However, in
practice, because employers are currently categorised for premium purposes on the basis of
industry, not legal status, the inclusion of self-employed persons claims costs could lead to
changes in industry rates that would impact on other employers. For example, if self-employed
persons had a higher propensity to injury or a slower return to work rate than other workers,
their inclusion in the scheme would lead to an increase in industry rates and cross-subsidisation
by other employers. However, it may be possible to set particular premium rates (or WIC codes)
for the self-employed, rather than categorising them on the basis of industry.
2.64. It is difficult to predict how the OHS and return to work performance of the self-employed
would compare with other employers. On the one hand, a self-employed person may expedite
her or his return to work to ensure that the business continues to operate. On the other hand,
once off work, and with the business in potential disarray, there may be little incentive or
opportunity for a self-employed person to return to work.
2.65. Nationally, 13.9% of all self-employed people suffered a work-related injury in the 12 months
to 30 June 2006. Of that 13.9%, 4.3% worked on a contract basis and 9.6% did not work
on a contract basis.
32
(A proportion of the 4.3% of contractors may fall within the deeming
provisions and accordingly be covered by workers compensation insurance.)
2.66. The pricing of workers compensation insurance for the self-employed would be very difficult,
given the lack of any claims history for self-employed workers. Setting the price too low would
expose the scheme to under-funding. Setting the price too high would unfairly tax the self-
employed if coverage was compulsory, or lead to low take-up of policies if coverage was
voluntary.
2.67. Therefore, the question whether coverage of the self-employed would be voluntary or
compulsory would also need to be considered. The self-employed would prefer that coverage
was voluntary to retain choice. However, that would expose the scheme to adverse selection
the self-employed at higher risk of injury may seek insurance and the lower risk self-employed
may not. This would either progressively drive up the cost of insurance for the self-employed,
or lead to scheme employers cross-subsidising the riskier self-employed.
2.68. Several of the above arguments can also be applied to the scheme cover that is currently
provided to sole-employee companies. However, the legal fiction of company structures
fits more easily within the existing obligations and framework of the AC Act. Providing cover
to sole-employee companies also means that there is a policy already in place should the
company take on other employees, even on a temporary basis.
2.69. VECCI,
33
the Ai Group
34
and Freehills
35
submit that the current deeming provisions effectively
result in double dipping of premium. Currently, in Victoria, where the contractor is a company
that is deemed to be a worker, the principal may be required to pay premium for the payments
made to the contractor. However, the contractor is required to have a WorkCover insurance
policy to cover its own employees and accordingly will pay premium for the employees.
36
This can result in a double collection of premium.
37
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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31 Source: advice from the Reviews independent actuaries.
32 Australian Bureau of Statistics, Work-related Injuries, ABS cat no. 6324.0, Australian Government
Publishing Service, Canberra, 2006.
33 VECCI, Submission, February 2008, p 37.
34 Ai Group, Submission, May 2008, p 17.
35 Freehills, Submission, 11 February 2008, p 9.
36 Incorporated companies (even those which employ only one worker) are required to purchase workers
compensation insurance if their annual remuneration exceeds or is likely to exceed $7500.
37 This issue is explored further in Chapter 11, Employer premiums, see paragraphs 11.106-11.114.
2.70. To allow sole traders and other self-employed people to obtain a policy would increase the risk
of double dipping (that is, if an individual who usually works as a sole trader purchased a sole
trader policy, and because of contractual arrangements in one year was deemed to be a worker,
the principal would also pay premium to cover the individual). At present, the potential double
dipping is limited to incorporated entities and individual contractors who act as subcontractors.
38
2.71. Further, many sole traders incorporate because that is the legal structure preferred by their
clients. In many cases, the client is a deemed employer and assumes the employers premium
and return to work obligations in the event of injury, meaning that premium is still paid when the
sole employee of a company is injured, and broader return to work opportunities can be pursued.
That outcome addresses one of the risks of extending the scheme to the self-employed.
2.72. Because the legislation is predicated on each worker having an identifiable employer to provide
cover for the worker under the scheme, extending cover to the self-employed, either on a
voluntary or compulsory basis, would require extensive legislative amendment.
2.73. However, as Victoria has the most far-reaching of the deeming provisions, there is less need
to provide cover for the self-employed than in other jurisdictions. Under the current deeming
provisions, some self-employed people are already covered by the scheme. For instance, if a
self-employed person employs any workers, apprentices or trainees, the person must take out
an insurance policy for those employees under the same conditions as other employers. And, if
the self-employed person is contracted to work for another employer, the self-employed person
may be covered under that other employers WorkCover policy. Where a person has set up a
company, of which the person is a director and an employee, the person is covered by the
scheme, either through the companys policy or by a principal contractors policy through the
deeming provisions.
2.74. The objective of extending coverage to self-employed people who are not already covered
would be to provide them with access to benefits in the event of workplace injury, rather than
to extend the AC Acts return to work and occupational rehabilitation rights and responsibilities
to them. That objective can be met through the private insurance market.
2.75. In light of the risks of providing workers compensation coverage to the self-employed,
especially on a voluntary basis, as well as the breadth of the current deeming provisions
and the private insurance alternatives available, I do not propose any changes in this area.
I recommend retaining the current position that excludes the self-employed from the scheme
(other than those self-employed who are covered by the current deeming provisions).
Outworkers
2.76. Both Federal and State governments provide legislative protection to outworkers, in recognition
of the fact that outworkers are a vulnerable group of workers who require greater workplace
protection.
2.77. The Outworkers (Improved Protection) Act 2003 (Vic) (the OIP Act) provides that an outworker is
regarded as an employee for the purpose of a range of other legislation, including the OHS Act,
but not the AC Act.
2.78. Outworkers were specifically excluded from the Workers Compensation Act 1958 (the
predecessor to the AC Act) and, although not excluded, were not specifically included in the
original AC Act in 1985. In 1987, the definition of worker in section 5(1) of the AC Act was
amended to include outworkers, by providing that the term includes
. . . a person (including a domestic servant or outworker) who has entered into or works under
a contract of service or apprenticeship or work or otherwise and whether the contract is
express or implied.
39
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 52
38 This issue is explored further in Chapter 11, Employer premiums, see paragraphs 11.106-11.114.
39 AC Act, s 5(1).
2.79. However, it has been reported that very few outworkers are engaged through a contract of
service (that is, under an employee/employer relationship); rather, they are engaged through
contracts for services (such as contracts to produce or finish an amount of goods), so that the
section 5(1) definition of a worker is of limited use. Where an outworker is engaged as a
contractor, the outworker will need to rely on the deeming provisions in sections 8 and 9 of the
AC Act that is, the contractor will be treated in the same way as all other types of contractors.
Stakeholder views
2.80. The TCFUA submits that
. . . outworkers are told that it is a pre-condition for receiving work that they must be engaged
as a contractor or they must organise their work arrangements via a business. Many
outworkers thus register businesses or set up companies. These artificial arrangements result
in outworkers being viewed not only as employees or as contractors but also as employers or
as sole proprietors.
40
2.81. The TCFUA submits that the current deeming provisions and the section 5(1) definition of a
worker do not provide sufficient protection to all outworkers.
41
It suggests that outworkers
should be provided with additional protection because of their vulnerable status and the
notoriously bad conditions under which they work.
42
2.82. The TCFUA argues that
The provisions of section 9 of the ACA certainly do not encourage employers to ensure that
they meet their obligations under the workers compensation scheme established by the ACA
because of their complexity.
. . . an outworker may be required to set up a company and may employ other outworkers,
usually members of his or her family, in order to receive work. In such a circumstance it
appears that he or she will be excluded from the deeming provisions of the ACA,
notwithstanding that he or she is a party to a sham arrangement.
43
2.83. The TCFUA further submits that
. . . amendments to the ACA are necessary to ensure that all outworkers are entitled to
workers compensation . . .
. . . clearly deeming outworkers as workers will end the artificial and inaccurate distinction
between outworkers as employees and outworkers as contractors . . .
44
2.84. It has been suggested that there are substantial difficulties in providing information regarding
rights and obligations under the AC Act to employer/principals and worker/contractors in the
outworker industry because of the often isolated nature of the work and the cultural and
linguistic backgrounds of the people involved in the outwork industry.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 53
40 TCFUA, Submission, 2 May 2008, p 4.
41 TCFUA, Submission, 2 May 2008, pp 56.
42 TCFUA, Submission, 2 May 2008, p 2. The submission stated that surveys suggest an estimated 97%
of outworkers are women, and 92% of those women were born overseas.
43 TCFUA, Submission, 2 May 2008, pp 67.
44 TCFUA, Submission, 2 May 2008, p 7.
2.85. The TCFUA proposes a definition of outworker for the AC Act that is based on (but not identical
to) the definition in the Industrial Relations Act 1999 (Qld), as follows:
outworker means
a person engaged, for someone elses calling or business, in or about a private residential
premise or at other premises that are not necessarily business or commercial premises of
the employer . . .
45
The TCFUA maintains that the definition should not be confined by reference to industry or
occupation.
46
2.86. The AC Act deeming provisions, although in need of clarification, generally cover outworkers
who operate as natural-person-contractors or sole employees of incorporated contractors where
the outworkers company is working predominantly for the principal.
2.87. Where an outworker has been incorporated and the company employs workers, the company
must take out a WorkCover insurance policy to cover those workers. If the company also
employs the outworker, the policy will cover the outworker. Accordingly, although the outworker
could not claim compensation against the principal in those circumstances, the outworker can
still claim against her or his own companys policy and therefore would still be covered under
the AC Act. Where a claim has arisen because of the negligence of another party, such as the
principal, recovery proceedings can be taken against that other party by the VWA;
47
so the
principal can still be held liable for injuries arising from the principals negligent acts.
2.88. However, the incorporated contractor (that is, the outworker) will be liable to pay the premium
for workers employed by the company. The premium payments may be a significant amount
for an outworker, who would generally receive very low rates of pay.
48
2.89. Further, it is feasible that, in light of the often low levels of English literacy amongst outworkers,
the incorporated outworker may inadvertently fail to take out a WorkCover insurance policy.
If one of the outworkers family member employees sustains an injury while the outworker
is uninsured, the family member may not claim compensation because of concerns about
sanctions against the uninsured outworker. If the family member does claim compensation,
the incorporated outworker may be penalised because of the failure to maintain insurance:
the uninsured company may be required to pay up to twice the amount of premium that
would have been payable to the VWA during the period the company was uninsured;
49
the uninsured company may be required to reimburse the VWA the amount specified by
the VWA as the cost of the relevant injury;
50
and
the uninsured company may be fined up to 100 penalty units.
2.90. Essentially, an outworker who has incorporated (the contractor) will not be a deemed worker
if the services provided to the principal are performed by two or more persons employed by,
or who provide services for, the contractors business, unless the VWA determines that the
contract or arrangement under which the services are so supplied was entered into with an
intention of directly or indirectly avoiding or evading payment of premium by any person.
51
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PAGE 54
45 TCFUA, Submission, 2 May 2008, p 7.
46 TCFUA, Submission, 2 May 2008, p 7.
47 AC Act, s 138.
48 According to the TCFUA submission at p 2, a recent study of outworkers found that the average hourly
rate of pay was $3.60 per hour.
49 ACWI Act, s 7(6).
50 ACWI Act, s 61.
51 AC Act, s 9(1)(f).
2.91. The effect of section 9(1)(f) of the AC Act is that, where two or more persons employed by an
incorporated outworker are performing services related to an outwork contract, the outworker
is not a deemed worker of the principal unless an intention to avoid or evade premium is
apparent. In many cases, it will be difficult to prove that such an arrangement was intended
to avoid or evade payment of premium.
2.92. Where the outworker is an unincorporated contractor who employs other workers, the
outworkers WorkCover insurance policy will cover the other workers but not the outworker.
In such a situation, the outworker will have to rely solely on the deeming provisions in order
to obtain any cover under the scheme.
2.93. Some concerns have been raised that the deeming provision in section 8 of the AC Act
only applies to contracts where the contractor agrees to perform any work not being work
incidental to a trade or business regularly carried on by the contractor in the name of the
contractor or under a firm or business name,
52
and that this restriction may result in
outworkers who have registered business names not falling within the deeming provision.
2.94. However, the registration of a business name will not mean that the deeming provision will not
apply. In determining the application of section 8 of the AC Act, the factual circumstances will
be examined, and the most relevant circumstance will generally be the relationship between
the outworker and the principal. If the outworker has a registered business of providing clothing
alteration services, but provides those services to one principal only, then the outworker is most
likely to be deemed to be a worker of that principal.
2.95. Although the concerns relating to registered business names (as outlined in paragraph 2.94
above) appear for the most part not to have been realised, the status of outworkers in such
situations should be clarified. In particular, given the vulnerable position of many outworkers,
confusion resulting from obscurely drafted provisions such as section 8(1)(a) of the AC Act
could assist dishonest principals to persuade outworkers that they have no entitlement to
compensation even though the entitlement actually exists.
2.96. Workers who are employed by other outworkers, whether incorporated or not, should be
covered by the scheme through the incorporated contractors WorkCover insurance policy.
53
Alternatively, if the contractor (in breach of the AC Act) does not have WorkCover insurance,
the principal will be regarded as the workers employer and the worker will still be covered
by the scheme. In that situation, the principal has a right of indemnity against the contractor
who failed to maintain insurance.
54
However, the contractor, who may also be an outworker,
will be exposed to prosecution and penalties if the outworker fails to hold insurance.
2.97. Outworkers employed by an incorporated contractor appear to be afforded adequate protection
by the scheme in a formal legalistic sense. However, the principal who engages outworkers is
arguably better placed than any outworker to bear the cost of WorkCover insurance and is a
more appropriate object for compliance and enforcement activities.
2.98. There is clearly a problem with the lack of clarity in the deeming provisions and lack of
understanding of the way in which the deeming provisions apply. The lack of clarity is likely
to contribute to a lack of understanding by outworker contractors about their entitlements to
compensation, and create difficulties in enforcing compliance, with both premium payment
and employer obligations, by those who employ outworkers.
2.99. I recommend that the operation of the provisions relating to outworkers, together with the
deeming provisions, be clarified, by deeming all outworkers to be workers.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 2 WORKERS ENTITLEMENT TO COMPENSATION
PAGE 55
52 AC Act, s 8(1)(a).
53 If the contractor is exempt from the requirement to have a WorkCover insurance policy because the
employers annual payroll is less than $7500, the scheme will provide cover under the ACWI Act:
s 7(1), (1A), (1B).
54 AC Act, s 10A.
2.100. For the purpose of that deeming provision, the definition of outworkers should include only
natural persons, sole employee companies and persons employed in family companies
(see paragraph 2.105 below) who are engaged by a principal to perform clothing work.
2.101. I consider that, although the TCFUAs proposed definition (see paragraph 2.85 above) has the
advantage of providing broad cover to a vulnerable sector of the workforce, it could have
unintended consequences if introduced into the AC Act. For example, if all incorporated entities
who employ any number of workers, who are engaged for someone elses business in or about
private residential premises or other non-business premises of the employer, were regarded as
deemed workers, many genuine contractor companies that provide all manner of services to
other companies could be caught.
2.102. Essentially, a balance is required to provide protection to most outworkers, without
unintentionally extending the protection to people not in need of such protection.
2.103. The definition of outworker in the OIP Act refers to a person engaged, in or about a private
residence or other premises that are not necessarily business or commercial premises, to
perform clothing work.
55
I recommend that the definition of outworker in the OIP Act be
adopted, with the exception that person be limited to those categories referred to in
paragraph 2.100 above.
2.104. Under the OIP Act, clothing work is defined as the packing, processing or working on articles
or material in the clothing industry, and the clothing industry is defined
56
to include
. . . wholly or partly designing, preparing, manufacturing, processing or finishing, or wholly
or partly controlling, managing or supervising the designing, preparing, manufacturing,
processing or finishing, of any type of garment, apparel or articles (such as aprons, all
descriptions of whitework, including napery, sheets, pillow slips, pillow shams, diapers,
handkerchiefs, towels, chenille bedspreads, mosquito nets, chenille bath mats, and when
made into clothing or whitework establishment cot covers, blankets or bedspreads, scarves,
collars, cuffs, neckware, muffs, rugs and mats such as are made in the establishment of a
furrier from furred, haired or woollen skins, hats, caps, bonnets, berets or any other kind
of headwear, umbrellas or parasols or the like), whether inside or outside of a factory
or workroom . . .
2.105. A family company could be defined to mean a company that only employs the spouse,
children, grandchildren, parents, grandparents or siblings of the person exercising substantial
control over the company (with power given to the VWA to identify that person).
2.106. I recommend that the OIP Act definitions be followed, because there is merit in retaining the
same definitions to apply across Victorian employment legislation, and also because it would
assist in restricting the possibility of companies in other industries using the provisions as a
way of avoiding their premium obligations.
2.107. I do not recommend extending scheme cover to all incorporated outworkers irrespective of
whom they may employ, because that extension could lead to relatively independent contractor
or subcontractor companies which employ a number of staff being regarded as workers.
2.108. I further recommend that the VWA provide better information to people in the outworker
industry, both principals and contractors, about the situations where outworker arrangements
will be deemed to create employment relationships, and provide better information about the
obligations and responsibilities of employers in those situations. It is essential that a public
awareness campaign accompany any legislative changes, so that the legislative changes can
have a practical, positive outcome for outworkers.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 56
55 OIP Act, s 3(1).
56 OIP Act, s 3(1).
Municipal councillors
2.109. Councillors are democratically elected representatives of their local communities. They can
only be removed from their position as councillors under particular provisions in the Local
Government Act 1989 (the LG Act), or through processes that depend on the exercise by
the Minister for Local Government of a statutory discretion. There are currently 79 municipal
councils in Victoria, and approximately 650 municipal councillors.
2.110. Although State Government ministers, members of parliament, office-holders appointed by the
Governor in Council, and members of other public corporations and bodies are covered under
the AC Act
57
because they are deemed to be workers,
58
members of municipal or local councils
are expressly excluded from the deeming provisions.
59
2.111. The reasons for that exclusion, which was introduced in 1994, are not entirely clear. However,
it was probably at least in part because, in 1994, municipal councillors only received
reimbursement for expenses and did not receive an allowance (as they now do). The exclusion
occurred in the context of the restructuring and amalgamation of municipal councils.
Stakeholder views
2.112. The VLGA submits that
. . . there does not appear to be any sound contemporary arguments of either a technical
or policy basis for not affording this protection [to municipal councillors].
We also note that all State Government appointed Boards are also covered by the Act,
yet would not be considered as employees.
60
2.113. The MAV raises concerns about the inclusion of municipal councillors in the scheme.
It submits that
. . . further matters . . . [to] consider . . .
Who will be the employer of councillors?
What will constitute a workplace . . . ?
How will the nexus between the performance of council business and the injury
be established?
Will the remuneration for determining compensation be limited to the councillors
allowance or will it include other remuneration?
61
Extend scheme cover to municipal councillors
2.114. The roles and responsibilities of municipal councillors have changed since 1994. In particular,
following changes to the LG Act in 2004, municipal councillors have increasingly been required
to canvas concerns and consult with the community. According to a recent report, 80% of
municipal councillors spend more than 33 hours each week performing their duties as
councillors.
62
Current reviews by the Victorian Electoral Commission of council electoral
systems are creating more multi-member council wards, thereby increasing the geographic
area for which each councillor is responsible.
2.115. Municipal councillors receive an allowance, varying between $6000 for smaller councils and
up to $18,000 for larger metropolitan regions, together with reimbursement of reasonable
expenses (for travel, telephones and computers). Because the payment is an allowance rather
than a salary, municipal councillors do not qualify for superannuation contributions by municipal
councils, although they can salary sacrifice for superannuation.
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PAGE 57
57 Victoria, Legislative Council, Debates, 3 May 1994, p 429.
58 AC Act, s 14(2), (3).
59 AC Act, s 14(3). The definition of a worker in s 5(1) of the AC Act depends on the existence of a
common law employer-employee relationship, which is not applicable to councillors; and, accordingly
in the absence of a deeming provision, councillors are not covered by the AC Act.
60 VLGA, Submission, 17 April 2008, p 1.
61 MAV, Submission, 7 May 2008, p 1.
62 Victorian Local Governance Association, Meeting the Sustainable Price of Democracy, final submission
for the Councillor Remuneration Review Panel, 2007, p 7.
2.116. A councillor is regarded as an officer under the OHS Act, which means that the councillor
can be prosecuted for her or his municipal councils breach of the OHS Act, where the breach
is attributable to a failure by the officer to take reasonable care.
63
2.117. Other Australian jurisdictions differ on whether municipal councillors are covered by workers
compensation.
In New South Wales, municipal councillors are not covered by the workers compensation
scheme; although they are not explicitly excluded, the absence of provisions deeming them
to be workers means that they are not included.
In Queensland, municipal councillors are generally covered by the workers compensation
scheme, with such cover limited to injuries sustained only while attending public meetings
or performing any other duty of office as a member.
64
2.118. Issues may arise as to what constitutes a councillors workplace or what activities are
work-related, given that there may be considerable overlap between a councillors personal
time and council business. (For example, a councillor may have discussions with municipal
constituents about council matters while shopping). Most municipal councillors are engaged in
additional forms of work (around 36% are employed in other occupations and another 40% are
self-employed)
65
, so that similar issues may arise when a councillor discusses council business
while at her or his other workplace.
2.119. However, those issues are essentially variations on similar complexities that arise in other
deemed employment contexts (such as whether a person employed by an incorporated
contractor who sustains an injury did so in the course of the persons work for the principal or
the immediate employer). Those issues are not a reason for excluding councillors from cover
under the scheme, particularly given that State parliamentarians, who present similar issues to
those presented by municipal councillors, are covered by the AC Act. Regulations or guidelines
could be used to clarify the circumstances in which councillors would be regarded as acting in
the course of their employment.
2.120. If a worker is injured while working in two or more jobs, the workers PIAWE is used to
calculate the workers weekly payments, based on the following:
66
if the worker was employed with one employer for the normal number of hours specified
in the industrial award (or 35 hours per week if there is no award), the earnings from the
main job;
if the worker was employed for more than 35 hours per week with two or more employers,
the higher earning job; or
if the worker was employed for less than the normal number of hours specified in an
industrial award or 35 hours or less per week for all jobs, the average of the ordinary time
rates of pay from all jobs multiplied by the lower number of hours (either the normal hours
per week or 35 hours per week).
2.121. Accordingly, if municipal councillors were covered by the scheme, a councillor who sustained
an injury in the course of council duties would be entitled to weekly benefits based on the
councillors PIAWE, including the councillors other employment.
2.122. The municipal council which was responsible for the injury would have the claims costs
allocated against the councils policy and used in their premium calculation. The councillors
other employers premium would not be affected.
2.123. The calculation of an employers claims costs is based on the estimated lifetime cost of claims
reported in a particular year; accordingly the amount of a workers PIAWE can influence the
effect of a claim on an employers premium.
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63 OHS Act, s 144.
64 Workers Compensation and Rehabilitation Act 2003 (Qld), s 16.
65 Municipal Association of Victoria, 2006 Councillor Census, MAV, Melbourne, 2006, p 13.
66 VWA Claims Manual 2005, clause 9.3.3.1.
2.124. Given that many municipal councillors have considerable earnings from other employment,
67
if a councillor was injured in the course of her or his work with the council, the councils
premium would be affected by the full amount of the councillors PIAWE (including the
councillors earnings from other employment). However, that effect is essentially no different
from the effect on other employers who employ workers who have additional employment.
2.125. If municipal councillors were to be included in the scheme, coverage would extend only to
injuries sustained in the course of their duties as a councillor. Guidance on the scope of these
duties and on what constitutes council business could be provided in regulations or other
guidelines.
2.126. If municipal councillors were regarded as workers, the relevant municipal council would be
regarded as the employer. Deeming municipal councillors to be workers would not affect
their treatment under other legislation. (For example, the deeming would not affect whether
superannuation is payable under the Commonwealths superannuation guarantee legislation).
2.127. Under the LG Act, a person is disqualified from becoming or continuing to be a councillor
if he or she is a member of Council staff of the Council for which she or he intends to be a
Councillor.
68
That provision might create some confusion in relation to the Council providing
suitable employment if a councillor returns to work after being injured. However, those issues
can be addressed in compliance codes or guidance that will be developed to support the
performance-based return to work duties as referred to in Chapter 4, Supporting workers
to get back to work after injury.
69
2.128. Allowances such as those paid to municipal councillors are already covered by the definition
of remuneration in section 3(1) of the ACWI Act (adopted for the purposes of the AC Act by
section 5(1) of that Act). The definition also includes any amount paid or payable by way of
remuneration to a person holding an office under the Crown in right of the State or in the
service of the Crown in right of the State (including remuneration paid or payable to State
parliamentarians).
70
Accordingly, the payments made to councillors for acting in their role
as councillors are already adequately covered by the existing definition of remuneration.
2.129. The estimated cost to the scheme would be between $300,000 and $800,000 a year.
71
Once sufficient claims experience has accumulated (after the first two or three years of
extending coverage to councillors), that cost would be carried by municipal councils through
their premium payments. Municipal councils have an average premium rate of around 2% of
remuneration, and their annual remuneration comes to a total of $1.8 billion. It is estimated that
the additional premium cost to councils of extending compensation to local councillors would
be immaterial.
72
2.130. I recommend that scheme cover under the AC Act be extended to municipal councillors, by
repealing the parenthetical excluding phrase in section 14(3) of the AC Act.
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67 According to the MAV 2006 Councillor Census, p 21, over 21% of councillors reported an annual
income of $52,000-$77,999, nearly 7% reported income of $78,000$103,999 and 7.37% reported
income of greater than $104,000.
68 LG Act, s 29(1)(d).
69 See paragraph 4.73-4.79.
70 AC Act, s 5(1).
71 This estimate assumes that municipal councillors remuneration would include councillors main
income source, or their day job, estimated at $100,000 per year, being a total of $55 million per year.
The estimated cost would depend on the number of claims per year. Source: advice from the
Reviews independent actuaries.
72 Source: advice from the Reviews independent actuaries.
Volunteers
2.131. A person who engages in voluntary work is not a worker as defined in the AC Act, and so is
not entitled to compensation under the AC Act if he or she suffers an injury arising out of or
in the course of this voluntary work. Volunteer work is not paid, although volunteers may be
reimbursed out-of-pocket expenses.
2.132. It might be said that the absence of some form of workers compensation insurance can act
as a disincentive to people performing voluntary services in an emergency and to volunteers
generally.
2.133. However, several Acts provide that various volunteers and other people assisting government
agencies are entitled to compensation if injured while carrying out relevant duties.
73
2.134. Currently, emergency services agencies, such as the CFA, may call on the private sector
when they require additional resources beyond their permanent staff and ongoing volunteers
(for instance, in response to or during recovery from an emergency).
2.135. Those people are not employed by the emergency services agency, nor are they ongoing
volunteers. They are not considered workers and are not directly covered by the WorkCover
scheme. However, they are entitled to receive compensation from a regulatory compensation
scheme administered by the CFA, with the same benefits as if the injured person was a worker
under the AC Act.
74
2.136. Volunteers (other than those deemed to be workers and entitled to workers compensation
under various Acts) can lodge a claim in relation to an injury on an insurance policy held by
a volunteer organisation. Volunteers can also take out accident insurance to cover themselves
for their volunteer work.
2.137. The CFA submits that
CFA volunteers should not be deemed workers under the AC Act. CFA Volunteers are already
covered by a compensation scheme established under the Country Fire Authority Act 1958 and
the Country Fire Authority Regulations 2004. Consequently, there is no gap in the provision of
compensation to CFA volunteers. The CFA Volunteer Compensation Scheme is tailored to meet
the needs of CFA volunteers, many of whom are self-employed, e.g. farmers or trades people.
75
2.138. I consider that there would be few benefits in deeming emergency services conscripts to be
workers under the AC Act as they are largely covered under emergency services legislation.
Particular volunteers are also covered by legislation, as noted in paragraph 2.132 above.
Those that are not covered by workers compensation have some protection under the
Wrongs Act 1958 and the OHS Act.
2.139. Accordingly, I recommend that there be no change to the AC Act in respect of statutory
compensation coverage for volunteers and emergency services conscripts.
CONTRIBUTION OF EMPLOYMENT TO INJURIES
2.140. The workers compensation scheme is based on the principle that workers are entitled to
compensation for work-related injuries. One factor in determining whether an injury is work-
related is the extent to which employment contributed to or caused the injury. (Alternatively,
an injury may be work-related where the injury occurs in the course of employment.)
76
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73 Including the Victoria State Emergency Services Act 1987 (applies to casual emergency workers),
Juries Act 2000 (applies to jurors), Education and Training Reform Act 2006 (applies to volunteer school
workers and volunteer student workers), Police Assistance Compensation Act 1968 (applies to
volunteers assisting police officers) and Country Fire Authority Act 1958 (applies to casual fire fighters,
volunteer auxiliary workers, and volunteer officers and volunteer members of brigades).
74 Country Fire Authority Act 1958, ss 62-65.
75 CFA, Submission, 29 April 2008, p 4.
76 AC Act, s 82(1).
Which injuries are compensable?
2.141. When the AC Act was introduced in 1985, an injury was broadly defined to include:
a physical or mental injury;
industrial deafness;
a disease contracted in the course of employment at or away from the place of employment
(disease injury); and
a recurrence, acceleration, exacerbation or deterioration of any pre-existing injury or disease
(aggravation injury).
77
2.142. In 1992, significant amendments were made to the AC Act, introducing the requirement that
employment must be a significant contributing factor for any injury (including a disease) to
be compensable.
78
The amendments were made at the same time as other changes aimed
at reducing the costs of the scheme, which at the time faced unfunded liabilities of close to
$2 billion. The introduction of the significant contributing factor test was intended to reduce
the number of claims by reducing the scope of compensable injuries.
2.143. In 2000, the Supreme Court held
79
that the significant contributing factor test did not apply to
traumatic injuries but only applied to diseases and to the recurrence, aggravation, acceleration
etc. of a pre-existing injury or disease. Accordingly, it was only necessary for an injury (in the
commonly used sense of that word) to arise out of or in the course of employment to be
compensable. The Supreme Courts decision was based on the ambiguity of the relevant
amendments, which led to the provisions being construed in favour of workers. The VWAs
attempts to appeal from that decision to the Court of Appeal and the High Court were
unsuccessful.
80
2.144. After the Supreme Courts decision, the AC Act was amended in December 2003. The
amendments included initiatives to reduce costs, as well as measures to increase benefits.
Rather than restoring the original intention of the significant contributing factor requirement,
the Parliament chose to amend the AC Act so that the significant contributing factor
test would apply only to stroke and heart attack injuries, diseases and aggravations etc of
pre-existing injuries. In the second reading speech for the amending Bill, the Minister said that
it was intended to be a middle-of-the-line amendment, to look after workers while looking
after the long-term viability of the scheme.
81
2.145. The responsible Minister justified the employment contributions required for different types of
compensable injuries on the basis that injuries other than strokes and heart attacks generally
cost the scheme less, and return to work is relatively quick. The significant contributing factor
test was removed for injuries that were believed to pose less financial risk to the scheme.
82
It was intended to strike a balance by removing some of the more costly injuries from the
scheme, leaving less costly injuries that allow an earlier return to work.
2.146. Although not directly addressed in the second reading speech, the nature of strokes and heart
attacks, which involve interactions between other lifestyle issues as well as work-related issues,
generally makes it more difficult to determine whether there is a link between those injuries and
work.
2.147. Currently, most injuries sustained by workers that arise out of or in the course of employment
are compensable under the AC Act. However, the significant contributing factor test still
applies to heart attack and stroke injuries, disease and recurrences, aggravations etc. of a
pre-existing injury or disease.
83
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77 AC Act, s 5(1).
78 AC Act, ss 5(1B), 82(1), 82(6) and 135A(2). All of these provisions have since been repealed.
79 Hegedis v Carlton & United Breweries Ltd (2000) 4 VR 296.
80 Carlton & United Breweries Ltd v Hegedis [2002] VSCA 61; special leave refused by the High Court on
14 February 2003.
81 Victoria, Legislative Council, Debates, 20 November 2003, pp 1538-1539.
82 Victoria, Legislative Council, Debates, 20 November 2003, pp 1538-1539.
83 AC Act, s 82(2B) and (2C).
2.148. Most Australian jurisdictions use a broadly similar definition of disease. In Victoria, a disease
includes any physical or mental ailment, disorder, defect or morbid condition (whether of
sudden or gradual development).
84
Generally, an injury is distinguished from a disease in that
an injury involves an event that precipitates a sudden physiological change in the worker.
85
2.149. The requirement that employment has significantly contributed to an injury before the injury
is compensable requires a causal association between employment and the injury. For all other
injuries, it is not necessary to show that employment caused the injury if the injury occurred
in the course of employment. For example, if a worker suffers an epileptic seizure (a sudden
physiological change) while at work, the worker will be entitled to compensation for the injury
under the AC Act, provided that the worker had not previously suffered a seizure.
86
Stakeholder views
2.150. The SIAV supports
. . . an amendment to the Act that requires employment to have been a significant contributing
factor to all injuries. This will decrease the complexity of the application of the legislation and
eliminate argument as to whether a condition might be described as a disease or not.
87
2.151. Ai Group submits that a major contributing factor test should replace the significant
contributing factor test.
88
VECCI
89
and MGA
90
submit that the significant contributing factor
test should be applied to all injuries that arise because of an underlying condition (whether
previously diagnosed or not). Ai Group also supports that approach, as an alternative if its
submission for a major contributing factor test is not adopted.
91
2.152. VECCI also seeks
. . . the removal of the word recurrence from the definition for consistency with other
jurisdictions. A recurrence does not always require any external insult (as does aggravation)
and therefore places less of a requirement that work contribute.
92
2.153. Ai Group submits that
. . . work-relatedness is one of the key issues raised by employers when identifying concerns
with workers compensation schemes.
There is a sense of real annoyance in the case of:
injuries where the circumstances have no clear contribution from a work activity;
gradual onset injuries where it is not possible to clearly identify a specific incident;
stress related injuries that are not directly attributable to a specific incident(s) in the
workplace; and
the recurrence, aggravation, acceleration, exacerbation or deterioration of underlying pre-
existing injuries (including degenerative conditions), especially in relation to older workers.
93
2.154. Both VECCI
94
and Ai Group
95
submit that the lack of a requirement for injuries to be work-
related operates as a disincentive for employers to hire ageing workers or those with a previous
disability, which is contrary to the needs of an ageing workforce.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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84 AC Act, s 5(1).
85 Zickar v MGH Plastic Industries Pty Ltd (1998) 187 CLR 310.
86 See County Court decision, Vitoratos v VWA (unreported, 17 July 2003, No 8318 of 2001).
87 SIAV, Submission, May 2008, p 2.
88 Ai Group, Submission, May 2008, p 12.
89 VECCI, Submission, April 2008, p 7.
90 MGA, Submission, 2 May 2008, p 2.
91 Ai Group, Submission, May 2008, p 11.
92 VECCI, Submission, April 2008, pp 7-8.
93 Ai Group, Submission, May 2008, p 8.
94 VECCI, Submission, April 2008, p 6.
95 Ai Group, Submission, May 2008, p 9.
2.155. VECCI
96
and Ai Group
97
argue that employers can find themselves liable for injuries which are
largely unrelated to a workers employment often carrying significant costs for surgery and
rehabilitation that are disproportionate to their overall responsibility for the injury.
2.156. Victoria Police submits
The definition of injury . . . requires specific criteria: This is of particular relevance to work
related stress or chronic pain which are assessed on the basis of history as given. Exacerbation
or deterioration of existing illnesses as based upon exacerbation of symptoms, without
objective measures, is impossible for medical practitioner or IME to refute.
98
2.157. The VACC
99
and Freehills
100
also submit that stricter tests should be applied to injuries not
initially caused at the workplace, and that an employer who is regarded as liable for an
aggravation of a pre-existing injury should no longer bear the relevant claims costs after the
cessation of aggravation due to that employment.
2.158. On the other hand, the VTHC submits that the significant contributing factor test should not
apply to any injuries or diseases (and that section 82(2B) and (2C) ought to be deleted from
the AC Act). The VTHC further submits that
A fundamental pillar of any no-fault compensation scheme that any injury that arises out of,
or in the course of, employment is compensable. There are no valid grounds for making an
arbitrary distinction between types of injuries that should be compensable . . .
101
2.159. The Compensation Law Bar Association submits that
. . . the current definitions are adequate and represent years of refinement of the definition
together with a considerable overlay of High Court and Court of Appeal jurisprudence.
102
Retain the significant contributing factor test
2.160. Both Australia-wide and internationally,
103
many compensation schemes distinguish between
diseases and frank injuries. The distinction is based on the difficulties in establishing the cause
of diseases and the role of individual susceptibilities in giving rise to diseases.
104
2.161. In Western Australia and Tasmania, employment need only be a contributing factor for a disease
to be compensable. The Australian Capital Territory draws a distinction similar to the distinction
drawn in Victoria between diseases and heart attack or stroke injuries, on the one hand, and
other types of injuries, on the other hand. Under the Commonwealth scheme, employment
must have contributed to an ailment or its aggravation (the two alternative components of
disease) to a significant degree;
105
but an injury, other than a disease, need only arise out
of or in the course of employment.
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96 VECCI, Submission, April 2008, p 6.
97 Ai Group, Submission, May 2008, p 4.
98 Victoria Police, Submission, 12 February 2008, p 3.
99 VACC, Submission, 8 February 2008, p 7.
100 Freehills, Submission, 11 February 2008, p 7.
101 VTHC, Submission, 2 May 2008, p 7.
102 Compensation Law Bar Association, Submission, 2 May 2008, p 5.
103 Compensation schemes in Canada, the United States and New Zealand all differentiate between
discrete injuries and diseases.
104 T Ison, Compensation Systems for Injury and Disease: The Policy Choices, Butterworths, 1994, pp 9-11.
105 SRC Act, s 5B(1). Section 5B(2) lists a series of matters that may be taken into account in deciding
whether employment contributed to an ailment or its aggravation to a significant degree. Section 5B
was added by Act No 54 of 2007. Before the addition of s 5B, s 4(1) of that Act required that
employment made a material contribution to the contraction of the ailment or its aggravation
interpreted by the Full Court of the Federal Court as requiring that employment be more than a mere
contributing factor: Comcare v Canute (2005) 148 FCR 232 at [67].
2.162. In New South Wales, no compensation is payable for any injury unless employment was a
substantial contributing factor; and, in Queensland, employment has to be a significant
contributing factor to any injury.
106
2.163. The broader application of the more stringent significant contributing factor tests in New
South Wales and Queensland does not appear to have any substantial impact on the number
of accepted claims, with both States currently (and historically) having a higher rate of accepted
claims per 1000 employees than Victoria.
107
Although a range of complex factors can affect the
claims rate in a jurisdiction, there is no evidence to suggest that the test would have a practical
effect on the claims rate in Victoria.
2.164. All Australian jurisdictions and New Zealand compensate aggravation or acceleration
of injuries.
108
2.165. The extent of the work contribution that is to be required for an injury to be compensable
involves considerations of cost-shifting between employers, injured workers and the social
security system.
2.166. It appears that the aims of the 2003 amendments have been successful. The strong financial
performance of the scheme and the decreasing number of claims (with the exception of
stress-related psychiatric claims)
109
supports the view that the amendments have made some
contribution to protecting the viability of the scheme.
2.167. The 2003 amendments represented a compromise position adopted by the legislature.
To amend the provisions to create another compromise position would, at least initially,
lead to more uncertainty and disputes, and there appears to be no compelling case for shifting
the balance involved in the current compromise.
2.168. I recommend retaining the significant contributing factor test for the categories of injury to
which it currently applies, but not extending that test to other categories of injury.
Journey claims
2.169. Injuries sustained while a worker is travelling to or from work are expressly excluded from the
scheme.
110
Claims for such injuries are known as journey claims. However, injuries sustained
in motor vehicle accidents that occur in the course of employment (for example, while a worker
is driving a truck as part of her or his work duties) are compensable under the AC Act.
2.170. Journey claims were excluded from coverage under the AC Act in 1992,
111
on the basis that the
employer could not control or take responsibility for accidents that occurred while a worker was
not at work.
112
In introducing the exclusion, the responsible Minister referred to the fact that
journey accidents involving a motor vehicle are covered by the TAC.
113
The exclusion is also
broadly consistent with the OHS Act.
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106 SRC Act, s 5A(1).
107 Commonwealth of Australia, Workplace Relations Ministers Council, Comparative Performance
Monitoring Report, 9
th
ed, Department of Education, Employment and Workplace Relations, Canberra,
2008, p 3.
108 Australian Safety and Compensation Council, Comparison of Workers Compensation Arrangements in
Australia and New Zealand , Department of Employment and Workplace Relations, 2006, p 39.
109 See paragraph 2.211 below.
110 AC Act, s 83(2)(b) and (c).
111 Accident Compensation (WorkCover) Act 1992.
112 Victoria, Legislative Assembly, Debates, 30 October 1992, p 308.
113 Victoria, Legislative Assembly, Debates, 30 October 1992, p 308
Stakeholder views
2.171. The VTHC submits
. . . access to the scheme should be reinstated for workers who suffer an injury while travelling
to and from work.
. . . the distinction in s.83 between traveling to and from employment (which is not covered)
and traveling for the purposes of employment (which is covered) is artificial and
unsustainable.
114
2.172. VECCI,
115
Ai Group
116
and the VACC
117
also submit that compensation for journey claims should
be consistent, but recommend that injuries sustained while workers are travelling to or from
home during an authorised recess should be excluded from compensation, for consistency with
the exclusion of injuries while travelling to and from work before and after a shift.
Maintain the exclusion of journey claims
2.173. Other jurisdictions are divided in their treatment of journeys to and from work in their scheme
cover: The New South Wales, Queensland, Northern Territory and Australian Capital Territory
schemes include journey claims with some restrictions, while the other jurisdictions generally
exclude them.
2.174. I recommend that the exclusion of journey claims be maintained and I discuss my reason for
maintaining the exclusion in paragraph 2.187 below.
Recess claims
2.175. The Victorian scheme provides compensation for injuries sustained by a worker during an
authorised break from work, including an injury sustained during an authorised break away from
the employers premises, as long as the worker did not voluntarily subject herself or himself to
any abnormal risk of injury.
118
For example, injuries sustained while a worker is peeling fruit at
lunchtime or returning from a shopping centre during a work break may be compensable.
119
Claims for such injuries are known as recess claims.
2.176. Recess claims are covered under the New South Wales, Queensland, Western Australian,
Northern Territory and New Zealand schemes with varying conditions. The Commonwealth
and Tasmania generally provide cover only where the worker is onsite during the recess.
2.177. An employers responsibility and liability under the OHS Act depends on the extent to which
the employees activity or location is under the employers control.
Stakeholder views
2.178. Some employers submissions have criticised the inclusion of recess claims in the scheme.
VECCI submits that
. . . employers have no control over the conduct or activities of workers during an unpaid
authorised recess, particularly once the worker leaves the premises . . . such injuries should
be excluded.
120
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114 VTHC, Submission, 2 May 2008, pp 11-12.
115 VECCI, Submission, April 2008, p 13.
116 Ai Group, Submission, May 2008, p 16.
117 VACC, Submission, 1 May 2008, p 4.
118 AC Act, 83(1)(a).
119 As in Hegedis v Carlton & United Breweries Ltd (2000) 4 VR 296.
120 VECCI, Submission, April 2008, p 13.
2.179. Ai Group has quoted the Productivity Commission,
121
which recommends that coverage for
recess breaks and work-related events be restricted (on the basis of lack of employer control)
to breaks at the workplace or an employer-sanctioned venue.
122
Freehills also submits that
liability for recess claims should be subject to the same employment relationship test as other
injuries.
123
2.180. VECCI also submits that injuries sustained at social or sporting events sponsored by an
employer or during sports classes provided by an employer, such as those promoted through
the newly introduced Work Health initiative,
124
be excluded from the scheme, because their
inclusion may be a disincentive to employers providing activities for the health and wellbeing
of their workers.
125
2.181. On the other hand, the CFA submits that social and fitness activities are important for
employees, and that employer-endorsed activities should continue to be covered.
126
2.182. Freehills submits
liability for recess injuries should be subject to the same employment relationship test
as other injuries;
to the extent that recess claims remain, they should not be coded to an employers
insurance policy (or used in premium calculation), but rather be the responsibility of the
VWA, who would in turn would have a right of subrogation to recover funds from negligent
third parties.
127
2.183. The VTHC submits that
Any attempt to disentitle workers injured during authorised breaks would be entirely
inconsistent with the principle . . . that any injury arising out of, or in the course of,
employment is compensable.
. . . removing protections for workers during these periods would . . . be entirely inconsistent
with the fact that these breaks are an inherent part of every day employment . . .
128
Maintain the coverage of recess claims
2.184. In 2000, the Victorian Court of Appeal looked at the evolution of recess claims in the context
of the present section 83(1)(a) of the AC Act.
129
The then President of the Court of Appeal,
Winneke P, traced the origins of the provision back to 1946 and an early rigorous interpretation
given to the words arising out of or in the course of the employment:
130
Particular difficulties were encountered in determining whether the course of employment
was still subsisting when the worker had left his place of employment during temporary
recesses whether customary or authorised. It was clearly to meet such problems that the
Victorian Parliament, conscious no doubt of the remedial nature of the legislation, introduced
the provisions extending the meaning of the words arising out of or in the course of the
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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121 Ai Group, Submission, May 2008, p 9.
122 Australian Government Productivity Commission, National Workers Compensation and Occupational
Health and Safety Frameworks Inquiry, report no. 27, Australian Government Productivity Commission,
Melbourne, 2004, p 187.
123 Freehills, Submission, 11 February 2008, p 6.
124 The Victorian Governments WorkHealth Initiative is intended over the next 5 years to provide for the
screening of workers for their risk of developing chronic diseases such as diabetes and heart disease,
and to provide assistance in managing and preventing the development of these diseases through
lifestyle moderation. J. Brumby, Premier of Victoria, WorkHealth Initiative, media release, 19 March 2008.
125 VECCI, submission, 2 May 2008, p 14.
126 CFA, submission, 1 May 2008, p 1.
127 Freehills, Submission, 11 February 2008, p 7.
128 VTHC submission, 2 May 2008, p 11.
129 TGT Transport v Zammit [2000] VSCA 162.
130 [2000] VSCA 162 at [16].
employment to encompass, inter alia, circumstances in which the worker had, on a working
day, attended at his place of employment and was either present there when injured or was
injured when temporarily absent during an ordinary recess, without having subjected himself
to any abnormal risk.
2.185. The President of the Court of Appeal quoted
131
the following meaning of ordinary recess
given by Windeyer J in the High Court
132
and applied that meaning to authorised recess
(in section 83(1)(a) of the AC Act):
. . . a break of limited duration in the continuity of a normal working day, regularly allowed for
meals or rest. The phrase seems to connote a suspension of activity which is to be resumed at
the end of a stated period. Recesses, variously called lunch-hours, tea breaks, smokos, stand-
downs etc, are normal features of employment in many industries.
2.186. The President stressed that authorised recess should not be interpreted too broadly to mean
any authorised absence. He said that the 1992 amendments to the legislation
133
were intended
to narrow the range of interruptions of working activity, which would ordinarily be described as
recesses, to those which had in fact been authorised by the employer, whether expressly or by
implication.
134
2.187. Essentially, the distinction between journey claims and recess claims can be said to be that
an injury that occurs during an authorised recess occurs in the course of employment, while
an injury that would support a journey claim does not. Further, unlike most journey claims
(if the injury was sustained in an incident directly caused by the driving of a motor vehicle,
train or tram)
135
, for recess claims there is no alternative form of publicly funded compensation
cover for an injured worker.
2.188. Although some recess claims may not be under the control of employers, control does not form
part of the general threshold test for liability to pay compensation: to be compensable, an injury
need only have arisen out of or in the course of employment. For example, if a worker sustains
a twisted ankle at work because the heel broke off the workers shoe, the injury will be
compensable even though the accident was not within the employers control.
2.189. Where a worker is injured during an authorised recess, essentially the decision is where the
costs of the injury should fall on the scheme, the public health and social security systems or
private insurance. Given that the employer has authorised the recess, and the worker would in
most circumstances not have been at the relevant place at the relevant time if the worker had
not been in the course of her or his employment, the scheme is the most appropriate source
of compensation. The current exclusion of injuries arising from workers voluntary subjection to
an abnormal risk of injury provides sufficient protection for employers against liability resulting
from unreasonable actions by workers during authorised breaks.
2.190. Therefore, I recommend maintaining the existing statutory coverage for recess claims.
2.191. In my view, injuries sustained during social or health and wellbeing programs should continue to
remain covered by the scheme. In encouraging activities that promote the health and wellbeing
of workers, the objectives of which include the reduction of illness in the workplace and
workers compensation claims, it would be unfair not to cover workers for injuries sustained
while participating in these activities. The activities can also ultimately benefit employers
through reduced claims and absenteeism.
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131 [2000] VSCA 162 at [20].
132 Landers v Dawson (1964) 110 CLR 644 at 653.
133 Accident Compensation (WorkCover) Act 1992.
134 [2000] VSCA 162 at [25].
135 TA Act, s 3(1).
Blood alcohol concentration limits
2.192. Although the scheme is a no-fault scheme, a worker who sustains an injury that is attributable
to the workers own serious and wilful misconduct is generally denied compensation,
136
unless
the injury results in death or serious and permanent disablement.
137
2.193. Serious and wilful misconduct includes being under the influence of alcohol or a drug within
the meaning of the Road Safety Act 1986 (the RS Act)
.138
If a worker has a BAC of 0.24 grams
or more per 100 millilitres of blood while driving a motor vehicle, the workers conduct will be
serious and wilful misconduct.
139
The AC Act does not prescribe any consequences where the
injured worker was driving a motor vehicle with a BAC below 0.24.
2.194. Although serious and permanent disablement is undefined, it is likely to carry a similar
meaning to the permanent impairment requirement for accessing impairment benefits, rather
than the serious injury threshold test.
140
If that proves to be correct, it would follow that, in
most instances, a person who is entitled to permanent impairment benefits would be protected
from the serious and wilful misconduct exclusion in section 82(4) of the AC Act. However, it is
important that the extent of protection offered by this undefined term be clarified.
2.195. The provisions of the AC Act differ from those of the TA Act, which provides for a one-third
reduction in weekly compensation payments if the injured persons BAC was more than 0.05
and less than 0.12, and a two-thirds reduction if the BAC was 0.12 or more and less than 0.24.
No weekly compensation is payable if the BAC is 0.24 or more.
141
Stakeholder views
2.196. Freehills notes that
. . . a workers claim will be accepted provided their blood alcohol concentration is below 0.24
whereas such a reading would normally result in disqualification of their drivers licence for a
lengthy period and possibly coma or death.
142
2.197. The AMCA submits
Weekly benefits should be reduced in circumstances where employees are injured when
driving a car whilst they have a blood alcohol reading of over 0.05 this will bring it into line
with the Transport Accident Commission.
143
Align the AC Act provisions with those of the TA Act
2.198. The TA Act provisions are more closely aligned with Victorian road safety laws (prescribed under
the RS Act), which make it an offence for a person to drive a motor vehicle with a BAC over 0.05.
144
The RS Act prescribes penalties of increasing severity where the offence involves a BAC between
0.05 and 0.24. A driver with a BAC greater than 0.24 is effectively regarded as being incapable of
having proper control of a motor vehicle and faces significantly more severe penalties.
145
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136 AC Act, s 82(4).
137 AC Act, s 82(5). The AC Act does not define what constitutes serious and permanent disablement.
138 AC Act, s 82(4).
139 AC Act, s 82(4A)(c).
140 See Chapter 8, Access to justice for seriously injured workers: common law, paragraphs 8.72-8.73
and Chapter 7, Lump sum benefits for significantly injured workers paragraph 7.15, for discussion
of these requirements.
141 TA Act, s 40(5). The TA Act provisions apply only to weekly benefits to transport accident victims who
suffer a total or partial loss of earnings, and are limited to the first 18 months or such longer period as
a person continues to be entitled to weekly benefits under those sections.
142 Freehills, Submission, 11 February 2008, p 8.
143 AMCA, Submission, 1 May 2008, p 3.
144 RS Act, ss 49 and 50.
145 RS Act, s 49 and schedule 1.
2.199. Currently, the consequences for a person who is injured while driving with a BAC between 0.05
and 0.24 differ depending on whether the accident occurred in the course of employment (and
the injured person is covered by the AC Act) or outside the course of employment (and the
injured person is covered by the TA Act). For example, a taxi driver with a BAC of 0.10 who is
injured while driving a passenger during the course of employment would have full access to
any entitlements to compensation under the AC Act. However, if the driver was injured while
driving home at the end of the shift, any entitlement to weekly benefits under the TA Act would
be reduced by one-third.
2.200. As with the AC Act, other jurisdictions prescribe a particular BAC as a point beyond which there
is no entitlement to workers compensation, rather than imposing a graded reduction. Apart
from the Northern Territory, the other jurisdictions do not specify BACs that are comparable with
their transport accident compensation legislation (the specified BACs for denying entitlement to
workers compensation are generally higher than the limits under transport accident legislation).
2.201. As noted in paragraphs 2.192 and 2.193 above, the AC Act removes a workers entitlement to
compensation where there is serious wilful misconduct (which includes driving with a BAC of
0.24 or more). A worker may have a BAC greater than 0.05, but may not have wilfully
participated in serious misconduct. For example, a worker may drink two glasses of wine at a
lunch provided by the employer but, contrary to the workers belief, the two glasses contained
more alcohol than two standard drinks. If the worker is then found to have a BAC greater than
0.05, it can be said that the worker has not engaged in serious and wilful misconduct so as to
be precluded from accessing weekly benefits.
2.202. Employers have a duty under the OHS Act to control risks in the workplace. That duty would
extend, in some circumstances, to protecting workers from both their own, and other workers,
alcohol-influenced behaviour. However, as a matter of public policy, particularly given the
emphasis in recent years on discouraging drink-driving, it is appropriate to recognise the
increased risk to which workers are exposing themselves and others by driving with a BAC
over 0.05.
2.203. To this end, I recommend that the AC Act be aligned with the relevant provisions in the TA Act.
I propose a reduction in weekly benefits paid to workers injured as a result of driving a motor
vehicle while they have a BAC above 0.05 and below 0.24, as under the TA Act.
2.204. Because the consumption of alcohol does not necessarily constitute serious wilful misconduct,
any provision that prescribes a reduction in weekly benefits should be separate from the serious
and wilful misconduct provisions. However, in accordance with those provisions, the reduction
in weekly benefits should not apply to situations where the injury has resulted in death or and
permanent disablement. I recommend that serious and permanent disablement be defined so
as to clarify the circumstances in which it applies.
STRESS-RELATED AND PSYCHIATRIC INJURIES
2.205. Stress-related and psychiatric claims can cover a range of mental and emotional conditions,
including stress, anxiety, post-traumatic stress disorder, depression and adjustment disorder.
146
2.206. Stress-related and psychiatric claims pose a difficult challenge for all workers compensation
schemes. The difficulty arises mainly from the problems involved in diagnosing psychological
and emotional illnesses, and the multiplicity of factors that can contribute to those conditions.
Stress-related and psychiatric claims
involve particularly subjective elements, because stress essentially arises from an individuals
perception of and reactions to external events; and
differ from physical claims because they are more likely to involve associated workplace
relations issues, such as discrimination, bullying and unfair dismissal, and so they often
involve protracted disputes and litigation.
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146 Australian Safety and Compensation Council, Work-related Mental Disorders in Australia, Department
of Employment and Workplace Relations, Canberra, 2006, p 6.
2.207. Under the AC Act, claims for stress-related and psychiatric injuries are treated differently
to claims for physical injuries in a number of ways. The main differences are:
the exclusionary provisions in section 82(2A), which disallow compensation for mental
illnesses or disorders arising from stress that was wholly or predominantly due to particular
actions or decisions by employers;
the requirement in section 82(2C) that employment be a significant contributing factor to
a psychiatric injury that is a disease, such as depression brought on through some aspect
of work over a period of time;
the minimum threshold test for impairment benefits under section 98C, which requires that
a worker have an impairment of not less than 30% where the impairment is psychiatric, as
compared to a 10% impairment where the impairment is physical;
the serious injury narrative test (allowing an injured worker to sue for common law damages),
which requires psychiatric injury to be severe, as compared to the lower threshold of
serious for physical injury; and
the exclusion of secondary psychological consequences of injuries (that is, psychological
consequences that arise from a physical injury, rather than directly from an incident at work)
when assessing impairment under section 98C when passing through the impairment
gateway for common law.
2.208. Psychiatric injuries are treated differently from physical injuries at common law,
147
where mental
distress or suffering (such as grief or anxiety) is not compensable unless there is a recognisable
psychiatric injury or illness. This approach has been justified by the High Court
148
on the
following grounds:
psychiatric harm is less objectively observable than physical injury, and is therefore more likely
to be trivial or fabricated and more susceptible to shifting medical opinion and conflicting
expert evidence;
litigation in relation to purely psychiatric harm is likely to operate as an unconscious
disincentive to rehabilitation;
permitting full recovery for psychiatric harm risks indeterminate liability (because it is very
difficult to determine when someone has fully recovered from a psychiatric harm); and
liability for purely psychiatric harm may impose an unreasonable or disproportionate burden
on defendants.
2.209. Psychiatric injuries are rarely caused by a single event they frequently involve additional
factors, such as a workers personal life, interpersonal relationships and personality factors.
149
Psychiatric injuries often involve an interaction between work-related and non-work-related
factors, and that interaction can raise difficulties in determining whether an injury is
compensable.
150
2.210. Although the overall financial performance of the Victorian scheme has significantly improved,
the costs of stress-related injuries remain high.
2.211. Throughout Australia, from 1996/1997 to 2003/2004, the number of workers compensation
claims decreased in all categories except for mental stress, which increased by 83%.
151
Claims
for mental stress recorded a 12% increase between 2001/2002 and 2004/2005.
152
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147 See Tame v New South Wales (211) CLR 317.
148 Tame v New South Wales (211) CLR 317 at [192] (Gummow and Kirby JJ).
149 Dr R Gutierrez, Injury Management Solutions, Psychological Injury Claims Why do we keep missing
the boat? Presented at the WorkCover WA Injury Management Conference, October 2007.
150 Dr R Gutierrez, Injury Management Solutions, Psychological Injury Claims Why Do We Keep Missing
the Boat? Presented at the WorkCover WA Injury Management Conference, October 2007.
151 Australian Safety and Compensation Council, Compendium of Workers Compensation Statistics
Australia 20042005, Canberra, 2007, p 37.
152 Commonwealth of Australia, Workplace Relations Ministers Council, Comparative Performance
Monitoring Report, 9
th
ed, Department of Education, Employment and Workplace Relations, Canberra,
p 12.
2.212. In Victoria, the number of mental stress claims increased from 2418 in 2000/2001 to 2920 in
2003/2004. However, there was a slight decrease in the 2005/2006, when the number of mental
stress claims was 2604
.153
The upward trend in mental stress claims has occurred despite a
reduction in overall claim numbers over recent years, from 31,023 in 2002/2003 to 30,371 in
2005/2006.
154
In 2005/2006, stress claims made up around 9% of overall claim numbers.
155
2.213. The long-term increase in mental stress-related claims has been attributed to factors such
as the increased pressures of work and personal life, increases in expectations, employment
instability and a more litigious society.
156
2.214. Stress-related claims are the most expensive type of workers compensation claim. Nationally,
both the average financial cost and time lost from work for stress-related claims is more than
double the average of all new claims.
157
In 2005/2006, more than $133.9 million was paid on
stress-related claims in Victoria, excluding administrative and medico-legal costs
.158
2.215. Stress claims now appear to make up a reasonably stable proportion of claim numbers and
claims costs, although it is possible that there could be further growth in stress claims if
there is an economic downturn and there is an increase in the level of unemployment.
159
2.216. If there is further growth in mental stress claims, the average cost of stress claims means
that those claims could affect the schemes ability to provide enhanced benefits and may
place upward pressure on premium costs .
160
2.217. Mental stress-related claims are particularly prevalent in the government and community
sectors, where they make up around 20% of claims.
161
2.218. In 2004, the new OHS Act for the first time specifically defined health to include psychological
health,
162
raising the profile of mental stress-related and psychiatric claims and the need to
contain risks in relation to those injuries.
2.219. In recent years, workplace stress has been the focus of ongoing studies and projects in
Victoria. The VWA has recently published guidance material to assist workplaces in the
management of stress risks and has run targeted programs in the public and community
sectors. A large-scale project focusing on the case management of stress-related claims has
also been initiated by the VWA, to focus on better decision-making in stress claims. However,
the project has had limited results.
2.220. Although an approach that focuses on minimising the incidence of stress-related and
psychiatric injuries is essential to controlling the costs of such claims, amendment of the
AC Act may be required to simplify the relevant provisions and decrease the level of disputes
related to those claims.
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153 Source; advice from the Reviews independent actuaries.
154 There has been a 19% reduction in the number of claims over the past five years; VWA, Annual
Report, 2006/2007.
155 Source: advice from the Reviews independent actuaries.
156 Dr S Proud, Stress claims: a team approach, presentation notes for the WorkCover WA Injury
Management Conference, October 2007.
157 R Guthrie, The Australian legal framework for stress claims, Journal of Law and Medicine, no 14,
2007, p 528.
158 VWA, Stressing the Point: A Study into What Causes Stress in a Budget Sector Workplace, and How it
Can Be Controlled, Melbourne, 2006.
159 Source: advice from the Reviews independent actuaries.
160 VWA, Stressing the Point: A Study into What Causes Stress in a Budget Sector Workplace, and How it
Can Be Controlled, Melbourne, 2006.
161 VWA, Stressing the Point: A Study into What Causes Stress in a Budget Sector Workplace, and How it
Can Be Controlled, Melbourne, 2006.
162 OHS Act, s 5(1).
What illnesses or disorders of the mind constitute an injury?
2.221. The AC Act requires the presence of an injury before there is an entitlement to
compensation.
163
Different terminology is used in various sections of the AC Act to refer to
psychiatric injuries. The general definition of an injury covers any physical or mental injury,
including a disease,
164
while section 82(2A), which relates specifically to stress, refers to an
injury consisting of an illness or disorder of the mind. However, there is no definition of what
constitutes an illness or disorder of the mind.
2.222. Nor is stress defined in the AC Act. The term is used in section 82(2A) of the AC Act only for the
purpose of referring to a cause of an illness or disorder of the mind, rather than to an illness or
disorder of the mind.
2.223. Stress-related claims can relate either to an injury or to a disease, depending on the origin of
the stress. Where the stress-related illness arises out of a specific (usually traumatic) event,
causing a sudden physiological change in the worker, the stress-related illness is regarded as an
injury.
165
However, in the majority of stress claims, the stress-related illness develops gradually,
and is therefore regarded as a disease. The distinction is important because, where the illness
is a disease; the employment must be a significant contributing factor before the claim can be
accepted.
166
2.224. Although stress may be described colloquially as an illness, it is not an injury because it is not a
diagnosable medical condition,
167
and only those illnesses or disorders of the mind that amount
to injuries are compensable. Stress is a very subjective concept, because it is created by the
interaction between the stressor and the individual. However, in practice, claims that are
accompanied by a diagnosis of stress on a medical certificate are often accepted by agents,
the conciliation service and the courts,
168
even where the resultant condition is not identified as
a recognised medical condition.
2.225. Different jurisdictions refer to stress claims in different ways. The New South Wales scheme
does not use the word stress but excludes some psychological injuries (caused by certain
types of reasonable action on the part of the employer) from entitlement to compensation.
169
Queensland refers to psychiatric or psychological disorders,
170
and Tasmania and South
Australia refer to an illness or disorder of the mind.
171
Stakeholder views
2.226. Ai Group argues that workers should not receive compensation if they are stressed from
undertaking normal work duties of the kind that the average person can undertake without
suffering a psychiatric injury.
172
2.227. VECCI submits
. . . the legislation be amended to exclude mental injury claims if the alleged cause of the
stress is not real . . .
173
giving as an example the situation where a worker develops a psychiatric injury as a result of
an unfounded belief that his workmates have let down his car tyres.
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163 AC Act, s 82(1).
164 AC Act, s 5(1).
165 Zickar v MGH Plastic Industries Pty Ltd (1998) 187 CLR 310. See paragraph 2.148 above.
166 AC Act, s 82(2C)(b).
167 PH Rosch, Reminiscences of Hans Selye and the Birth of Stress, American Institute of Stress, 2007,
viewed 20 November 2007, <http://www.stress.org/hans.htm?AIS=24666e229a9f592779e9a015dd7811e7>
168 See, for example, Comcare v Mooi (1996) 69 FCR 439; Zickar v MGH Plastic Industries Pty Ltd (1998)
187 CLR 310.
169 Workers Compensation Act 1987 (NSW), s 11A(1).
170 Workers Compensation and Rehabilitation Act 2003 (Qld), s 32(5).
171 Workers Rehabilitation and Compensation Act 1998 (Tas), s 25(1A); Workers Rehabilitation and
Compensation Act 1986 (SA), s 30A.
172 Ai Group, Submission, May 2008, p 13.
173 VECCI, Submission, April 2008, p 10.
2.228. The AMCA submits that Victoria should adopt the same terminology as New South Wales,
which uses the term psychological injuries to refer to stress-related and psychiatric injuries.
174
2.229. In New South Wales, the use of the term stress is expressly excluded by a provision that
requires that medical certificates must refer to accepted medical terminology to describe the
workers condition, and cannot only use words such as stress or stress condition.
175
2.230. According to VECCI, the prohibition in New South Wales on certifying stress as a condition has
led to GPs simply replacing the word stress with adjustment disorder.
176
There does not
appear to have been any decrease in the numbers of stress-related claims in New South Wales
following the change to accepted terminology.
2.231. VECCI
177
and MGA
178
argue that only psychiatrists, clinical psychologists and general
practitioners who have completed additional mental health training should be able to provide
certificates of capacity for stress-related and psychiatric injuries.
179
2.232. VECCI argues that workers may also benefit from such a requirement, because it would help
ensure that workers with those illnesses receive appropriate treatment.
180
2.233. Under the model advocated by VECCI, there would be some restrictions on a workers choice
of provider.
181
However, if a worker was required to provide medical evidence in support of a
psychiatric claim from an expert in the field, the VWA and its agents might be less likely to
require workers to attend independent medical examinations with experts. Currently, workers
are often required to attend such examinations in order to establish whether their claims are
compensable.
2.234. The difficulties that arise from the need to rely on a workers subjective reporting of history
and her or his symptoms (and on conflicting medical opinions) to determine whether the worker
has a psychiatric injury cannot be avoided through legislative change. However, legislating to
require the presence of a diagnosable medical condition could assist in ensuring that only
actual injuries (as contemplated by the AC Act) are compensable. The requirement that there
be a diagnosable medical condition may provide further support for workers making claims for
psychiatric injuries by encouraging claims for those injuries to be seen as legitimate in the same
way as claims for physical injuries.
2.235. Conversely, research has suggested that stress can cause significant functional disturbances,
which are not necessarily diagnosable under recognised systems of disease classification, but,
without intervention, such conditions can develop into clinical disorders.
182
2.236. Further, the difficulties in determining whether a mental stress injury should be compensable
are not necessarily resolved by relying on publications such as the Diagnostic and Statistical
Manual of Mental Disorders IV (DSM IV), the standard diagnostic text commonly used by
medical specialists in guiding diagnosis of mental disorders.
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174 AMCA, Submission, 1 May 2008, p 1.
175 Workers Compensation Act 1987 (NSW), s 11A(7).
176 VECCI, Submission, April 2008, p 12.
177 VECCI, Submission, April 2008, p 12.
178 MGA, Submission, 1 May 2008, p 3.
179 The training is available through a Commonwealth Government initiative called the Better Outcomes
in Mental Health Care Program. A list of GPs who have undergone this training is available at
<www.beyondblue.org.au>.
180 VECCI, Submission, April 2008, p 12.
181 VECCI, Submission, April 2008, p 12.
182 National Occupational Health and Safety Commission, The NOHSC Symposium on the OHS
Implications of Stress, December 2001, p 5.
2.237. The diagnostic criteria published in DSM IV can be problematic to apply in general practice
scenarios,
183
can differ in application between a treatment and litigation context and can be
affected by issues of degree and subjectivity.
184
DSM IVs diagnostic criteria (for post-traumatic
stress disorder) have been criticised by the Supreme Court as non-specific, and potentially
indicative of other ailments and conditions which may not be mental disorders.
185
2.238. In any event, denying compensation to workers in such situations until they have a stabilised
and diagnosable condition could lead to delays in providing treatment and support for workers,
and could ultimately result in more severe psychiatric conditions and delayed return to work.
2.239. Accordingly, I do not recommend that compensation for psychiatric or stress-related injuries be
restricted to narrowly defined classes of conditions or those that are classifiable under any
particular classification system.
Employment contribution
2.240. Acknowledgment of the subjective nature of stress-related and psychiatric injuries should not
detract from the duty, accepted in common law and applied in workers compensation cases,
186
that an employer must take a worker as the employer finds the worker. Any person with a
natural susceptibility (as distinct from a pre-existing condition), whether it relates to an
inherently weak back or a personality predisposition, is entitled to protection from harm in the
workplace.
2.241. As mentioned in paragraph 2.223 above, most psychiatric injuries, such as depression brought
on through some aspect of work over a period of time, are regarded as diseases and therefore
need to meet the requirement that employment be a significant contributing factor before the
injury is compensable.
187
2.242. However, some psychiatric injuries, such as those involving a sudden physiological change in
the worker (for example a post-traumatic stress disorder following an assault at work), may be
regarded as injuries rather than diseases and accordingly do not need to meet the requirement
that employment be a significant contributing factor.
2.243. As discussed in paragraph 2.209 above, psychological and psychiatric injuries often involve a
mixture of contributing factors, including external stressors such as disruptions in relationships
and general health issues;
188
whereas physical injuries are less likely to involve such a mixture.
The reliance by medical examiners on workers reporting of symptoms and perception of
events, and the examiners inability to verify objectively the likely impact of particular factors on
a persons psychological state, is likely to lead to a conclusion that, in many situations, work has
made a contribution to a workers psychological state.
2.244. In the same way, the multiplicity of causal factors that can be involved in stroke and heart attack
injuries is no doubt one of the reasons for requiring that work be a significant contributing
factor before such injuries are compensable. Stress is a commonly cited cause of stroke and
heart attack injuries,
189
as well as of psychiatric injuries.
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183 I Hickie, Primary care psychiatry is not specialist psychiatry in general practice, Medical Journal
of Australia, 1999, No. 170, pp 171-173.
184 Burk v Commonwealth [2006] VSC 25 at [32].
185 Burk v Commonwealth [2006] VSC 25 at [35].
186 See, for example, Zlateska v Consolidated Cleaning Services Pty Ltd [2006] VSCA 141.
187 AC Act, s 82(2C).
188 H Kraemer, E Stice, A Kazdin, D Offord and D Kupfer, How do risk factors work together? Mediators,
moderators, and independent, overlapping, and proxy risk factors, American Journal of Psychiatry,
No. 158, 2001, p 849.
189 T Chandola, A Britton, E Brunner, H Hemingway, M Malik, M Kumari, E Badrick, M Kivimaki and
M Marmot, Work stress and coronary heart disease: What are the mechanisms? European Heart
Journal, 23 January 2008, pp 1-9.
2.245. It appears that stress-related and psychiatric claims, based on a condition that is alleged to have
developed over time, are likely to be more contentious. Claims that are related to a particular
incident (such as a claim for post-traumatic stress disorder after a workers involvement in an
armed robbery), are less likely to lead to a dispute about the cause of the injury.
2.246. Australian jurisdictions differ on the level of association required between employment and any
stress-related injury. For example, South Australia and New South Wales require that
employment must have been a substantial cause of a psychological injury for that injury to be
compensable,
190
and Tasmania requires employment to have been the major or most significant
factor.
191
However, reviews of court decisions across the jurisdictions suggest that, in practice,
the different tests rarely affect the outcome of claims.
192
Stakeholder views
2.247. Both VECCI
193
and Ai Group
194
have proposed strengthening the contribution requirement so
that work is required to be the most significant contributing factor before a psychiatric injury is
compensable.
Retain the current test
2.248. Court decisions in Victoria and other jurisdictions suggest that changing the significant
contribution requirement to a stronger test would have a negligible practical effect on the
outcome of claims.
195
2.249. The proposal by employer groups that employment should be the most significant contributing
factor to a psychiatric injury is, in my view, likely to create substantial difficulties for medical
practitioners, psychologists and decision-makers, given the current difficulties in diagnosing
psychiatric injuries and the interaction between various factors that often give rise to psychiatric
injuries.
2.250. Medical practitioners and psychologists would presumably have to provide evidence on the
relative extent to which each of several possible contributing factors gave rise to a workers
injury. In practice, that could be an artificial inquiry.
2.251. I therefore recommend retaining the current test.
Exclusionary provisions
2.252. In 1992, as a result of increasing numbers of stress-related claims, and as part of the
Governments response to unfunded scheme liabilities approaching $2 billion, the AC Act was
amended to restrict access to compensation for stress-related mental disorders and illnesses
arising from reasonable management action.
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190 Workers Rehabilitation and Compensation Act 1988 (SA), s 30A; Workers Compensation Act 1987
(NSW), s 9A.
191 Workers Rehabilitation and Compensation Act 1988 (Tas), ss 25(1) and 3(2A).
192 Australian Safety and Compensation Council, Australian Workers Compensation Law and its
Application Psychological Injury Claims, Canberra, 2006, p 9.
193 VECCI, Submission, February 2008, p 29.
194 Ai Group, Submission, 2 May 2008, p 13.
195 Courts have interpreted the various tests very flexibly. For example, material contributing factor has
been read as requiring that employment be more than a mere contributing factor: Comcare v Canute
(2005) 148 FCR 232 at [67]; and as requiring an evaluation of all relevant contributing factors for the
purpose of asking whether the employees employment did or did not contribute materially to the
suffering of the ailment, etc. in question: Comcare v Sahu-Khan [2007] FCA 15 at [16]. A substantial
contributing factor exists if there was some causal connection with employment: Muscat v
Woolworths Ltd [2000] 20 NSWCC 16; and significant has been interpreted as meaning that the
contribution to the workers injury must be material: Mokta v Metro Meat International Ltd [2005]
WASCA 143 at [39].
2.253. Section 82(2A) of the AC Act now provides:
Compensation is not payable in respect of an injury consisting of an illness or disorder of
the mind caused by stress unless the stress did not arise wholly or predominantly from
(a) reasonable action taken in a reasonable manner by the employer to transfer, demote,
discipline, redeploy, retrench or dismiss the worker; or
(b) a decision of the employer, on reasonable grounds, not to award or to provide promotion,
reclassification or transfer of, or leave of absence of benefit in connection with the
employment, to the worker; or
(c) an expectation of the taking of such action or making of such a decision.
2.254. Although the introduction of section 82(2A) was significant and controversial, there was no
direct reference to the section or the manner of its operation in the second reading speech. The
purpose of the various amendments made by the relevant amending Act (Act No 67 of 1992),
was to narrow entitlements and restrict compensable injury so as to achieve the objective of
cost cutting.
196
2.255. I understand that the section 82(2A) exclusion was intended to ensure that employers
(through the scheme) would not pay for illnesses that arise from a workers response to
certain management actions that were considered reasonable.
2.256. It is likely that the objectives of the Victorian Parliament in introducing the section 82(2A)
exclusion were similar to those of the Commonwealth Government when it strengthened
the exclusionary provisions in the Comcare system in 2007, by inserting section s 5A into
the SRC Act, so as to exclude from the class of compensable injuries any injury suffered
as a result of reasonable administrative action taken in a reasonable manner in respect of
the employees employment.
2.257. The Commonwealth Government justified the introduction of section 5A of the SRC Act on the
ground that it was intended to prevent compensation claims being used to obstruct legitimate
administrative actions by management, and to respond to an increasing number of claims
where remedial action regarding a workers poor performance (one example of reasonable
administrative action) was the stimulus for the claim.
197
2.258. Not long before the introduction of section 82(2A) into the AC Act, some judicial commentary
(in South Australia) had suggested that it was absurd that a person who had an unreasonable
reaction to a merited disciplinary measure should be entitled to compensation.
198
Other jurisdictions
2.259. Following Victorias introduction of the section 82(2A) restriction, all other Australian
jurisdictions introduced similar exclusionary provisions. However, while most other States have
since amended their exclusionary provisions, the Victorian provision has not been amended.
2.260. Queensland excludes stress-related injuries arising from reasonable management actions;
199
and New South Wales and the Australian Capital Territory exclude such injuries arising from a
reasonable action taken or proposed to be taken by or on behalf of the employer with respect
to transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal
of workers or provision of employment benefits to workers.
200
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196 Victoria, Legislative Assembly, Debates, 30 October 1992, p 306-307.
197 Commonwealth of Australia, Senate, Debates, 6 February 2007, p 102.
198 Workers Rehabilitation and Compensation Corp v Rubbert [1991] SASC 2862 (King CJ and
Millhouse J).
199 Workers Compensation and Rehabilitation Act 2003 (Qld), s 32(5).
200 Workers Compensation Act 1987 (NSW), s 11A; Workers Compensation Act 1951 (ACT), s 4(2).
2.261. The Commonwealths exclusionary provision is the broadest, excluding all injuries, diseases and
aggravations of injuries (both physical and mental) suffered as a result of reasonable
administrative action taken in a reasonable manner in respect of the workers employment.
201
Reasonable administrative action is defined to include (amongst other actions) performance
appraisals, counselling, suspension or disciplinary action.
202
Although the Commonwealth
provisions extend to both physical and mental injuries, it seems likely that, in practice, the
provisions will exclude only mental injuries and perhaps stress-related diseases such as heart
attacks and strokes.
2.262. The broader Commonwealth exclusion was introduced in mid-2007, so its effects are yet to be
seen. The rationale for introducing the broader exclusion was to prevent compensation claims
being used to obstruct legitimate administrative actions by management.
203
Comments by the
then shadow Minister before the November 2007 change of Government foreshadowed a
review of the exclusion as part of the general review of the Comcare scheme; that review is
being conducted at the same time as this Review.
204
2.263. A recent study examining the effectiveness of exclusionary provisions found that, as a general
trend, time-loss stress claims (that is, stress claims resulting in an incapacity for work) were
either increasing or stabilising in all States.
205
Comcare (before the recent changes to the
exclusionary provisions) had a decrease of 2% in the previous year.
206
Tasmania had the highest
increase in claims, while South Australia and Victoria appeared to have the highest overall rate
of time-loss stress claims. The study concluded that, in some jurisdictions, such as Tasmania,
New South Wales and Queensland, the exclusionary provisions had resulted in a very slight
decrease in stress-related claims, although the trend had not continued for more than two
consecutive financial years.
2.264. In summary, it appeared that, in some jurisdictions, the exclusionary provisions had succeeded
in stabilising the number of stress-related claims, but overall those provisions had little effect on
reducing such claims.
2.265. The Review has not identified any common law jurisdiction outside Australia that does not
prescribe different tests for physical and mental injuries. New Zealand (where the compensation
scheme is not limited to work-related injuries) excludes mental injuries that are not
consequential on a persons physical injuries,
207
unless those injuries arise as a consequence
of particular criminal acts (all of which are sex offences).
208
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201 SRC Act, s 5A(1).
202 SRC Act, s 5A(2).
203 Commonwealth of Australia, Senate, Debates, 6 February 2007, p 102.
204 J Gillard (Minister for Education, Employment and Workplace Relations and Social Inclusion),
Workplace Health and Safety, media release, Parliament House, Canberra, 23 October 2007.
205 R Guthrie and A Babic, Curtin University of Technology, Why we dont need stress claim exclusions,
presentation paper for Injury Management Conference WA, 2007.
206 That decrease may have been a product of the more stringent interpretation given to the predecessor
of s 5A of the SRC Act in Hart v Comcare (2005) 145 FCR 29.
207 Injury Prevention, Rehabilitation and Compensation Act 2001 (NZ), s 26(1)(c).
208 Injury Prevention, Rehabilitation and Compensation Act 2001 (NZ), s 21.
2.266. In Canada, even the provinces with the most generous acceptance of stress-related claims only
provide significantly limited access to compensation for mental injuries. For example, in British
Columbia a worker is entitled to compensation for mental stress only if the mental stress:
is an acute reaction to a sudden and unexpected traumatic event arising out of and in the
course of the workers employment;
is diagnosed by a physician or a psychologist as a mental or physical condition that is
described in the most recent American Psychiatric Associations Diagnostic and Statistical
Manual of Mental Disorders at the time of the diagnosis; and
is not caused by a decision of the workers employer relating to the workers employment,
including a decision to change the work to be performed or the working conditions, to
discipline the worker or to terminate the workers employment.
209
2.267. In Ontario, a worker is not entitled to benefits for mental stress, unless the mental stress is an
acute reaction to a sudden and unexpected traumatic event arising out of and in the course of
her or his employment. A worker is not entitled to benefits for mental stress caused by her or
his employers decisions or actions relating to the workers employment, including a decision
to change the work to be performed or the working conditions, to discipline the worker or to
terminate the employment.
210
2.268. Quebec has a complex approach to mental injury claims; a psychological or psychiatric
diagnosis is not considered to be an injury (because of the definition of industrial accident),
211
so such claims must be regarded as psychological diseases. Generally, in order to be
compensable, there must be objective facts present that show that the causative situation was
beyond the normal scope of the work and outside the normal and foreseeable relationship
between the employer and employee. Claims relating to interpersonal conflicts or relating to
the employers right to manage staff will not usually be accepted.
212
2.269. The restrictions on stress claims in Canada occurred in the context of more significant increases
in the numbers of stress-related claims than has been experienced in Australia. In Quebec, the
mental stress claims lodged annually increased from around 1400 claims in 1996 to 3200 claims
in 2005 (a 128% increase). During the same period, the number of accepted mental stress
claims increased from around 1000 to 1300.
213
2.270. As at October 2005, mental health claims were the fastest growing category of disability claims
in Canada, making up an estimated 30% to 40% of the disability claims recorded by Canadas
major insurers and employers.
214
2.271. Commentators in Canada have pointed to the experience in some states in the United States
of America that initially had a liberal stress claims policy, as the justification for legislative
provisions restricting access for mental claims.
215
For example, California experienced a 540%
increase in the incidence of mental health claims between 1979 and 1988 (over the same period
the incidence of overall injuries decreased by 5%).
216
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209 Workers Compensation Act (British Columbia), s 5.1; Rehabilitation and Claims Services Manual, vol 1,
(British Columbia), policy item no 13.20.
210 Workplace Safety and Insurance Act 1997 (Ontario), s 13(4) and (5).
211 An Act Respecting Industrial Accidents and Occupational Diseases (Quebec), s 2.
212 Workplace/Occupational Stress, Association of Workers Compensation Boards of Canada, 2007, p 9.
<http://www.awcbc.org/common/assets/legislation/stress.pdf>
213 K. Lippel, Stress, Precarious Employment and Workers Compensation: Analysis of case-law from
Quebec, University of Ottawa, presentation APA:Work, Stress and Health 2008.
214 Safety Canada, Mental Health and the Workplace, Vol XLIX No 4, Canada Safety Council, October
2005. <http://www.safety-council.org/info/OSH/mentalhealth.html>
215 Compensation for Chronic Stress a Briefing Paper, Policy and Regulation Development Bureau,
WorkSafeBC, 23 February 2998, p 9.
216 W.Schaufeli and D. Enzmann, The Burnout Companion to Study and Practice: A critical analysis, CRC
Press, Florida, 1998.
2.272. A detailed exploration of the differences between the legal and social context of North
American and Australian compensation schemes is beyond the scope of this Review. However,
both scheme-related and wider socio-political differences, such as different restrictions in
accessing government funded medical treatment, welfare benefits, and a different litigation
culture, may affect the claims behaviour of workers in these jurisdictions.
2.273. Regardless of the basis for the different behaviours of workers in the different jurisdictions,
it appears likely that the potential for further growth in the number of stress related claims in
Victoria is significantly more constrained than was experienced in the United States of America
or Canada, having regard to the time that has elapsed since the significant increases in stress
claim numbers in the US and Canada and the presently comparatively stable number of stress
claims in Victoria.
2.274. Accordingly, it is my view that the Victorian scheme does not require the extensive restrictions
on the compensability of mental injury claims that are found in the North American schemes.
Problems with the exclusionary provision
2.275. As mentioned in paragraph 2.211 above, despite the significant reduction in the overall number
of new claims both nationally and in Victoria, in recent years the number of stress-related claims
has essentially remained static or has increased.
217
It is, of course, difficult to determine
whether the rate of such claims would have increased faster had the exclusionary provisions
not been introduced.
2.276. Currently, around 40% of all stress-related claims are initially rejected,
218
compared to a
rejection rate of 15% for claims overall; and 22% of all stress-related claims continue to be
rejected after 6 months.
219
Of the decisions to reject stress-related claims that are referred to
conciliation, around 58% are varied.
220
For claims between January and December 2007, only
around 12% of stress-related claims in the budget sector
221
that were initially rejected
continued to be rejected after legal action.
222
2.277. It appears that the exclusionary provision in section 82(2A) may contribute to the divergence
between the number of stress-related claims that are initially rejected and the number of those
claims that remain rejected after legal action. Section 82(2A) is often used as a reason for
rejecting stress-related claims but, to date, no court appears to have upheld a decision to reject
a claim on the basis of section 82(2A). However, it is likely that other elements in the decision-
making processes surrounding stress-related claims also contribute to the high dispute rate.
Stakeholder views
2.278. The exclusionary provision in section 82(2A) is of particular concern for many stakeholders,
representing both workers and employers.
2.279. In general, most union and employer groups appear to agree that the current construction
of section 82(2A) gives rise to unnecessary disputes, with limited practical effect.
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217 VWA, Stressing the Point: A Study into What Causes Stress in a Budget Sector Workplace, and How
it Can Be Controlled, Melbourne, 2006. There was a slight decrease (1%) from January 2005 to
November 2007. Data obtained from the VWA, as at January 2008.
218 Source: VWA.
219 Source: advice from the Reviews independent actuaries.
220 Source: VWA.
221 That is, government-controlled and community entities, including Victoria Police and the DEECD.
222 Source: VWA. This data is only available for budget-sector stress-related claims (that is, government-
controlled and community entities, including Victoria Police and the DEECD); as discussed at
paragraph, a significant proportion of budget sector claims are stress-related and accordingly the
budget sector has been the focus of statistical monitoring in relation to stress-related claims.
2.280. The VTHC submits that
. . . s.82(2A) creates a fault-based system for mental injuries within a statutory scheme that
purports to be a no-fault scheme. In reality, our statutory benefits system is two-tiered, with
access to protection for workers with mental injuries being much more restrictive than the
access afforded to workers with physical injuries.
223
2.281. The AEU argues that it is discriminatory to distinguish between physical and mental injuries.
224
2.282. The CPSU submits that the operation of section 82(2A) is suitably clear, but the provision has
been misapplied and, as a result, the provision is an impediment to early rehabilitation and
return to work and should be removed.
225
The CPSU argues that amending the exclusionary
provision to include performance management would result in increased litigation.
2.283. The VTHC,
226
the CPSU,
227
the ANF
228
and the AEU
229
support the repeal of the exclusionary
provision and urge that physical and psychiatric injuries be treated in the same way.
2.284. The AMIEU submits that the exclusionary provision has aggravated and exacerbated the
condition of workers with stress-related injuries by creating delays and increasing disputes.
230
2.285. The Magistrates Court
231
and the Compensation Law Bar Association
232
state that the current
exclusionary provisions are unwieldy and poorly drafted. The Magistrates Court states that the
provision contains a number of double negatives, is uncertain as to onus of proof issues (that is,
the worker must show the injury was work-related, but the employer must show the employers
actions were reasonable), and does not consider whether some employment processes, such
as redeployments, performance appraisals and feedback are excluded or included. County
Court judges have also criticised the section because of difficulties in ascertaining its intended
application by reason of the tortuous use of double negatives.
233
2.286. Employer groups, such as VECCI, Victoria Police, and the VFF, support the strengthening of the
current exclusionary provision, so as to provide greater protection for employers from claims
brought by workers following disciplinary or management action.
2.287. VECCI submits that
The prime driver [behind section 82(2A)] was to restore and preserve an employers ability
to make decisions and carry out actions that they were legally required to perform in the
management of the business and the management and control of employees. An employer
is vicariously liable for the actions of its employees and must be free to exercise control free
from the imposition of a substantial financial penalty for doing so because the workers reaction
is accepted as an injury.
234
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223 VTHC, Submission, 2 May 2008, pp 7-8 and p 10.
224 AEU, Submission, 2 May 2008, p 2.
225 CPSU, Submission, pp 9-11.
226 VTHC, Submission, 2 May 2008, p 11.
227 CPSU, Submission, p 9.
228 ANF, Submission, 2 May 2008, p 7.
229 AEU, Submission, 2 May 2008, p 3.
230 AMIEU, Submission, 2 May 2008, p 3.
231 Magistrates Court, Submission, 2 May 2008, p 2.
232 CLBA, Submission, 2 May 2008, p 5.
233 See for example Judge Lewis comments in Gaweda v Stone Container (Australia) Pty Ltd (County
Court of Victoria, 12 March 1997, unreported).
234 VECCI, Submission, April 2008, p 9.
2.288. Victoria Police submits that
. . . section 82(2A) be amended to include performance management processes in addition
to the reasonable management of discipline matters. Experience shows that managers often
avoid important conversations regarding performance management due to concerns that
some employees may interpret their intentions and actions negatively and respond by lodging
workers compensation claims . . . This apprehension of managers also limits the opportunity to
offer other support services and flexible arrangements that may assist the employee through
difficult periods.
235
2.289. Ai Group submits that
An employer must be able to initiate fair and just responses to inappropriate behaviour in
the workplace. If a worker is able to successfully lodge a WorkCover claim related to stress
whilst an employer is investigating a serious OHS breach or a complaint about harassment or
bullying, or whilst managing performance issues, the employer and all other workers in that
workplace suffer significant disadvantage.
236
2.290. The VFF submits that
Many employers are already fearful of employees claiming workers compensation (physical
or psychological illness or disease) when managing an employees performance as many
employers realise that it is extremely difficult to dismiss an employee once they are receiving
workers compensation payments.
237
2.291. Vatmi Industries submits that the term discipline should be defined in the AC Act to include,
for example, negative or critical comments or reminders reasonably directed to a worker by a
supervisor in the normal course of supervision.
238
2.292. The VACC submits that, in order to clarify the operation of section 82(2A), provision should be
made for developing guidance materials, similar to those under the OHS Act, on the use of the
section.
239
Guidance as to the meaning and scope of certain terms could be contained in
regulations.
2.293. Ai Group submits that the onus of proof in section 82(2A) should be amended so that workers
would bear the onus of demonstrating that their stress was not related to the acts covered by
the exclusionary provisions.
240
Amend the exclusionary provision
2.294. As discussed in paragraph 2.277, there is uncertainty about the operation of section 82(2A).
Although agents often rely on the section to reject stress-related claims, it appears that
to date no rejection of a claim under the sub-section has survived after being challenged
by a worker.
The process understandably leads to frustration for both employers and workers, creating
disputes and causing delays in workers accessing medical and psychiatric treatment and
weekly benefits.
In many cases, the disputes and delays can lead to an exacerbation of the workers condition
and deterioration of the relationship between the worker and the employer.
The outcome can ultimately be a prolonged recovery period and a decrease in the workers
prospects of return to work.
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235 Victoria Police, Submission, 2 May 2008, p 1.
236 Ai Group, Submission, May 2008, p 14.
237 VFF, Submission, 2 May 2008, p 5.
238 Vatmi Industries, Submission, 2 April 2008, p 2.
239 VACC, Submission, 1 May 2008, p 3.
240 Ai Group, Submission, 8 February 2008, p 15.
2.295. Although part of the reason for the higher dispute rate may lie in the intrinsic nature of stress-
related and psychiatric injuries and claims, legislative amendments are needed to:
provide greater clarity and certainty for both workers and employers in determining what
constitutes a compensable psychiatric or stress-related injury under the AC Act;
reduce unnecessary disputes; and
provide protection for employers when undertaking appropriate and fair management actions,
as intended by the legislature when introducing section 82(2A).
2.296. The requirement that, in order to be excluded, the stress must arise wholly or predominantly
from an employers reasonable actions is a very difficult requirement to meet where significant
weight must be given to the workers self-reported attribution of the causes of the stress.
2.297. A substantial part of the problem in applying section 82(2A) stems from the relatively narrow
types of management action that fall within the provision. Disciplinary action has been
interpreted narrowly by the courts, to mean a formal disciplinary process outside the usual
incidence of employment.
241
Actions taken to determine whether or not disciplinary action
will be taken are not regarded as falling within the provision.
242
For example, where a workers
stress arises as the result of a meeting with a manager for the purpose of obtaining and
providing information about misbehaviour by a worker, and the worker was disciplined after
that meeting, the stress is not regarded as arising from the disciplinary action.
243
2.298. Under contemporary standards of employment, in most instances it would be bad practice,
or even a breach of unfair dismissal laws, to discipline a worker formally without first holding
an investigative process or providing some form of informal feedback on the workers
performance. However, a worker would be entitled to compensation where the worker is
questioned in a reasonable manner by an employer about allegations of harassment made
by a co-worker, is later dismissed because the allegations are substantiated and sustains
a stress-related mental disorder as a result of the initial questioning.
2.299. Potentially, all decisions by an employer that could fall within section 82(2A)(a) and (b) would be
regarded as being adverse to the worker. In order to be considered reasonable, management
decisions usually need to be preceded by a series of other steps, such as a performance
review. However, in the absence of a provision relating to performance appraisals (as in New
South Wales, South Australia and Queensland), reasonable actions taken by employers in
managing their workers performance will not fit within the section 82(2A) exclusion.
244
It would
be open to the court to find that management of the workers performance contributed to the
stress, and accordingly the exclusionary provision would not apply.
2.300. Further, in order for an employer to show that dismissal or demotion of the worker was
reasonable, the employer will often need to establish that the decision was made because
of, for example, an inability to cope with work responsibilities. It could then be argued that
the employment situation with which the worker was unable to cope was a factor in causing
the stress.
2.301. The provision fails to take account of changes to employers work practices since 1992, which
have stemmed in part from greater obligations to protect the health and safety of employees.
These obligations can require, for example, employers to investigate or suspend a worker
immediately in order to respond appropriately to allegations of harassment or discrimination by
other workers. These types of responses appear to increase the potential for employers actions
to fall outside the disciplinary action exclusion.
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241 Joseph Beattie v State of Victoria (County Court of Victoria, 2 August 1999, unreported, Judge Strong).
242 Comcare v Chenhall (1992) 37 FCR 75.
243 For example, Comcare v Chenhall (1992) 37 FCR 75.
244 R Guthrie, The Australian legal framework for stress claims, Journal of Law and Medicine, No. 14,
2007, p 541.
2.302. Although the scheme is intended to provide no-fault cover for injured workers, compensation
is not payable where a workers injury is attributable to the workers own serious and wilful
misconduct.
245
Arguably, that exclusion should be extended to less direct situations, such as
where a psychological injury has arisen as a result of reasonable disciplinary or investigative
actions taken by an employer following a workers alleged misconduct and performance
management and counselling.
2.303. Section 82(2A) only applies to mental injury. Where a worker sustains a heart attack or stroke
because of termination of employment, the entitlement to compensation is not excluded,
although it would be for a worker who suffered a psychological injury in the same
circumstances. The different approaches taken to various types of injuries and stress-related
psychiatric injuries are an acknowledgement that there are fundamental differences between
the detection, causes, treatment and management of different types of injuries that make it
both reasonable and necessary to distinguish between them.
2.304. The different nature of physical and psychiatric claims, including the issues identified by the
High Court in Tame v New South Wales,
246
and the interaction between multiple factors in
contributing to psychiatric injuries, justify the use of different criteria for recognising psychiatric
claims.
2.305. It appears that both the construction of section 82(2A) and changes to work practices have
rendered the provision ineffective in meeting its intended objectives. The provision needs to
be amended to make it easier to understand and apply.
2.306. Employers need to be able to manage their staff in a reasonable way. It is particularly important
to ensure that employers can take reasonable action in order to protect the health and safety of
all their employees.
2.307. Providing an exclusion that relates only to particular categories of administrative decisions made
by employers, such as performance appraisals, could lead to further disputes and artificial
distinctions relating to those categories. That approach would also run the risk of narrow
interpretations being applied to the activities, which could frustrate the intended objective of
any amendment (as has occurred with the interpretation of discipline).
2.308. However, providing guidance on the types of reasonable management actions that should fall
within the scope of the exclusionary provision (for example through an inclusive rather than
exhaustive list of the types of actions that could constitute a management action) could
prevent artificial distinctions from developing, while still providing sufficient limits on the
circumstances where the provision should be applied.
2.309. Extending the exclusionary provision to cover all reasonable management actions would assist
in reducing artificial distinctions between different types of decisions made by employers, and
enable employers to exercise reasonable control of their workforce for the general welfare of
their employees without bearing the claims costs of stress-related injuries through excess
payments and premium calculation.
2.310. The intended objectives behind the 1992 amendments, as discussed in paragraph 2.254 above,
which included preventing workers from receiving compensation in relation to unreasonable
reactions to a merited disciplinary or management measure, would best be achieved by
providing an exclusion for all reasonable management actions.
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245 AC Act, s 82(4).
246 (211) CLR 317. See paragraph 2.208 above.
2.311. I therefore recommend the provisions be amended to exclude psychiatric injuries that arise
from the reasonable or appropriate management actions of an employer in relation to a worker;
and that management actions be defined to include actions carried out by employers that
relate to performance appraisals, disciplinary action, demotions, counselling of employees and
the like.
2.312. It is important that any changes to the exclusionary provisions or the treatment of psychiatric
injuries should not artificially decrease the number of claims by excluding injuries that ought to
be compensable, and that the changes do not reduce the protection to workers from unfair or
unreasonable actions on the part of employers. Those effects would contradict government
policy to treat psychological health on the same footing as physical health, as evidenced in the
amended definition of health in the OHS Act.
247
2.313. In my view, the requirement that management action must have been reasonable, before
liability for the consequent psychiatric injury is excluded, should continue to provide protection
to workers from employers harsh or unjust management decisions.
The decision-making process for stress-related claims
2.314. Stress-related and psychiatric injury claims often involve relatively complex issues between
workers and employers, and other elements that make decision-making more difficult than for
many physical injury claims. These factors contribute to the high level of disputes arising out
of stress-related and psychiatric injury claims.
2.315. It appears that there are particular problems with the 28-day time limit for determining whether
to accept stress-related and psychiatric injury claims. The injured workers psychological state
can make it difficult or inappropriate for the worker to attend independent medical examinations
within the first 28 days of the claim being received by the VWA or an agent. That problem
necessarily limits agents ability to make an informed decision about liability.
2.316. Problems can also arise when workers are located in rural areas, or where an injury occurs
through a gradual process or is an aggravation of an earlier injury.
2.317. However, reducing the adversarial nature of dispute resolution is particularly important for
stress-related and psychiatric claims, considering the nature of the workers injury and the more
frequent presence of interpersonal elements in such claims. Although a conciliation process
exists, and employers can (although they do not always opt to) take part in that process, the
focus of conciliation is on resolving whether the workers claim should be accepted.
Stakeholder views
2.318. In relation to stress-related illnesses, Victoria Police submits that
. . . more constructive and proactive methods could be considered. Such an initiative may be
to reward employers, through premium reduction, who offer effective Employee Assistance
Programs and provide support services to employees during periods of difficulty. The
employer/employee relationship is bonded through this approach whereas liability questions,
dispute management and legal processes create barriers.
248
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247 OHS Act, s 5(1): health includes psychological health.
248 Victoria Police, Submission, 2 May 2008, p 1.
2.319. The AMCA,
249
and the Australasian Faculty of Occupational and Environmental Medicine and
Australian and New Zealand Society of Occupational Medicine (in a joint submission
250
), support
mediation or workplace counselling before the acceptance of stress-related or psychiatric
claims in most circumstances. Joseph Gagliano, a psychologist, submits that
There needs to be consideration of introducing mediation between employer and employee
around grievances and grievance procedures, very early or as soon as there is the likelihood of
a return to work being considered, planned, instigated . . . This may thus alleviate any
misunderstandings, pain that may be associated with the whole RTW plan.
251
2.320. The AMA submits that there are some potential problems with the proposal for mediation or
workplace counselling. It says that
Most people our doctors see who have developed a psychiatric injury arising from a
workplace dispute have already experienced mediation that has failed . . . This proposition
would significantly add to the delay before receiving appropriate treatment and before plans
were made for them to return to the workplace or to another workplace.
252
2.321. VECCI opposes introducing provisional liability
253
to apply to all claims, but does not oppose
allowing discretionary provisional payments to workers who claim for psychiatric injuries where
the VWA or the agent is unable to complete investigations within 28 days. VECCI acknowledges
that a comprehensive assessment of some multi-causal claims may take longer than 28 days to
ensure good decision-making, and that extending the period of assessment necessitates paying
the worker.
254
Provide for mediation or workplace counselling
2.322. In my opinion, a more informal mediation or workplace counselling procedure (for example,
similar to an optional step in workplace disputes lodged with the Australian Industrial Relations
Commission), available at the request of any party before the determination of liability for the
claim, may assist in reducing disputes.
255
2.323. Such mediation or workplace counselling should include employers and focus on broader
objectives, such as exploring the cause of the alleged stress, identifying the actions that the
employer can take to reduce or prevent the stressor in the workplace, and considering how to
assist the worker in returning to work. Exceptions to the process would include incidents
involving workplace violence, or where a medical practitioner believes that the process could
harm the worker because of the workers psychiatric condition.
2.324. Any suspension of the process of determining liability while waiting on the outcome of
mediation should in many instances be accompanied by provisional liability payments, to avoid
delays in workers receiving appropriate treatment. Alternatively, where it is not appropriate or
possible to make provisional liability payments, the mediation or counselling should occur
before expiry of the 28-day period to determine liability.
2.325. A pilot program is currently being trialled in government departments to provide workplace
relationship counselling in the return to work process, specifically for claims involving stress or
psychological illness where interpersonal conflict is a barrier to return to work
256
and this
approach should be considered.
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PAGE 85
249 AMCA, Submission, 1 May 2008, p 2.
250 AFOEM and ANZSOM joint submission, 30 May 2008, p 8.
251 Joseph Gagliano, Submission, 28 April 2008, p 14.
252 AMA, Submission, 29 April 2008, p 2.
253 Provisional liability is discussed further in Chapter 3, Ensuring timely access to benefits and support,
paragraphs 3.32-3.150.
254 VECCI, Submission, April 2008, p 19.
255 C Coburn and M Jensen, Conflict in the workplace Is mediation an appropriate response?,
conference presentation, 2006, viewed 21 January 2008, <www.mediationconference.com.au/
2006_Papers/Clare%20Coburn.doc>
256 VWA, Learn to Return VWA Return to Work newsletter, March 2008.
2.326. In some instances, where it is acknowledged that the worker has a psychiatric illness, but it
has not been determined whether the illness is compensable, the mediation could focus on
how best to assist the worker in returning to work, irrespective of the cause of the illness.
This would allow earlier intervention than under the existing pilot program by providing an
opportunity at the initial stages of a claim to discuss how to assist the worker and employer
in negotiating appropriate ways to facilitate a return to work. A further benefit may be that the
employer develops a better understanding of the issues in the workplace that are giving rise to
stress, enabling the employer to develop a risk management program to prevent further stress-
related claims.
2.327. The emphasis in the process would be on workers and employers sharing their perspectives
and information on the events that preceded the claim. Care would need to be taken to ensure
that the mediation or workplace counselling was not seen by workers as encouraging them
to withdraw their claim. Anything said in mediation should, of course, be confidential to the
mediation process: it should not be used later to determine entitlement to compensation.
2.328. Legislative change would not be required to implement the mediation or workplace counselling
proposal,
257
although changes may be needed to allow the VWA to pay for the service at an
estimated cost of $5.5 million to $8.5 million a year.
258
Allow for the suspension or adjournment of claims
2.329. Implementing provisional liability in accordance with the recommendation detailed in Chapter 3,
Ensuring timely access to benefits and support,
259
would resolve the problems surrounding
the 28-day limit on determining claims. However, if provisional liability is not adopted, I suggest
that, in some circumstances involving stress-related and psychiatric injuries, it may be
appropriate to allow for the adjournment or suspension of the decision-making process to
enable mediation or workplace counselling, and to enable medical information to
be reviewed.
2.330. I do not recommend extending the determination period for all stress-related and psychiatric
claims; rather, I recommend that provision be made for discretionary extensions of time for
claims where further information is needed in order to make a sound decision.
2.331. By enabling better and earlier information-gathering, and discouraging adversarial attempts
to pre-empt decision-making, better decision-making on stress-related and psychiatric injuries
should be possible. Together with the recommended mediation process, the better decision-
making should assist in reducing dispute levels and ultimately allow for earlier intervention and
better return to work outcomes.
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257 A current pilot project (the Padre Pio Project) is being undertaken as part of the VWA Return to Work
Fund, in partnership with the Catholic Education Commission of Victoria, to examine the impact of
early intervention (including mediation) in managing workplace stress.
258 The $5.5 million estimate is based on the current number of stress-related claims lodged yearly,
and on the assumption that all claims would go to mediation, with $1600 payable for each claim.
The $8.5 million estimate assumes that the number of stress-related claims lodged would double,
and that all claims would go to mediation, with $2500 payable for each claim. Source: advice from
the Reviews independent actuaries.
259 See Chapter 3, Ensuring timely access to benefits and support, paragraphs 3.32-3.150.
Return to work
2.332. It can be difficult to assess what goals should be the focus of psychological or psychiatric
treatment and when such goals are achieved. That difficulty affects the ability to terminate
weekly benefits for stress-related claims and creates difficulties with return to work programs.
2.333. The circumstances that can give rise to stress-related claims mean that it is often not
appropriate to attempt to return a worker to the same or a similar role or workplace. The
subjective nature of many symptoms of stress-related disorders also makes it difficult to assess
whether a worker has a current work capacity.
2.334. Those factors contribute to the average time lost from work for workers with stress-related
and psychiatric claims. Nationally, between 2000/2001 and 2003/2004, workers who submitted
new claims involving mental stress had the longest average time lost from work (approximately
10 weeks). The next highest categories had averages of around four to five weeks.
260
2.335. In Victoria, workers with stress-related claims have a lower sustainable return to work rate than
workers with other types of injuries. For example, a survey of workers, conducted 14 to 19
months after their claims commenced, indicated that, among workers with stress-related
claims, only 66.8% of workers with scheme-insured employers and 71.4% of workers with self-
insured employers had returned to work, compared to the overall average rates of 75.9% for
workers with scheme-insured employers and 82.9% for workers with self-insured employers.
261
2.336. In most instances, employers have an obligation to re-employ an injured worker within
12 months of the date of injury.
262
The Government, through its various departments (the
budget sector), including the DEECD and Victoria Police, employs around 10% of the
Victorian workforce, and around 20% of new budget sector claims are for stress, compared
to around 7% of new claims for the rest of the workforce.
263
A higher proportion of workers
with stress-related claims lodged with the DEECD (around 54%) and Victoria Police (around
51%) have not returned to work after 26 weeks, compared to workers overall (around 41%).
264
2.337. Government departments often have large numbers of workplaces and employ large numbers
of staff. They are regarded as the employer of workers at all their workplaces (for example, the
Department of Education is the employer of teachers at all government schools). Accordingly,
under the AC Act, Government departments have an obligation to find an injured worker
suitable employment at any of the workplaces under the departments control. However,
if providing suitable employment would cause unjustifiable hardship for an employer, the
employer is exempt from the obligation.
265
The issue of these exemptions is explored further
in Chapter 4, Supporting workers to get back to work after injury.
2.338. In essence, although considerable improvement in return to work rates for stress-related and
psychiatric claims is desirable, legislative change specifically addressing these claims is not
required. Rather, the problems in returning injured workers with stress-related claims to work
can be dealt with through changes to the return to work process applicable to all claims, and
through changes in policy and compliance to ensure that employers meet their obligations to
assist with providing suitable employment.
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260 Commonwealth of Australia, Workplace Relations Ministers Council, Comparative Performance
Monitoring Report, 9
th
ed, Department of Education, Employment and Workplace Relations, Canberra,
2008, p 7.
261 Source: VWA.
262 AC Act, s 155A.
263 VWA, Stressing the Point: A Study into What Causes Stress in a Budget Sector Workplace, and How it
Can Be Controlled, Melbourne, 2006.
264 Source: VWA.
265 AC Act, s 155B(1).
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ENSURING TIMELY
ACCESS TO BENEFITS
AND SUPPORT
Delays in injury notification and
determination of claims
Introduce provisional liability
and streamline injury notification
Reduce formalities
Introduce electronic lodgement
Improve access to medical
information
Clarify employer obligations
Providing greater protection
against discrimination
3.1. The procedures governing access to workers compensation benefits are based on an insurance
model. Central elements of the process, such as the need to make a claim, the emphasis on
determining liability and employer excess arrangements, all derive from the insurance model.
3.2. I consider that the effectiveness of the scheme could be enhanced through a simpler, fairer
and more efficient system to enable injured workers to access support and benefits.
3.3. In this chapter, I make recommendations aimed at:
reducing delays in the reporting of claims and the commencement of compensation
payments following injury;
reducing the formalities involved in notifying injuries and making claims;
improving access to vital medical information necessary for the VWA to make decisions in
relation to claims;
clarifying the obligations of employers with respect to receiving claims and forwarding claims
within the legislated timeframes; and
providing greater protection for workers against discrimination arising from making or
pursuing workers compensation claims.
Overview of the scheme
3.4. An injured worker must notify his or her employer within 30 days of becoming aware of an
injury.
1
A worker can provide notice by entering the injury in the register of injuries kept by
the employer under section 101 of the AC Act.
2
3.5. The 30-day time limit may be waived or extended if the VWA or self-insurer is satisfied that:
it was not reasonably practicable for a worker to comply with the time limit;
failure to give notice of the injury within the time limit did not unfairly prejudice the employer;
or
to insist on compliance with the time limit would result in a serious injustice to the worker.
3
3.6. Notification of an injury does not entitle a worker to receive compensation. A claim must be
made before a worker can access any services or benefits under the AC Act.
3.7. Under the OHS Act, employers have a duty to notify the VWA immediately after becoming
aware that an incident has occurred at a workplace under the employers management and
control.
4
Within 48 hours of being required to notify the VWA, the employer must also give the
VWA a written record of the incident, in an approved form.
5
Incidents are defined to include
incidents that result in death, medical treatment within 48 hours of exposure to a substance,
in-patient hospital treatment, serious head, eye or laceration injuries, spinal injuries and
amputations.
6
3.8. To claim weekly benefits and/or medical treatment because of a workplace injury, a worker must
complete a Workers Injury Claim Form. The worker must give the signed claim form to the
workers employer (where possible) or to the VWA.
7
3.9. A worker is permitted to notify the VWA of the claim when the worker lodges the claim with the
employer.
8
There is no duty to do so unless the worker is aware that the employer is refusing to
receive the claim or is unlikely to forward it to the VWA.
9
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1 AC Act, s 102(1).
2 AC Act, s 102(3).
3 AC Act, s 102(6).
4 OHS Act, s 38(1).
5 OHS Act, s 38(3).
6 OHS Act, s 37.
7 AC Act, ss 103(1), 106(1).
8 AC Act, s 103(1B).
9 AC Act, s 107(3).
3.10. The claim form includes a signed authority from the worker, authorising the release of medical
information.
10
3.11. The claim form does not distinguish between a claim for weekly benefits and a claim for
medical and like benefits. However, a medical certificate of incapacity must be provided with
a claim for weekly expenses (which are paid for time lost off work).
11
To claim other types of
benefits (such as compensation for permanent impairment), an injured worker must use
different claim forms.
3.12. A claim for weekly benefits must be made as soon as practicable after the worker becomes
aware of the incapacity arising from the injury.
12
A claim for medical and like expenses must
be made within six months of the medical service.
13
3.13. If the worker had a special excuse for not making a claim within the prescribed timeframe, the
time limit may be waived or extended.
14
As with the timeframes for injury notification, it is rare
for a workers claim to be rejected solely because it was made late. This is in part due to the
flexibility inherent in the requirement that a weekly benefit claim be made as soon as
practicable.
3.14. The employer must acknowledge receipt of the claim in writing, as soon as is reasonably
practicable.
3.15. Generally, claims must be forwarded to the VWA within 10 days, unless the claim is for medical
and like expenses that do not exceed the employers excess,
15
and has been accepted by the
employer.
16
3.16. The AC Act requires an employer to accept or reject a claim for weekly benefits within 10 days
of receiving the claim.
17
However, the employers decision is not determinative, and it is the
VWA (through its agent) that determines whether a claim for weekly benefits will be accepted
or rejected.
3.17. The VWA must accept or reject a claim for weekly benefits within 28 days,
18
and accept or
reject a claim for medical and like expenses within 60 days.
19
3.18. If a claim for weekly benefits is accepted, payments are made by the VWAs agent to the
workers employer, who must make the weekly payments to the worker.
20
If an employer is
required to make payment before the employer receives payment from the VWA, the employer
must be reimbursed by the VWA.
21
3.19. The AC Act imposes a range of penalties on employers who fail to comply with their obligations
under the Act. For example, it is an offence for an employer to refuse to receive a claim.
22
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10 AC Act, s. 103(1)(d).
11 AC Act, ss 103(1)(b), 105(1).
12 AC Act, s 103(7)(a).
13 AC Act, s 103(7)(d).
14 AC Act, s 103(8).
15 Employers must pay the first $564 (indexed annually) of reasonable medical and like expenses and the
first 10 days of weekly benefits to an injured worker before the VWA needs to determine liability for
the claim.
16 AC Act, ss 108(1)(ba), (c).
17 AC Act, s 108(2).
18 AC Act, s 109(1).
19 The 60-day limit is a matter of policy, not legislation.
20 AC Act, ss 114D(1), (2).
21 AC Act, s 114D(3).
22 AC Act, s 242(3)(a). The penalty for refusing to receive a claim is 25 penalty units ($2835.50) for a first
offence or 50 penalty units ($5671) for a subsequent offence.
DELAYS IN INJURY NOTIFICATION AND DETERMINATION OF CLAIMS
3.20. As outlined above, the process for obtaining workers compensation involves the taking of
various steps by the worker, the employer and the VWA. The process is largely sequential and
each step must be completed within a particular time, which means that there will always be
a time lag between the date of the injury and the payment of compensation. In addition, each
step in the process is susceptible to delays.
3.21. First, an injured worker must lodge a claim the median time between an injured worker
becoming aware of an injury and lodging a claim is around 20 days.
23
3.22. The claim must then be forwarded by the employer to the VWA (or its agents) within 10 days,
unless the claim is for medical and like expenses.
24
Approximately 90% of claims are forwarded
by employers to the VWA or its agents within the prescribed time limit
25
the median delay
between workers lodging a claim with their employer and the agent receiving the claim is six
days.
26
3.23. The median delay between the date of injury and the VWA receiving the claim is 31 days.
3.24. Liability for a claim for weekly benefits must be accepted or rejected by the employer within 10
days of receiving the claim.
27
The VWA must accept or reject a claim for weekly benefits within
28 days.
28
The median delay between agents receiving a claim and liability being determined is
10 days.
29
3.25. The median time for completion of the process from the time of injury to a decision on liability
is around 49 days.
30
3.26. Although, under the current scheme, employers are liable to pay the first $564
31
of reasonable
medical and like expenses and the first 10 days of weekly benefits to an injured worker before
the VWA needs to determine a claim for compensation,
32
delays in notifying injuries and
determining liability for claims lead to
delays in workers receiving benefits and medical services (which may in turn cause critical
delays in the implementation of return to work and rehabilitation programs); and
delays in employers receiving appropriate reimbursement from the VWA.
3.27. In addition to the time taken from injury to determination of liability on a claim, around 14% of
claims are disputed (that is, referred by a worker to conciliation or to court, because the worker
is dissatisfied with the VWAs decision). This is the highest claims dispute rate in Australia, well
above the national average of 8.6%.
33
Over the past five years, there have been minor
fluctuations in the dispute rate in Victoria, with a slight overall increase.
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23 Source: VWA. Data relates to claims between 1 May 2007 and 30 April 2008.
24 AC Act, ss 108(1).
25 Source: VWA and AC Act, s 108(1).
26 Source: VWA. Data relate to claims between 1 May 2007 and 30 April 2008.
27 AC Act, s 108(2).
28 AC Act, s 109(1).
29 Source: VWA. Data relates to claims between 1 May 2007 and 30 April 2008.
30 Source: VWA.
31 This figure is indexed.
32 AC Act, s 125A(3).
33 Commonwealth Department of Education, Employment and Workplace Relations, Workplace Relations
Ministers Council: Comparative Performance Monitoring Report, 9
th
ed, DEEWR, Canberra, 2008, p 28.
These statistics should be regarded as a guide only, as this dispute rate is based on all recorded
disputes in one year, divided by all reported claims in that year. Accordingly, it does not allow for the
fact that some claims can have more than one dispute.
3.28. Of the claims that are disputed, only 3.5% are resolved within one month, around 55% are
resolved within three months and 75% are resolved within six months. Around 12% of disputed
claims are not resolved within nine months.
34
3.29. Disputes about claims clearly create additional delays in accessing benefits. Those disputes are
also likely to create an early unfavourable impression for the worker involved, and adversely
affect the workers recovery and return to work.
3.30. Several studies have indicated that delays in claims reporting can lead to increased claims costs
and delays in return to work. For example, one study reported that, in Tasmania, on average:
claims forwarded by employers to insurers in the second and third weeks cost approximately
13% more than those forwarded in the first week;
claims forwarded in the period from the fourth to sixth weeks cost approximately 25% more
than those forwarded in the first week;
claims forwarded in the period from the seventh to twelfth weeks cost approximately 34%
more than those forwarded in the first week; and
claims forwarded after three months cost approximately 91% more than those forwarded in
the first week.
35
3.31. A United States study reported similar effects on claims costs. It found that claims reported
within two weeks of injury were 18% more expensive than those reported by workers within
one week of injury. Claims not reported until the fifth week after injury were 45% more
expensive.
36
INTRODUCE PROVISIONAL LIABILITY AND STREAMLINE INJURY NOTIFICATION
3.32. In January 2002, New South Wales introduced significant changes aimed at streamlining and
simplifying claims lodgement and injury notification.
3.33. In New South Wales, a range of parties can give notice of an injury the worker, the employer,
or the workers representative for example, the workers doctor or a family member.
3.34. A worker, the workers representative or the employer must file an injury notification as soon
as possible after becoming aware of a workplace injury.
37
An employer must notify the agent
within 48 hours of an injury, and a claim form must be forwarded within seven days of receipt
from an injured worker.
38
3.35. Injuries can be notified by telephone, electronic transmission or in writing. Claim forms can
be lodged by electronic submission or mail.
39
3.36. The 2002 reforms were accompanied by the introduction of provisional liability which enables
workers to access benefits and support for a limited period after notifying an injury without
submitting a claim form.
40
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PAGE 93
34 WE Upjohn Institute for Employment Research, Victorian Workers Compensation System: Review and
Analysis, Michigan, 1997, p 23.
35 Department of Workplace Standards Tasmania, Rehabilitation and Compensation Branch, Timeliness
of Claims Reporting, presented to the Workcover Tasmania Board on 27 August 2002.
36 Pitruzzello G, The High Cost of Delays: Findings of a Lag-Time Study, Issues Report, Summer 2000.
37 Workplace Injury Management and Workers Compensation Act 1998 (NSW), ss 44(1), 61 and 266.
38 Workplace Injury Management and Workers Compensation Act 1998 (NSW) ss 44(2) and 264, Workers
Compensation Regulations 2003 (NSW), reg 32A and WorkCover NSW, WorkCover Guidelines for
Claiming Compensation Benefits, Part 1, cl 2, NSW Government Gazette No 129, 27 October 2006.
39 Workers Compensation Regulations 2003 (NSW), reg 32.
40 Workplace Injury Management and Workers Compensation Act 1998 (NSW) ss 267 (weekly payments),
280 (medical expenses).
3.37. A claim form is only required if:
the agent requests a claim form;
the notification is made two months or more after the injury; or
the workers weekly payments exceed 12 weeks or medical expenses exceed $7500.
41
3.38. Rather than the onus being on the worker and employer to complete the claim form correctly,
the onus is on the agent to gather the information required.
3.39. New South Wales employers are also entitled to a waiver of their excess if they report injuries
to the agent within five days of becoming aware of the injury.
42
3.40. In New South Wales, provisional liability for weekly payments begins when an injury is notified.
An insurer does not have to sight a medical certificate in order to commence weekly payments;
however, the insurer will need to have obtained information to verify a work-related injury and
the expected period of incapacity for example, by contacting the treating doctor to confirm
the workers incapacity.
Insurers are required to commence making weekly payments on a provisional basis within
seven days of receiving a complete initial notification, unless the insurer is able to rely on
one of the specified reasonable excuses and communicates that excuse to the worker
within the 7 days.
43
Insurers are also given discretion to accept provisional liability for medical expenses
compensation up to a maximum of $7500.
44
3.41. The New South Wales legislation also provides for interim payments of weekly and medical
expenses compensation, where a dispute about liability is pending before the Workers
Compensation Commission.
45
3.42. Provisional liability was introduced in Tasmania in July 2001, but only for weekly benefits. The
Tasmanian legislation provides that employers must pay weekly benefits within 14 days of
receiving a claim (and earlier if practicable).
46
The employer has 12 weeks to dispute a claim;
47
and, if the employer does not dispute the claim within that period, the claim is deemed to be
accepted.
48
If the employer disputes the claim, the employer must refer the matter to the
Tribunal.
49
3.43. When provisional liability was introduced in Tasmania, the period within which employers were
required to challenge liability was 28 days. The period was increased to 12 weeks in 2004.
3.44. WorkCover Tasmanias Injury Management Model identifies the introduction of provisional
payments for medical and rehabilitation expenses as a key strategy to facilitate early
intervention. The injury management model has been endorsed by the WorkCover Tasmania
Board and a recent independent review.
50
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PAGE 94
41 WorkCover NSW, WorkCover Guidelines for Claiming Compensation Benefits, Part 1, cls 9 and 10,
NSW Government Gazette No 129, 27 October 2006.
42 Workers Compensation Act 1987 (NSW) s 160(9), NSW Insurance Premiums Order 20072008.
43 Workplace Injury Management and Workers Compensation Act 1998 (NSW) ss 267(1) and 267(2).
44 Workplace Injury Management and Workers Compensation Act 1998 (NSW) s 280(1); and WorkCover
NSW, WorkCover Guidelines for Claiming Compensation Benefits, cl 10, NSW Government Gazette
No 129, 27 October 2006.
45 Workplace Injury Management and Workers Compensation Act 1998 (NSW) s 297. Interim payments
are made at the direction of the Commissions Registrar, and are not to exceed $7,500 (for medical
expenses) or 12 weeks (for weekly compensation): ss 297(2), 298(1).
46 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81(1)(a).
47 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81A(1).
48 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81AB.
49 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81A(1)(c).
50 WorkCover Tasmania Board, Return to Work and Injury Management Model, Final Version May 2007,
p 25, and A Clayton, Review of the Tasmanian Workers Compensation System Report,
September 2007.
3.45. On 19 June 2008, the South Australian Parliament passed the Workers Rehabilitation and
Compensation (Scheme Review) Act 2008 (SA), which will introduce provisional liability for
medical expenses and weekly payments.
A new section 32A of the Workers Rehabilitation and Compensation Act 1986 (SA) will give
the WorkCover Corporation power (but not any obligation) to pay up to $5,000 in medical and
like expenses after application for the payment of those expenses.
51
The WorkCover
Corporation can decline to make a payment under section 32A even though it has previously
made a payment under that section.
52
A new section 50B will direct an employer or the Corporation to make provisional payments
of weekly compensation to a worker within 7 days after initial notification of a disability by
the worker, unless the Corporation determines that there is a reasonable excuse for not
commencing those weekly payments.
53
Provisional weekly payments can continue for up
to 13 weeks.
54
A decision not to make a provisional payment of medical expenses or weekly payments is
not reviewable.
55
The amendments introducing provisional liability are expected to come into effect on
1 January 2009.
3.46. The South Australian and Western Australian legislation provide for interim payments, giving the
WorkCover Corporation (in South Australia) and insurers or an arbitrator (in Western Australia)
authority to make interim payments to injured workers without admission of liability.
56
In
contrast to provisional liability, there is no presumption in favour of the worker receiving interim
payments, and the payments are not immediate. In South Australia, if the relevant claim is
subsequently rejected, any interim payments will be recoverable as a debt;
57
In Western
Australia, interim payments can only be recovered if the claim for compensation was fraudulent
or made without proper justification.
58
3.47. The Victorian TA Act does not provide for provisional liability. However, the Transport Accident
Commission accepts 90% of its claims within one day and 95% of its claims within three days,
which makes provisional liability less relevant in the transport accident context.
Stakeholder views
3.48. In submissions to the Review, most employers and employer associations opposed the
introduction of provisional liability on the basis that:
there was no evidence that it would reduce red tape or improve return to work outcomes;
it will lead to rorting, especially by workers who have exhausted their sick leave and annual
leave entitlements, increasing scheme costs; and
the problems that provisional liability is designed to address could be addressed through
other means at a lower cost and risk to the scheme.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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51 Workers Rehabilitation and Compensation Act 1986 (SA), s 32A(3), (4).
52 Workers Rehabilitation and Compensation Act 1986 (SA), s 32A(7).
53 Workers Rehabilitation and Compensation Act 1986 (SA), s 50B(1). Provisional Payment Guidelines
will prescribe what can be a reasonable excuse for not commencing weekly payments: s 50B(3).
54 Workers Rehabilitation and Compensation Act 1986 (SA), s 50C(1).
55 Workers Rehabilitation and Compensation Act 1986 (SA), ss 32A(10), 50I(a).
56 Workers Rehabilitation and Compensation Act 1986 (SA), ss 106 and 106A; Workers Compensation
and Injury Management Act 1981 (WA), ss 231237.
57 Workers Rehabilitation and Compensation Act 1986 (SA), s 106(2).
58 Workers Compensation and Injury Management Act 1981 (WA), s 236(b).
3.49. VECCI notes that provisional liability for all claims is not required to improve decision-making.
An alternative would be to allow agents to provide provisional liability where they need more
time to gather evidence to make a considered liability decision:
VECCI strongly opposes the introduction of provisional payments in Victoria
. . .VECCI would not be adverse to discretionary provisional payments to workers who claim
for psychological injury if the Agent is unable to complete a full investigation in 28 days.
59
3.50. Ai Group states that their members experience with provisional liability is
that once the initial liability has been accepted, there is no further action by the insurer to
investigate entitlements for ongoing compensation. This has the potential to establish an
ongoing entitlement which was never intended or warranted.
60
3.51. Unions, the ALA and the APA support provisional liability. The ALA submits:
These timeframes [10 days for employers to forward claims and 28 days for agents to assess
liability] result in a delay in accessing benefits, and have the potential to cause considerable
financial hardship for injured workers.
These delays also mean that the injured worker may be unable to access necessary medical
treatment (not all of which is available through the public health system). This can have the
effect of entrenching a condition, prolonging the period of incapacity and, therefore,
increasing the total cost of the claim.
Accordingly we are of the view that the Act should be amended to provide that entitlement
to benefits (reasonable medical and like expenses and weekly payments) should commence
within 7 days of a claim being made on a without prejudice basis.
61
Potential benefits of provisional liability
3.52. The potential benefits of provisional liability include:
providing workers with prompt income support while they are incapacitated by work injuries;
enabling workers to access appropriate treatment earlier;
a focus by all parties on return to work from the start;
maintaining a positive employer and worker relationship;
improved worker satisfaction;
earlier injury or claim notification;
improved liability decision-making by agents; and
improved return to work outcomes.
3.53. The main risk of provisional liability is increased scheme costs associated with more claims,
due to workers submitting fraudulent or speculative claims, and costs incurred on claims that
are subsequently rejected.
3.54. The arguments and evidence for the potential benefits and costs of provisional liability are
discussed in the following sections. In considering the evidence, care needs to be taken in
drawing conclusions because it is difficult to separate the impact of provisional liability from
other factors affecting scheme outcomes.
3.55. To assess the evidence of the impact of provisional liability on the New South Wales scheme,
the Review sought advice from PricewaterhouseCoopers Actuarial (PWC), who are and have
been for some years the scheme actuaries for New South Wales WorkCover and the New South
Wales Treasury Managed Fund (TMF), which self-insures the New South Wales public sector.
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59 VECCI, Submission, May 2008, p 19.
60 Ai Group, Submission, May 2008, p 22.
61 ALA, Submission, February 2008, p 3.
3.56. I appreciate the cooperation and openness provided by New South Wales WorkCover and the
New South Wales Treasury Fund, in allowing PWC to disclose scheme results to the Review.
In considering the New South Wales experience, it is important to note the substantial caveats
made by PWC:
Provisional liability was introduced on 1 January 2002, together with
restricted access to common law damages and commutations;
impairment assessment using AMA guidelines;
changes to s 66 (specific injury) benefit levels and coverage;
incentive remuneration for insurers (RTW, loss ratios, transition), and in-house WorkCover
tail team.
New agent contracts were introduced in January 2006, including revised remuneration
structure. Employer excess waiver was introduced for policies commencing January 2006.
All these simultaneous changes make it impossible to ascribe performance results to any one
factor (including provisional liability).
62
Providing workers with certainty and proper income support
3.57. Under the Victorian scheme, the median delay between an injury and a decision on liability
is 49 days.
63
There is a median delay of 20 days between the date of injury and the worker
lodging a claim, six days between the worker lodging the claim and the agent receiving it,
and 10 days for the agent to make the decision on liability.
64
At the extreme, workers could
wait 75 days, or two-and-a-half months, for payments if the agent utilises the full 28-day
liability determination period, and the employer then takes seven days to make payments.
3.58. The delay in making any payment can be even longer if the claim is denied but is subsequently
accepted. The AMWU cited the cases of five members who suffered delays of between three
and five months before receiving payment because their claim had been disputed.
65
3.59. There is currently no power under the AC Act for the VWA to make payments to a worker
without accepting the workers claim for compensation.
66
Conciliation officers have the power
to direct the VWA or self-insurer to pay weekly benefits for a specified period of up to 12 weeks
(known as interim payments).
67
However, the direction can only be made if the conciliation
officer is satisfied that there is no arguable case in support of the denial of liability.
68
It follows
that, by directing payments to be made, the conciliation officer is, in effect, ordering that the
claim be accepted (although the VWA or self-insurer can apply to the County Court or
Magistrates Court for revocation of a conciliation officers direction).
3.60. In practice, many workers will receive income support during this period in the form of sick and
annual leave entitlements, or through their employers paying weekly benefits in advance of the
agents decision on liability. In addition, the great majority of workers will have returned to work
during this period, and will therefore be receiving income: 70% of claims involve five or less
days of weekly compensation (in addition to the 10 days of compensation paid through the
employers excess).
69
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62 PWC Actuarial, WorkCover NSW Experience since the Introduction of Provisional Liability: Prepared for
the Review of the Victorian Accident Compensation Act, May 2008.
63 Source: VWA.
64 Source: VWA.
65 Australian Manufacturing Workers Union (Vehicle Division), Submission, May 2008, p 3.
66 Bahonko v Moorfields Community [2006] VSCA 206 at [11].
67 AC Act, ss 57 and 59(5).
68 AC Act, s 59.
69 Source: advice from the Reviews independent actuaries.
3.61. However, for those workers who have exhausted their sick and annual leave entitlements or
who are not entitled to leave (casual employees) and for those workers whose employers
dispute liability and therefore do not pay weekly benefits, and who are off work until liability
is determined, there is a risk of a considerable loss of income and consequential cash flow
problems and anxiety. The AMIEU (Victoria Branch) say that, in the meat industry, workers with
injuries mostly have to wait more than six weeks with no income and no specific treatment,
because generally employers only accept blood on the floor claims.
70
3.62. In addition, when workers receive their entitlements after waiting for liability to be determined,
there can be further cash flow problems, because their back payments are taxed at a higher
rate, and they may need to wait a year to recover any overpaid tax from the Tax Office. (This
effect results from PAYE tax being deducted on the basis that the workers lump sum
represents a single pay periods earnings, when in fact it represents many pay periods
earnings.)
3.63. Where employers make payments to workers before liability has been determined, the current
arrangements disadvantage employers, who are out of pocket until reimbursed by the scheme.
If a worker is off work for two months, the financial burden on a small employer could be
considerable. Tasmania has reported that the initial impetus for provisional liability in that State
came from employers. However, Ai Group contends that delays in reimbursements to
employers could be addressed by streamlining agent processes, rather than introducing
provisional liability.
71
3.64. Provisional liability would not solve payment and reimbursement problems for workers and
employers, but it would reduce delays in workers and employers receiving payments.
Depending on how provisional liability was implemented, it could cut the number of days for
which payments were delayed while the agent assessed liability from 28 days to around seven
days; and, if it was combined with injury notification direct to the agent, it could remove the
10 days in which employers consider liability. Therefore, provisional liability could reduce
payment delays by 30 days. Provisional liability may also reduce the time taken for workers
to lodge claims or give notice of injuries, if it made the process of notifying easier and less
adversarial.
3.65. PWC analysis of New South Wales WorkCover data indicates that, over the period from
December 2001 to December 2007, there has been a significant increase in the proportion of
injured workers in New South Wales who receive their first compensation payment in the same
three month period as their injury. The increase indicates that workers have been receiving
speedier compensation since December 2001, a change which is likely to reflect that, over the
same period, there has been a significant reduction in the delay in notifying agents of injuries.
3.66. The median delay between injury and agent notification of injury in New South Wales has fallen
from 19 days in December 2001 to 6 days in December 2007, with significant reductions
coinciding with the introduction of provisional liability and injury notification in 2002, and the
waiving of employer excess for claims reported early in 2006. On this basis, I conclude that
the introduction of provisional liability and incident notification have probably been significant
factors in the faster submission of claims to agents, and the faster receipt of compensation
benefits by workers.
3.67. PWC analysis of New South Wales WorkCover data indicates that about two-thirds of reported
claims receive provisional liability. The remaining one-third of claims are either immediately
accepted, immediately denied, or are not granted provisional liability. New South Wales
WorkCover has issued guidelines to agents about the specific circumstances where they
can decide not to grant provisional liability (discussed further in paragraph 3.125 below).
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70 Australasian Meat Industry Employees Union (Victoria Branch), Submission, May 2008, p 3.
71 Ai Group, Submission, May 2008, p 20.
3.68. As well as reducing delays in payment, the introduction of provisional liability would mean that
the scheme was designed for the majority of claims, rather than the minority of claims. As
noted above, 15% of claims are initially rejected, and of those rejected claims, 60% remain
rejected after six months. This means that 91% of claims are accepted within six months.
However, by withholding payments until liability is accepted, the scheme is imposing significant
costs on the 91% of workers whose claims are ultimately accepted (and on their employers),
apparently in the interest of avoiding costs associated with the 9% of claims that are ultimately
rejected.
3.69. It is my view that the costs imposed on the workers whose claims are ultimately accepted
provide a persuasive reason in favour of provisional liability. The scheme should be designed to
enable the timely provision of compensation for 91% of claimants whose claims are likely to be
accepted.
Enabling workers to access appropriate treatment earlier
3.70. Where a worker has a claim for weekly benefits and medical and like expenses, the VWAs
agent makes a single decision on liability, so that the delays discussed in paragraphs 3.57 to
3.63 above also apply to medical and like expenses.
3.71. However, the delay in determining claims for medical and like expenses only (some 35% of all
claims)
72
are considerably greater. The AC Act does not prescribe the time within which liability
for these claims is to be determined. The VWAs operational policy is that agents determine
liability within 60 days, and the average period is 26 days.
3.72. The AC Act does not provide for agents to pay for medical and like expenses before liability is
determined, apart from occupational rehabilitation, where the VWA or an employer can (but is
not obliged to) pay for reasonable costs before entitlement is established.
73
3.73. Many of the medical benefits required by injured workers are paid through Medicare (for
example, GP consultations and hospital treatment). However, other services (such as
physiotherapy) are not paid by Medicare.
3.74. Sprains and strains account for around two-thirds of the claims received by WorkCover; and the
evidence-based treatment that maximises recovery for those injuries is physiotherapy in the first
six to eight weeks after injury. That physiotherapy could cost a worker between $300 and
$800 indicating the likely costs to which workers may be exposed before liability has been
determined on their claims.
3.75. As with weekly benefits, the worker may not necessarily be out of pocket. The workers service
provider may be willing to treat the worker and bill WorkCover once the claim is accepted.
Similarly, the workers employer may be willing to bear the cost of services. However, in those
cases, the risk of liability determination is simply transferred from workers to service providers
and employers.
3.76. Where service providers and employers are not willing to bear that risk, there is a real possibility
that workers may not participate in treatment, prolonging their period of disability and slowing
their return to work. Given that treatment is generally most important in the early or acute
stages of an injury, it does not appear sensible to risk the provision of evidence-based treatment
for the 91% of workers whose claims are accepted in order to avoid unnecessary costs for the
9% of workers whose claims are denied.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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72 Source: VWA.
73 AC Act, s 99A(1).
3.77. In its submission, VECCI argues that there is no evidence that provisional liability would lead to
agents starting return to work efforts any earlier.
74
However, provisional liability could improve
access to treatment by removing financial obstacles to workers accessing treatments
recommended by their doctors, rather than relying on agents directing workers to treatment.
3.78. Provisional liability would allow workers to receive prompt access to treatment, because
workers would be assured that their treatment costs were covered by the scheme irrespective
of liability determination. Provisional liability would not guarantee that workers received
appropriate treatment this would depend on management by their treating practitioners but
it would remove a significant barrier to appropriate treatment.
A focus on return to work from the start, and maintaining a positive employer-worker relationship
3.79. The workers compensation literature indicates that a workplace culture that is supportive
of injured workers and their graduated reintegration in the workplace, and where there is a
positive relationship between workers and managers, is the most important factor in supporting
return to work.
75
This is borne out by the Victorian experience, which is that the workers least
likely to return to work are those who cannot work with their previous employers for a variety of
reasons (for example, the relationship has broken down, the employers business has closed, or
the claim is more than 12 months old and the employer no longer has to hold the workers job
open), and workers who have made stress claims, which are often characterised by poor
employer-worker relations.
76
3.80. Victorias experience is also that, the longer a worker has been off work, the less likely the
worker is to return to work, irrespective of the workers injury. That diminished prospect of
return to work is likely to reflect the fact that the employer-worker relationship becomes weaker
the longer a worker has been off work.
3.81. The current legislative provisions, which require agents to make a liability decision within
28 days, and employers to accept or reject a claim
77
, may jeopardise the employer-worker
relationship by making liability and blame the initial focus of the claim, rather than return
to work. Ms Sue Hosking, a psychologist with 26 years experience of the WorkCover scheme
submits
The current method of claims management often sets up an adversarial relationship between
the worker and the insurance company. This arises particularly when the insurer denies the
initial injury . . .
This is clearly counter-productive in achieving a rapid and appropriate return to health and
work.
78
3.82. The creation of that adversarial relationship is of particular concern, given that the duration of
most claims is short 70% of claims involve five or fewer days of compensation (in addition
to the employer excess). That is, the vast majority of claims are relatively low-cost, making
disputes over liability less important. However, focusing on the adversarial question of liability
from the start raises the risk of damaging the employer-worker relationship, and turning claims
that should be resolved quickly into claims for long-term compensation.
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74 VECCI, Submission, May 2008, p 17.
75 Hunt H A, Habeck R V, The Michigan disability prevention study. Kalamazoo MI: WE Upjohn Institute
for Employment Research, 1993; Habeck RV, Hunt HA, Van Tol B, Workplace factors associated with
preventing and managing return to work, Rehabilitation Counselling Bulletin, 1998, 42(2): 98143.
76 In August 2005, 44% of workers with any injury who received four weeks of payments went on to
receive 13 weeks of payments. The equivalent figure for workers with a stress claim was 62% in the
private sector and 70% in the public sector. That is, a higher proportion of workers with stress claims
were still on benefits three months after injury, compared to workers with other injuries.
77 AC Act, ss 109 and 108(2).
78 Ms Sue Hosking, Submission, 27 April 2008, pp 12.
3.83. Victorias experience may reflect that risk: sprains and strains, which should be short-duration
injuries, make up two-thirds of the schemes claims of more than one years duration.
Provisional liability may help reduce the risk of damaging the employer-worker relationship
by presuming that a workers claim is valid, and making return to work, rather than liability
determination, the initial focus of the claim.
3.84. However, VECCI disputes that provisional liability would support positive employer-worker
relationships following workplace injury. VECCI submits that an employer would not look kindly
on a worker to whom the employer was required to pay compensation under provisional liability
even where the employer has asked that the claim be disputed, especially if the claim was
eventually rejected.
79
3.85. Provisional liability would also mean that, in order to obtain initial treatment and income
support, workers would not have to prove their injuries. There is medical evidence that
suggests that needing to prove that one is sick or injured can actually impede recovery and
extend disability.
80
3.86. There is limited evidence on the issue whether jurisdictions with provisional liability maintain
better employer-worker relationships. However, a national survey on return to work outcomes,
reported by the Workplace Relations Ministers Council, asked injured workers to rate whether
Generally management at the place where you work will do what they can to help you get back
to work. In 2006/2007, a significantly higher proportion of Tasmanian injured workers were likely
to agree with this statement compared with Victorian workers, and with the national average.
81
Improved worker satisfaction
3.87. A wide range of factors influence customer service. However, one would expect that provisional
liability would improve customer service to workers by:
providing workers with income support and reimbursement of medical and like expenses
more quickly;
removing uncertainty about whether loss of income and treatment costs would be
compensated; and
making it easier and less stressful for workers to submit claims, because their claims are
presumed valid especially if coupled with simplified claims or injury notification processes,
as occurs in New South Wales.
3.88. The VWA has stated that improving workers satisfaction with service is a key strategic priority.
In 2006/2007, injured worker satisfaction with the scheme was 68.6%, significantly below
employer satisfaction of 82.3%, and well short of the VWAs 2012 target of 90%.
3.89. The empirical evidence about the impact of provisional liability on customer service is not
conclusive, but suggests that provisional liability could have a positive impact. Complaints
received by the VWA and the VWAs customer service survey indicate that the leading source
of dissatisfaction for workers is not being paid or being paid late, suggesting that provisional
liability could assist customer service.
3.90. For example, in 2006/2007, among surveyed workers whose claims had not been denied,
whose payments had not been delayed or who had not been required to attend an independent
medical exam, service satisfaction was 89%. However, satisfaction among workers whose
claims or expenses had been denied was only 63%, and among workers whose payments were
late was only 59%.
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79 VECCI, Submission, May 2008, p 18.
80 See Gabbe B J, Cameron P A, Williamson O D, Edwards E R, Graves S E, and Richardson M D,
The relationship between compensable status and long-term patient outcomes following orthopaedic
trauma, Medical Journal of Australia, Volume 187, No 1, 2 July 2007.
81 Campbell Research and Consulting, 2006/2007 Australia and New Zealand Return to Work Monitor,
August 2007, p 18. The rating for Tasmania was 3.8 out of a possible 5, and for New South Wales
3.7 out of 5, compared to Victorias result of 3.6 out of 5. Nationally, the rating was 3.6.
3.91. Against those results, service satisfaction among workers in the first 26 weeks of their claims
(at 78%) is significantly above the scheme average, despite delays in payment caused by
liability determination; and, where those workers are dissatisfied, factors such as insufficient
contact, slow or unhelpful service and poor, confusing explanations are cited more often than
slow or late payments as a source of dissatisfaction. This suggests that late payments may
be more of an issue for workers with longer claims, and that we need to be cautious before
assuming that speeding up payments at the start of claims through provisional liability will
dramatically improve overall customer service results.
3.92. The Workplace Relations Ministers Councils national survey also asked workers about
customer service, and the responses provide an opportunity to compare results for schemes
with and without provisional liability. In terms of overall customer service rating, New South
Wales and Tasmania were not significantly different from the Australian average. However,
those States schemes rated significantly better than the Victorian scheme in terms of ease for
workers making a claim; and a significantly higher proportion of workers in New South Wales
rated their insurer as helpful in return to work compared to workers in Victoria.
82
Earlier injury or claim notification
3.93. As discussed in paragraphs 3.70 to 3.78 above, provisional liability would speed up workers
access to income support and expense reimbursement by removing the delay associated with
determining liability. It may also reduce delays associated with claim notification by creating
incentives to claim and by removing obstacles to claiming. The assurance that workers will
quickly receive income support and reimbursement of expenses could encourage them to lodge
claims. In addition, the presumption that the claim is valid could remove impediments to
claiming.
3.94. Since commencing the reforms in January 2002, New South Wales has demonstrated a
significant decrease in delays in the reporting of claims.
Before January 2002, the median delay between the date of injury (as recorded on the claim
form/injury notification) and receipt of the notification/claim form by the agent was around
21 days. This delay included the time lapse between workers notifying their employers, and
employers notifying the agent.
By December 2005 (before the introduction of the excess waiver)
83
, the delay had halved,
to around eight-and-a-half days.
Following the introduction of the waiver of excess incentive, the median reporting delay
further reduced to around six days for each claim.
3.95. The median delay between an injury and the agent being notified of that injury in New South
Wales is significantly less than the median 31 days it takes in Victoria.
Improved liability decision-making by agents
3.96. Although provisional liability need not be associated with a longer period for determining
liability, it would facilitate the adoption of a longer period for that purpose, by reducing the risk
that workers would be out-of-pocket while waiting for a determination. As noted in paragraph
3.43 above, Tasmania initially introduced provisional liability without changing its 28-day liability
period, but subsequently extended the liability period to 12 weeks. The New South Wales
legislation provides for liability to be determined within 12 weeks. Under the new scheme for
provisional liability in South Australia, provisional weekly payments will be payable for up to
13 weeks.
84
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PAGE 102
82 Campbell Research and Consulting, 200607 Australia and New Zealand Return to Work Monitor,
August 2007, pp 19, 47 and 53. 80% of workers in Tasmania and 74% of workers in New South Wales
agreed that it was simple or very simple to put in a claim, compared to only 64% in Victoria. 46% of
injured workers in New South Wales rated their insurer as helpful in return to work compared to 39%
in Victoria.
83 See paragraph 3.39 above.
84 Workers Rehabilitation and Compensation Act 1986 (SA), s 50C(1): see paragraph 3.45 above.
3.97. It is likely that a longer liability period would support better decision-making by agents. It can be
difficult for agents to collect all the information relevant to liability within 28 days. In such cases,
the agent may reject a claim and later reverse the decision when it has received further
information, often as a result of workers appealing against the agents decision. The sequence
of rejection, appeal and reversal can sour the employer-worker relationship, jeopardising the
return to work process.
3.98. VWA statistics show that 40% of claims that are initially rejected are subsequently accepted.
When compared with other Australian jurisdictions, this rate of rejection is a very high
proportion and suggests that there may be deficiencies in initial decision-making on liability,
which may be a product of the constrained time available for decision-making.
3.99. The Tasmanian experience suggests that a longer time period for determining liability can
reduce disputes. In July 2004, Tasmania extended the liability determination period from
28 days to 84 days,
85
and introduced a higher threshold for disputing liability. From July 2001,
Tasmanian employers were required to make weekly payments on an interim or without
prejudice basis until liability was either accepted or the Tribunal had determined that a genuine
dispute existed. From July 2004, the genuine dispute test was replaced by a higher reasonably
arguable case test.
86
3.100. Before the change, the dispute rate in Tasmania was consistently above 15% (despite the
existence of provisional liability); but, after the change, the rate fell to consistently below 10%.
87
That experience suggests that, to reduce disputes, provisional liability needs to be coupled with
an extension in the liability determination period.
3.101. In New South Wales, the introduction of provisional liability in January 2002 coincided with
changes to the dispute resolution system, making it difficult to distinguish the separate impact
of the changes and distorting the data. The Comparative Performance Monitoring Report shows
that the rate of disputes in New South Wales has been at or above the national average in the
two most recent years.
88
3.102. Against the experience in Tasmania and New South Wales, Queensland consistently has the
lowest rate of disputes and does not have provisional liability.
3.103. In response to questions about the liability determination process after a grant of provisional
liability, New South Wales WorkCover has advised the Review that agents start liability
investigations immediately, and can make a decision on liability well before the 12-week mark.
In addition, agents can make an assessment of liability and notify the worker that liability is
accepted or disputed, even before the worker has lodged a claim form.
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PAGE 103
85 Workers Rehabilitation and Compensation Act 1988 (Tas) ss 81, 81AA and 81A.
86 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81A(2A) and Workplace Relations Ministers
Council, Comparative Performance Monitoring Report: Comparison of Occupational Health and Safety
and Workers Compensation Schemes in Australia and New Zealand, 9
th
ed, February 2008, p 29.
87 Workplace Relations Ministers Council, Comparative Performance Monitoring Report: Comparison of
Occupational Health and Safety and Workers Compensation Schemes in Australia and New Zealand,
9
th
ed, February 2008, p 29.
88 Workplace Relations Ministers Council, Comparative Performance Monitoring Report: Comparison of
Occupational Health and Safety and Workers Compensation Schemes in Australia and New Zealand,
9
th
ed, February 2008, p 28. The proportion of claims with a dispute in 2004/2005 in New South Wales
was 9.0%, the same as the national average, and the proportion of claims with a dispute in 2005/2006
in New South Wales was 9.3%, higher than the national average of 8.6%.
Improved return to work outcomes
3.104. There is a growing body of Australian medical evidence that, for any injury, the health and return
to work outcomes of compensable patients are worse than for other patients.
89
Researchers
believe this reflects factors associated with the compensation and claims process, which may
include:
workers needing to prove that they have a disability to gain and maintain entitlement
perpetuating disability;
the liability determination process, which inevitably has an adversarial element and therefore
can create psychosocial barriers to return to work;
health providers discontent with the compensation system (for example, because of red
tape, delays in payment and requiring advance approval of treatment) and projecting that
discontent onto their patients;
workers frustration with claims processes and negative customer service experiences;
the tendency of some workers to adopt, consciously or unconsciously, the role of an invalid;
and
the reinforcement that the compensation scheme offers for the adoption of such a role.
3.105. To the extent that provisional liability removes or simplifies some of these aspects of the claims
processes, we could expect that it might help reduce the gap between the outcomes for
compensable and non-compensable patients, improving health and return to work. For example,
under provisional liability:
for the vast majority of claims, which involve a quick return to work, the agent would not need
a determination on liability the claim could simply be closed when the worker returned to
work;
at least one of the sources of dissatisfaction for health providers (uncertainty about whether
their bills would be paid) would be removed; and
at least some of the sources of dissatisfaction for injured workers (for example, uncertainty
about income support and expenses reimbursement, and the difficulty of submitting claims)
would be removed.
3.106. PWC analysis of New South Wales WorkCover data indicates that weekly benefit utilisation
has fallen since the January 2002 reforms. As workers go off benefits when they return to
work, reductions in weekly benefit utilisation suggest improvements in the return to work
performance of the New South Wales scheme.
3.107. However, improvement in return to work performance is not reflected to the same extent
in the Workplace Relations Ministers Council return to work survey, which indicates a slight
improvement in the New South Wales results since 2001/2002 (see the graph below). It
should be noted that, for the most recent year, the New South Wales return to work rate
is not significantly different from either the national or Victorian results.
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89 For example, Gabbe B J, Cameron P A, Williamson O D, Edwards E R, Graves S E, and Richardson M D,
The relationship between compensable status and long-term patient outcomes following orthopaedic
trauma, Medical Journal of Australia, Volume 187, No 1, 2 July 2007; Cassidy I, Zelle B, Panzica M,
Vogt M, et al. Influence of workers compensation eligibility upon functional recovery 10 to 28 years
after polytrauma, Am J Surg, 2005; 190: 3036; Harris I, Mulford J, Solomon M, et al, Association
between compensation status and outcome after surgery, JAMA, 2005; 293: 1644-1652.
3.108. PWC analysis of the New South Wales public sector scheme (the TMF Fund) indicates that
there has been no systematic change in the weekly benefit utilisation of injured workers in the
TMF Fund following the January 2002 changes, suggesting no change in return to work results
in that scheme.
3.109. The Workplace Relations Ministers Council survey indicates that the return to work rate in
Tasmania is significantly above the national average. However, Tasmanias return to work rate
was above the national average and Victorias rate in 2000/2001, before Tasmania introduced
provisional liability.
90
Potential costs of provisional liability
3.110. Provisional liability could lead to an increase in scheme costs because of the costs incurred on
claims that are subsequently denied, and any additional costs incurred because workers submit
more claims.
3.111. Provisional liability could lead to an increase in fraudulent claims (that is, claims where workers
provide false information), to take advantage of the upfront payment of weekly benefits and
medical costs, because in practice agents would not investigate claims where the worker
quickly returned to work. The adoption of that practice by agents could encourage some
workers to seek payment of the treatment costs of non-work-related injuries through the
workers compensation scheme, and then to close their claims before liability is determined.
Some workers might also use the workers compensation system to cover short-term leave
from work, including during school holidays.
3.112. Provisional liability could also lead to an increase in speculative claims that is, claims that
do not involve the provision of false information but that would be unlikely to meet the
requirements for compensation. Workers may be more likely to lodge speculative (or weak)
claims under provisional liability and reformed injury notification procedures, because receiving
payment on a claim would be understood to be easy.
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PAGE 105
90 The Campbell National RTW Monitor for 2006/2007 found (at p 1) that the return to work rate for
workers with at least 10 days compensation within the first six months of their claim was 91% in
Tasmania, compared to 85% for Australia, 86% for New South Wales and 85% for Victoria. This
statistic is measuring total return to work, both durable and non-durable. The same survey found (at
p 1) that, in 2000/2001, the return to work rate was 90% in Tasmania, compared to 84% for Australia,
86% for New South Wales and 81% for Victoria.
0
10
20
30
40
50
60
70
80
90
100
Durable RTW Rate: NSW
RTW Rate: NSW
2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01
RTW Rate is the proportion
of injured workers who have
returned to work between
the time of the claim and
the interview.
Durable RTW Rate is the
proportion of injured workers
who have returned to work
and were still working at the
time of the interview.
P
e
r
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3.113. Provisional liability may also lead to an increase in valid claims, as the current barriers to making
claims are reduced. As noted in paragraph 3.92 above, workers rate Victoria relatively low in
ease of lodging a claim for compensation. Of course, an increase in valid claims could not
properly be described as a disadvantage of provisional liability, because that increase would
simply see more workers accessing their entitlements; although the increase might be seen as
an added cost of provisional liability, it would be an added cost that the scheme should properly
bear.
3.114. VECCI argues that provisional liability would provide an opportunity for rorting:
Workers who have used up their accrued sick leave, who have no entitlement due to being
a casual or who wish to preserve their accrued sick leave to secure an annual bonus [if their
enterprise bargaining agreement provided for the pay-out of unused sick leave at years end]
could readily use access to provisional payments as an alternative.
91
3.115. Victoria Police argues:
Victoria Police is a large employer within the scheme and past trends indicate that where ease
of access to compensation is available, considerable take up of this will occur impacting on
the schemes costs and Victoria Polices service delivery to the community.
92
3.116. PWC analysis of New South Wales WorkCover data shows that the total number of claims fell
over the four years to 2001, remained at roughly the same level for the four-and-a-half years
to June 2005, and have again fallen somewhat since that time.
93
In the public sector scheme
(TMF), claims frequency has not changed significantly since the January 2002 changes, with
the exception of psychological injury claims,
94
which initially grew, but have since returned to
previous levels.
3.117. PWC analysis of New South Wales WorkCover data shows that currently around 2% of claims
that receive provisional liability payments are ultimately denied; however, care should be taken
in interpreting this figure because most provisional liability claims are minor short-term injuries,
which are not tested for validity and are neither formally accepted nor denied.
3.118. PWC also provided the Review with New South Wales break-even premium rate for the past
10 years. (The break even premium rate is the premium rate required to fund the schemes
liabilities, and is a measure of the schemes costs.) New South Wales break-even premium rate
peaked in 2000, fell sharply in 200102, and has fallen gradually since, indicating that the cost
of the New South Wales scheme has been falling since 2000.
3.119. Based on the PWC analysis, I conclude that provisional liability has not led to a significant
increase in fraudulent and speculative claims or an increase in the costs of the New South
Wales scheme. If there had been such an increase, we could have expected to see a growth in
claim numbers after the change was introduced, and a growth in the proportion of claims being
denied. The growth has not occurred. However, the absence of any such change must be
interpreted in the context of the other significant changes which accompanied provisional
liability, and the possibility that the overall favourable trends in the scheme have confounded
any specific changes caused by provisional liability.
3.120. Introducing provisional liability in Victoria has been estimated to have a potential cost for the
scheme of between $10 million and $20 million a year.
95
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91 VECCI, Submission, May 2008, p 19.
92 Victoria Police, Submission, May 2008, p 3.
93 The PWC measure of total claims excludes deafness claims and claims with zero payments.
94 In NSW, psychological injury claims incorporate what are known as stress claims in Victoria.
As discussed in Chapter 2, Workers entitlements to compensation, paragraphs 2.206 and 2.239,
in NSW claims must be for a defined psychological injury and are not accepted if stress is the
only claimed condition.
95 Source: advice from the Reviews independent actuaries.
3.121. The figure of $10 million assumes no change in the propensity of workers to claim
compensation, whereas the figure of $20 million assumes a considerable increase in claim
lodgements but without any of the additional claims receiving benefits over the long term. It is
estimated that the impact on scheme liabilities will be a modest increase of around $5 million.
96
3.122. The cost estimates only allow for amounts paid to workers whose claims are subsequently
denied and assumes no change in benefits, but a saving in dispute costs for claims that are
subsequently accepted (of around $2 million a year).
3.123. However, the estimate does not allow for any improvements in the return to work rate, or the
expected associated decrease in compensation costs to the scheme.
3.124. There are several ways in which the cost and risk of fraudulent and speculative claims
associated with provisional liability could be mitigated.
First, the VWA could develop triage principles to identify the claims most likely to be denied,
so that agents could investigate liability on those claims early in the provisional liability period.
That approach would minimise the costs of provisional liability on those claims.
Secondly, the duration of the provisional liability period would affect the VWAs exposure to
fraud and speculation: the longer the provisional liability period, the greater the potential cost;
against this, the longer the period, the longer agents would have to collect information to
make the correct decision on liability.
Thirdly, the legislation could give agents limited discretion not to accept provisional liability.
3.125. In New South Wales, agents can decide not to grant provisional liability where:
there is insufficient medical information because the worker has not provided a medical
certificate despite being requested to do so;
the injured person is unlikely to be a worker (because the person has been unable to verify
her or his status as a worker, or the employer has verified that the person is not a worker);
the insurer is unable to contact the worker;
the worker refuses to authorise access to information (including refusing to consent to the
release or collection of personal or health information);
the employer has provided acceptable evidence that the injury is not work-related;
the injury is not a significant injury (that is, the worker is likely to be incapacitated for work
for less than seven continuous days); or
the injury is notified after two months.
97
3.126. In order to guard against the potential for fraud in Victoria, agents could be given the discretion
not to accept provisional liability where there was a proper basis for suspecting that a claim
was fraudulent. For example, provisional liability might be withheld from a worker with a history
of unfounded claims. However, it would be important for agents discretion to be limited to
defined situations, in order to maintain the objectives of provisional liability.
3.127. Finally, fraud and speculative claims could be deterred if the legislation allowed the recovery
of provisional liability payments where claims are fraudulent or where liability is denied.
The Tasmanian legislation allows an employer to recover provisional liability payments from
a worker where the Tribunal has found that the claim was fraudulent, and where the worker
was found to have obstructed or delayed the determination of the claim and the employers
liability to make the payments is subsequently determined not to exist,
98
and gives an
employer the right to deduct weekly payments from accrued sick leave where the Tribunal
has found that the employer is not liable.
99
The New South Wales legislation is more beneficial to workers. There is no requirement to
refund provisional payments where liability is subsequently denied; but a worker may be
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96 Source: advice from the Reviews independent actuaries.
97 WorkCover NSW, WorkCover Guidelines for Claiming Compensation Benefits, Part 1, cl 7, NSW
Government Gazette No 129, 27 October 2006.
98 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81AA(2).
99 Workers Rehabilitation and Compensation Act 1988 (Tas), s 81AA(3).
required to refund payments of weekly compensation received after an interim payment
direction by the Commissions Registrar.
100
Where the Commission subsequently determines
that there is no liability, the worker will be required to refund those interim payments if the
Commission finds that the claim was fraudulent or made without proper justification.
101
When provisional liability is introduced into the South Australian legislation on 1 January 2009,
the legislation will allow the WorkCover Corporation and employers to recover as a debt a
provisional liability payment made to a worker if the worker has acted dishonestly in making
an application or providing information for the purposes of the legislation.
102
Conclusion
3.128. In conclusion, I consider that there is a strong case for Victoria to implement provisional liability.
In my opinion, the most persuasive considerations are as follows:
the current design of the scheme, which assumes that no payments can be made until
liability is determined, means that the 91% of claimants whose claims are accepted have their
payments deferred in the interest of avoiding any payments to the 9% of claimants whose
claims are not accepted: designing the scheme in this way creates uncertainty for injured
workers and delays their access to treatment and income support;
the fact that 70% of claims are for less than five days of compensation, whereas the bulk
of the schemes costs are for long-duration claims: it is important to focus on the mutually
beneficial issue of return to work, rather than the divisive issue of liability determination, so
as to reduce the chance of short-duration claims becoming long-duration claims. Provisional
liability allows workers to receive benefits quickly, so that return to work, rather than liability
determination, becomes the initial focus of claims;
the evidence that 40% of adverse initial liability decisions are subsequently overturned and
that Victorias dispute rate is the highest of all States, indicating the need to improve decision-
making, which may be facilitated by a longer liability determination period;
the evidence that the return to work and health outcomes of compensable patients are worse
than those of non-compensable patients,
103
indicating the need to reform those aspects of
the claims process that inhibit recovery; and
the evidence that the introduction of provisional liability in New South Wales has not been
associated with an increase in claim numbers or an increase in the percentage of claims
denied.
104
3.129. I consider that the potential costs of provisional liability can be mitigated through measures
such as triage to fast-track decision-making on potential fraud cases, prescribed circumstances
where agents can decide not to grant provisional liability and rights to recover payments where
the claim is shown to have been fraudulent.
Design issues
If provisional liability is implemented there are a number of design issues that must be resolved,
as follows
whether provisional liability should cover both weekly payments and medical and like
expenses;
the cap on provisional liability payments and when they should cease;
whether there should be sanctions or safeguards to protect the scheme from fraudulent and
speculative claims;
how provisional liability payments should be reflected in premium;
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100 The Registrars power to direct interim payments is discussed in paragraph 3.41 above.
101 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 304.
102 Workers Rehabilitation and Compensation Act 1986 (SA), ss 32A(8) and (9), 50H(2) and (3).
103 For example, Gabbe B J, Cameron P A, Williamson O D, Edwards E R, Graves S E, and Richardson M D,
The relationship between compensable status and long-term patient outcomes following orthopaedic
trauma, Medical Journal of Australia, Volume 187, No 1, 2 July 2007; Cassidy I, Zelle B, Panzica M,
Vogt M, et al, Influence of workers compensation eligibility upon functional recovery 10 to 28 years
after polytrauma, Am J Surg, 2005; 190: 3036; Harris I, Mulford J, Solomon M, et al, Association
between compensation status and outcome after surgery, JAMA, 2005; 293: 16441652.
104 See paragraphs 3.116, 3.118 above.
the liability determination period;
whether provisional liability should be coupled with an injury notification system rather than
a claim lodgement system.
3.130. On the first issue, I consider that provisional liability should cover both weekly payments and
medical and like expenses. My position reflects the fact that 35% of the schemes claims are
claims for medical and like expenses only,
105
and that the average period for determining liability
on these claims is 26 days. It also reflects evidence that timely access to treatment facilitates
recovery and return to work, and that uncertainty about reimbursement can deter workers from
seeking treatment. I consider that the reasonable cost principles should apply to reimbursement
of medical and like expenses made under provisional liability. In other words, only those medical
and like expenses that would be regarded as reasonable costs would be reimbursed,
irrespective of whether the expense is claimed under provisional liability.
106
3.131. On the second issue, I consider that a ceiling should be imposed consistent with the current
levels that apply in New South Wales, being up to 12 weeks of weekly benefits and $7,500 in
medical and like expenses. On the question when provisional liability payments should cease,
the VTHC argues that provisional liability payments should continue until . . . the administrative
review of any rejected claim takes place.
107
3.132. In New South Wales, if a worker is receiving provisional liability payments and the agent then
rejects the claim, payments stop. If the worker lodges an appeal, the Workers Compensation
Commission may order that interim payments be made to the worker (see paragraph 3.41
above), but is not required to do so.
3.133. I consider that provisional liability payments should not continue beyond the time when the
agent decides whether to accept the claim (assuming that the payments have not already
ceased because the ceiling has been reached: see paragraph 3.131 above). If the agent
denies the claim, payment of medical and like expenses and weekly benefits should cease. At
the moment, 60% of agent liability decisions are upheld, and that proportion should increase if
provisional liability is accompanied by a longer liability determination process to support better
decision-making. I also note that the reforms proposed to the dispute resolution system
108
are
designed to reduce delays between agents decisions and the review of those decisions,
therefore reducing the period over which workers would be out of pocket.
3.134. I recommend that the AC Act should authorise the Minister to make guidelines about the
application (and any limitations on the application) of provisional liability.
3.135. On the third issue (possible safeguards against fraudulent and speculative claims), in my
opinion there would be merit in implementing the following elements:
agents should be authorised to deny provisional liability payments where there is an
increased risk of fraud or likelihood of a claim being denied (subject to clear guidelines issued
by the Minister on how the discretion should be exercised);
where a claim is denied and fraud is established, agents or employers should be able to
recover payments from workers either as a debt or from accrued leave;
where a claim is denied, the employer should be able to deduct the amount of weekly
benefits paid from the workers accrued sick leave entitlements.
3.136. I recommend that agents should be able to refuse provisional liability payments at least in the
circumstances regarded as reasonable excuses in the current New South Wales scheme.
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105 See Chapter 6, Treatment expenses, paragraph 6.9.
106 See Chapter 6, Treatment expenses, paragraphs 6.5.
107 VTHC, Submission, May 2008, p 14.
108 See Chapter 10, Transparency in decision-making and the efficient resolution of disputes,
paragraphs 10.156.
3.137. In New South Wales, psychological injury claims (including stress-related injury claims) are
assessed for provisional liability using the same criteria as apply to other claims. Insurers
cannot deny access to provisional liability for psychological injury claims on the ground that the
injury arose from reasonable management action because that is not one of the reasonable
excuses for not commencing provisional weekly payments.
109
Of course, insurers can proceed
to make a decision on the claim and deny liability for psychological injury arising from
reasonable management action at which point, payment of compensation will cease, unless
the Commission directs interim payments pending the resolution of the workers appeal to the
Commission (see paragraph 3.41 above).
3.138. PWC analysis shows that the introduction of provisional liability in New South Wales coincided
with an increase in the frequency of psychological injury claims in the New South Wales public
sector, although that increase may have been a continuation of an earlier trend. The increase
has since been reversed, and the frequency rate of psychological injury claims in the New
South Wales public sector is now back to the level at which it stood before the introduction
of provisional liability.
3.139. Arguments in favour of including stress claims in provisional liability include:
the benefits of provisional liability listed in paragraph 3.128 above, such as ensuring workers
have access to early intervention, so as to encourage improved return to work outcomes; and
providing agents with a longer liability determination period to support better decision-
making, which is particularly important for stress claims given their complexity.
3.140. Arguments for the exclusion of stress claims from provisional liability include:
once stress claims have been provisionally accepted, they are difficult to manage for return
to work (although this argument overlooks the fact that agents can still deny liability for
claims after granting provisional liability);
around 40% of stress claims are initially rejected (compared to the scheme average of 15%),
so that the risk of making unjustified payments under provisional liability would be high;
the issue of reasonable management action is likely to be raised in significant proportion of
stress claims, and stress claims often involve associated workplace relations issues, such
as discrimination, bullying and unfair dismissal; those features would make it very difficult
to investigate these types of claims adequately in the short time available before granting
provisional liability (seven days in New South Wales).
3.141. I consider that eligibility for provisional liability for stress claims and other psychiatric injuries
should be guided by the schemes experience after the introduction of provisional liability.
If there is a large increase in stress claims, and an increase in the percentage of those claims
that are subsequently denied, the Minister should have the power to exclude those claims
from provisional liability.
Conversely, if that increase does not eventuate, then provisional liability should be provided
to stress claims in order to realise its benefits.
This issue underlines the importance of the legislation giving the Minister power to issue
guidelines prescribing the circumstances in which an agent can deny access to provisional
liability payments.
3.142. The fourth issue (how provisional liability would impact on statistical case estimates and
employers premiums) is, of course, a key issue for employers.
3.143. In New South Wales, once provisional liability costs are incurred, estimated future claim costs
are attributed to the employers claims costs. If a claim is rejected or closed, the estimate of
future costs may be revised, depending on factors such as the likelihood of the claim being
disputed or no further costs being anticipated. However, if a claim is proven to be fraudulent,
or the worker is found not to be a worker, New South Wales WorkCover refunds the related
premium adjustments to the employer.
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109 WorkCover NSW, WorkCover Guidelines for Claiming Compensation Benefits, Part 1, cl 7, NSW
Government Gazette No 129, 27 October 2006.
3.144. I consider that the preferred option would be for provisional liability payments on accepted
claims to be treated in the same way as any other cost of other claims, and for the cost to
count towards the employers premium. Implementation of the recommendation in Chapter 11,
Employer premiums,
110
that claims only have an SCE assigned after three months history on
the claim is available, would improve the accuracy, and in most cases reduce the size, of the
SCE estimate for such claims.
3.145. I recommend that the cost of provisional payments on claims that are subsequently rejected or
closed before liability is determined should count towards the employers premium but should
not be taken into account in assigning estimates of the future costs of claims.
3.146. The proposal in paragraph 3.145 above is in line with the current treatment for premium
purposes of the costs of rejected claims. Further, the proposal removes the need to determine
liability on the vast majority of claims that involve quick return to work. If liability is not to be a
factor in the allocation of costs for premium, agents can simply close claims where workers
quickly returned to work, without needing to undertake a formal assessment of liability, thereby
reducing claims administration costs.
3.147. It should be emphasised that the introduction of provisional liability is expected to reduce
employers premiums, because one of the main reasons for introducing provisional liability is to
improve scheme return to work outcomes. Therefore, while employers would carry the cost of
provisional liability payments on claims that may ultimately be rejected, that cost should be more
than offset by a reduction in the cost of other claims through faster return to work outcomes.
3.148. As to the fifth issue, I consider that Victorias high dispute rate, high rate of reversal of adverse
liability decisions and New South Wales and Tasmanias experience that their dispute rates fell
once the liability determination period was extended, all point to the benefits of extending the
liability determination period.
3.149. Finally, considering the sixth issue, provisional liability can be implemented independently of
injury notification, as is evidenced by the contrasting approaches in New South Wales and
Tasmania. However, it is my view that the potential benefits of provisional liability would be
maximised if implemented in conjunction with injury notification, because the two initiatives are
mutually complementary in improving customer service and timely notification of injuries.
3.150. I recommend that provisional liability be implemented in Victoria, in conjunction with injury
notification.
REDUCE FORMALITIES
3.151. Currently, the approved claim form
111
requires information such as the date, place and nature
of the injury, a signed authority to release medical information, the commencement date of
employment, earning details and standard working hours per week. A claim will be valid only
if the claim form does not contain any material defects, omissions or irregularities.
112
3.152. In many circumstances, not all of the required information is needed for the agent to determine
liability. For example, in the case of an injury that the employer accepts happened at work and
that will require no, or minimal, time off work, a signed authority to release medical information
and the date of commencement of employment would not be critical to determining liability.
3.153. Dr Helen Sutcliffe, occupational physician, of the Workers Occupational Health Centre, submits
that there are specific problems in lodging claims for workers from culturally and linguistically
diverse backgrounds, particularly refugees.
113
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110 See Chapter 11, Employer premiums paragraphs 11.28-11.33.
111 As required by s 103(1)(a) of the AC Act.
112 AC Act, s 103(2).
113 Dr Helen Sutcliffe, WOHC, Submission, 3 April 2008, p 1.
3.154. At present, the detailed information required in a claim form, and the requirement that a claim
must not contain material defects, are likely to cause particular problems for workers from
non-English speaking backgrounds.
3.155. Generally, notification of an injury should replace the need to make a claim. Preliminary
notification, providing basic information about the injury, should be required as a first step.
If the agent requires further information in order to determine liability (after making further
inquiries with the worker and employer), or if the injured worker is likely to require more than
a prescribed amount of weekly benefits or medical and like expenses, a claim form should
be required.
3.156. A worker who fails to give notice of an injury within a prescribed time (perhaps one month)
could also be required to lodge a claim. Such a requirement would act as an incentive for
workers to provide early notice of injury.
3.157. A register of all notified injuries, whether in electronic or hard copy form, should continue to be
kept by each employer at the workplace. The register would continue to provide the employer
with records of the incidence of injuries associated with particular areas of the workplace,
systems of work, plant, substances etc. It would also assist in identifying hazards and
assessing risks in the workplace.
3.158. Currently, if a claim for compensation and a medical certificate are not provided at the same
time, the claim is deemed not to have been made until the day on which both documents are
given to the employer.
114
This restriction can cause delays between the lodging of a claim with
an employer and the agent taking action to manage the injury or the return to work process. It
also creates uncertainty for the employer about the validity of the claim. For example, if a
medical certificate served with an approved claim form is deemed invalid under section 105 of
the AC Act, a strict reading of section 103(1)(b) of the AC Act would mean that the claim for
compensation can only be treated as a claim for medical expenses.
3.159. The provision deeming a claim not to have been made can affect the prosecution of employers
for breaches of their obligations to receive and lodge claim forms: section 103(2) of the AC Act
provides that a claim is deemed not to have been made if the claim is returned to the
claimant with a notice specifying all material defects, omissions or irregularities. The provision
creates uncertainty, as does the lack of guidance on what constitutes a material defect,
omission or irregularity.
3.160. The original AC Act provided that a defect, omission or irregularity did not affect the validity of a
claim, unless the defect, omission or irregularity related to information which was not within the
knowledge of, or ascertainable by, the Accident Compensation Commission (now the VWA),
self-insurer or employer.
115
It is not clear why this provision was changed, although the change
occurred in the context of other amendments, including the introduction of a requirement that
the employer give the worker written acknowledgment of receipt of a claim for compensation.
3.161. Several other jurisdictions take a position similar to the original AC Act. For example, the
Commonwealth scheme provides that substantial compliance with the approved claim form is
sufficient.
116
The Northern Territory and Tasmanian schemes provide that a defect, omission or
irregularity in a claim or certificate does not affect the validity of the claim unless it relates to
information which is not within the knowledge of, or otherwise ascertainable by, the employer
or insurer.
117
South Australia provides that a defect will not bar the making of a claim if the
determination of the claim has not been substantially prejudiced, or if the defect arose from
a reasonable cause.
118
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114 AC Act, s 103(5).
115 AC Act (as originally enacted), s 103.
116 Safety, Rehabilitation and Compensation Act 1988 (Cth), s 54(5).
117 Workers Rehabilitation and Compensation Act (NT), s 82(3); Workers Rehabilitation and Compensation
Act 1988 (Tas), s 34(3).
118 Workers Rehabilitation and Compensation Act 1986 (SA), s 52(3).
3.162. It appears unnecessary and inefficient that defects, omissions or irregularities, particularly those
that can easily be rectified, should render a claim invalid. Where the required information is
readily accessible from the worker or employer, rendering a claim invalid causes unnecessary
delays and complications for both workers and employers.
3.163. If, as discussed in paragraph 3.155 above, lodgement of claims is replaced by injury notification
that requires the provision of fewer details, the likelihood of a defect would be reduced. Further,
injury notification and claims lodgement online and by telephone should reduce the incidence
of errors and omissions in claims, because the use of mandatory fields would ensure that all
required details were provided. Nevertheless, where there is a defect in the notice of injury or
claim, the notification or claim should remain valid unless the agent or employer is unable to
clarify the information.
3.164. That change should make the claims process simpler and more efficient in particular, for
workers from non-English speaking backgrounds and those who have difficulties with literacy.
3.165. I also recommend removal of the distinction between a claim for weekly benefits and a
claim for medical and like expenses. Following notification of an injury or receipt of a claim,
a determination should be made whether the worker has sustained a compensable injury
(or if provisional liability applies, whether provisional liability payments should commence).
Verification of the existence of an injury would still be required. However, that verification
could be obtained through direct contact between the agent and the workers treating
medical practitioner or employer, or through a medical certificate.
3.166. If the injury is accepted as compensable, the worker should be able to apply for weekly benefits
by providing appropriate medical evidence regarding her or his incapacity. A medical certificate
and the presentation of appropriate receipts or tax invoices, or a letter from the intended
treating practitioner, should be sufficient to obtain reimbursement of reasonable medical and
like expenses.
INTRODUCE ELECTRONIC LODGEMENT
3.167. The New South Wales, South Australian and Queensland schemes allow for notification of
injuries and lodging of claims by telephone and online, in addition to the traditional paper-based
methods. In Queensland, an injured worker may lodge a claim directly with WorkCover
Queensland or have the workers doctor lodge the claim. In South Australia, a claim can be
lodged by telephone or online with WorkCover SA, and a copy distributed either by WorkCover
SAs claims agent or the worker to the employer concurrently.
3.168. The current legislative requirements in Victoria for lodging claims (for example that claim forms
must include an authority signed by a worker)
119
are not direct impediments to introducing
electronic notification. The Electronic Transactions Act 2000 (Vic) prescribes a range of methods
by which electronic communications can validly meet almost all requirements for the provision
of hard copy documents, including any requirement that a document be signed by a person.
120
3.169. The requirement that claim forms and medical certificates be served on the workers employer
restricts the effectiveness of any moves towards electronic lodgement. Direct lodgement with
the VWA would still require the worker, in most instances, to lodge the claim form and/or
medical certificate with the employer, before action could be taken on the claim.
3.170. Electronic or telephone notification of injury or lodgement of a claim form would reduce the
delay between the date of the injury and commencement of injury management. It would also
make the notification process more efficient, reducing red tape for employers.
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119 AC Act, s 103(1)(d).
120 Electronic Transactions (Victoria) Act 2000 (Vic), s 9.
3.171. The VTHC supports allowing workers and employers to notify injuries and lodge claims by way
of fax and email. It does not support
. . . the introduction of a capacity to lodge claims or notify injuries by way of telephone . . . this
does not provide sufficient safeguards to workers that lodgments or notifications have been
properly recorded . . .
121
3.172. The Magistrates Court submits that it would be preferable to have a requirement for a claim
form to be in writing as many disputed cases before court involve issues of dispute going to
such matters as date, circumstances and nature of injury; but the Court acknowledges that
claim forms could . . . be in email or fax form.
122
3.173. The APA supports any process that encourages ease of reporting and therefore helps to
facilitate early intervention to optimise positive health and return to work outcomes.
123
3.174. MGA supports a simplified system of notification/claims lodgement, including electronic
lodgement,
124
which would particularly assist small employers, who are less likely to be familiar
with the claims process and are more likely to take longer to gather all the information that is
required by the VWA.
3.175. Ai Group does not support direct lodgement of claims with the VWA or agents. Ai Group is
concerned that direct lodgement of claims with the VWA or agents would negatively impact
on communication between the worker and employer, and opposes
. . . any system which encourages injured workers to by-pass the employer . . .
125
3.176. The VTHC supports workers being allowed to notify injuries and lodge claims directly on the
VWA, because that may assist in reducing claims suppression. However, the VTHC emphasises
that direct notification and lodgement should occur in the context of ensuring proper records
are maintained by the VWA (and its agents) and employers.
126
3.177. The VWA operates a telephone notification system that receives calls from employers about
prescribed workplace incidents (which include deaths, serious injuries or exposure of workers
to an immediate health and safety risk),
127
which employers are required to report immediately
under the OHS Act.
128
The TAC and the New South Wales, Queensland and South Australian
workers compensation schemes all have some form of telephone notification system. The
proposed telephone notification system could draw on those models.
3.178. Call recording software that enables later clarification or confirmation of details discussed
during telephone conversations is widely available and currently used by many businesses,
including private insurers who record this information for claims purposes. Effective use of
such software would make recording details of telephone notifications and claim lodgements
at least as reliable as traditional hard copy claims reporting.
3.179. The VWA (or its agents), on receiving an injury notification or a claim form, should be required
to advise workers to notify their employers of their injuries or claims. The VWAs advisory
service and advisory material should also recommend that injured workers advise their
employers of their injuries and claims. I note that workers, who are employed under contractual
conditions that require them to notify their employers of an absence before the commencement
of a shift, would still be bound by such a requirement.
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121 VTHC, Submission, 2 May 2008, p 14.
122 Magistrates Court of Victoria, Submission, 2 May 2008, p 3.
123 APA, Submission, 2 May 2008, p 2.
124 MGA, Submission, 2 May 2008, p 5.
125 Ai Group, Submission, May 2008, p 23.
127 OHS Act, s 37. 2008, p 23.
126 VTHC, Submission, 2 May 2008, p 14.
128 OHS Act, s 38(1).
3.180. The expansion of direct notification should be accompanied by a requirement that agents
contact the employer within 48 hours from receipt of a notice of injury or receipt of a claim, in
order to notify the employer of the injury, confirm details and gather information. I recommend
that this notification be included as a performance requirement in the contracts between the
VWA and its agents, with financial sanctions applying to under-performance.
3.181. Procedures would need to be developed by agents to ensure that employers are notified of
every injury notification and claim. In some situations, an employer genuinely may have no
knowledge of a notification or a claim, because the VWA or its agents have failed to notify the
employer. In such a case, the employer should not be responsible for breaches of its obligations
under the AC Act that flow from its non-receipt of a notification or a claim.
3.182. Although the notification proposal may create an additional workload and expense for the VWA
and its agents, the cost to the scheme should be offset by the benefits of enabling simpler and
more efficient access to benefits and support. It would also provide an early opportunity for
agents to discuss return to work processes with employers.
3.183. For the reasons discussed in paragraphs 3.1673.182 above, I recommend a more flexible
approach to injury notification and making a claim (whether by the worker, the employer, a
person on the workers behalf or a doctor), including allowing notification and lodgement to
the employer, or directly to the VWA or its agents.
3.184. I also recommend the introduction of systems to enable electronic and telephone notification
of injury and lodgement of a claim form.
IMPROVE ACCESS TO MEDICAL INFORMATION
3.185. As required by the AC Act,
129
the approved claim form contains an authority to release medical
information, which the worker must sign for the claim to be valid. The authority permits any
person who provides medical or hospital services to the injured worker relating to the injury
or condition to provide any relevant information about the service to the VWA or employer on
request.
3.186. The authority to release medical information in the claim form purports to be irrevocable for the
duration of the claim. However, the AC Act does not provide that the authority is irrevocable. In
contrast, the TA Act expressly provides that a medical authority given by a claimant cannot be
revoked until the claim is finally determined.
130
3.187. It is conceivable that a worker may wish to withdraw her or his consent to the release of
medical information for a range of reasons for example, if the medical treatment required by
the worker changes from that which was originally thought to be required.
3.188. At present, the only way a worker can effectively withdraw her or his consent to the release of
medical information is by withdrawing the claim.
3.189. The AMA is
. . . concerned at the increasing trend towards WorkSafe requesting production of workers
entire medical records pursuant to establishing the merits of workers claims for lump sum
compensation.
131
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129 AC Act, s 103(1)(d).
130 TA Act, s 67(1A).
131 AMA, Submission, 8 February 2008, p 3.
3.190. The AMA further submits that the consent of workers to the release of complete medical
records relating to necessary medical treatment should not continue in perpetuity. In extreme
cases, several years can elapse between the giving of consent and treatment being rendered.
There may also be changes in treatment that were unforeseen by the worker at the time the
consent was given. The AMA submits that it
. . . would support any doctor acting on a patients instruction that consent had been
withdrawn.
132
3.191. The SIAV criticises the authority, particularly in relation to impairment benefit claims, on the
basis that it only authorises release of medical information in relation to the claimed injury,
rather than all previous claims and injuries. The SIAV is also concerned about the inability to
obtain information from other States in relation to previous similar injuries to workers. The SIAV
submits that its members report some
. . . medical practitioners will not release medical information because of concerns that a
worker may withdraw the Authority.
133
3.192. The AHEIA submits that the medical authority provisions should be amended to contain an
express provision similar to that set out under the TA Act. The AHEIA is concerned that
. . . if workers were to be able to withdraw or revoke their consent to the release of medical
information, the ability of the VWA to continue to process a claim would be significantly
limited.
134
3.193. It is questionable whether, as a matter of public policy, a worker should be asked to give up the
right to withdraw or revoke consent or authority for the life of a claim. Forcing a worker to give
consent where the worker wishes to revoke such consent appears to negate the concept of
consent.
3.194. However, on a practical level, if a worker could revoke the workers consent to the release of
medical information, the VWAs capacity to continue to process the claim would be significantly
limited. It could also effectively frustrate the purposes of the AC Act.
3.195. Attempting to manage a claim in the absence of important medical information could put the
worker at risk of receiving inappropriate treatment or return to work duties. It could also impact
on the employers attempts to provide workplace rehabilitation and support.
3.196. Workers should be protected from the release of private, confidential medical information that
is unnecessary or likely to be irrelevant for the purpose of managing their claim. However, it is
imperative that the VWA and any self-insurer have access to medical information when
determining liability for a claim. Provision should therefore be made for the VWA and a
self-insurer to have access to necessary medical information relating to the claimed injury,
without requiring the consent of the worker.
CLARIFY EMPLOYER OBLIGATIONS
3.197. The AC Act makes it an offence for an employer to refuse to receive a claim.
135
However,
there appears to be some uncertainty about what constitutes a refusal to receive a claim,
as prohibited by section 242(3)(a).
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132 AMA, Submission, 8 February 2008, p 4.
133 SIAV, Submission, May 2008, p 4.
134 AHIEA, Submission, 2 May 2008, p 2.
135 AC Act, s 242(3)(a). The penalty for refusing to receive a claim is 25 penalty units ($2835.50) for a first
offence or 50 penalty units ($5671) for a subsequent offence.
3.198. In a recent prosecution conducted by the VWA against the DEECD, the VWA charged the
DEECD with refusing to receive a claim. The injured worker had forwarded a claim for
compensation by registered post to the principal of the school where she worked. The principal
returned the claim form to the injured worker together with a letter stating that the principal
would not sign the claim form. The principal requested that the worker provide an amended
claim for compensation, saying that the principal would not forward the claim unless the
worker supplied an amended claim. The injured worker contacted a union representative,
who forwarded the claim to the agent on the workers behalf.
3.199. Arguably, because the school principal had not physically received the injured workers claim
form, the DoE could assert that it had not refused to receive the claim, even though the
principal returned the claim form to the injured worker and did not forward it to the DoEs
agent.
3.200. The DoE was ultimately found guilty of refusing to receive the claim by a Magistrate.
136
The
Magistrate was critical of the current wording of section 242(3)(a), and indicated that the
provision could be improved by more clearly specifying that employers must not refuse to
sign or refuse to forward a claim once it has been made.
137
3.201. Other Australian jurisdictions approach the requirement to lodge a claim differently, defining
service of a claim by the worker on the employer as involving delivering the claim to the
employer (or their representative) personally or by post.
138
3.202. The method used in other jurisdictions would overcome the current difficulties of proving
refusal to receive, because the worker only has to prove service, a common legal term.
139
3.203. The VTHC supports the replacement of the offence relating to refusing to receive a claim for
compensation with an express requirement for service of the claim on an employer.
140
3.204. I recommend that the AC Act be amended to remove the current offence of refusal to receive
a claim for compensation in section 242(3)(a) of the AC Act. An express requirement should be
included for service of the claim on an employer (either personally, or by post or electronically).
3.205. Under the AC Act, employers have a duty to forward claims to the VWA within a certain time.
Claims for weekly benefits must be forwarded to the VWA within 10 days of their receipt.
141
Claims for medical and like expenses must be forwarded within 10 days where the claim has
been rejected by the employer or where those expenses exceed the employers excess.
142
These provisions are clearly intended to ensure that claims are not avoided, delayed or
suppressed by employers once the claims have been received from an injured worker.
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136 VWA v DEECD, 25 July 2007.
137 Proceedings recorded not transcribed comments from Senior Prosecutor, VWA.
138 See for example, Workers Rehabilitation and Compensation Act 1988 (Tas), s 35(1); Workplace Injury
Management and Workers Compensation Act 1998 (NSW), s 66(3).
139 Section 49 of the Interpretation of Legislation Act 1984 (Vic) deems service by post to be effected at
the time when the letter would be delivered in the ordinary course of post.
140 VTHC, Submission, 2 May 2008, p 15.
141 AC Act, ss 108(1) and 108(1)(ab).
142 AC Act, ss 108(1), 108(1)(ba), (c).
3.206. Section 108(4) of the AC Act was amended from 1 July 2005 to provide for the imposition
of an additional liability on employers who fail, without reasonable cause, to forward claims
for weekly benefits to their agents within the specified period of 10 days.
An employer who fails to comply with the 10-day requirement will be liable for weekly
payments made to the worker by the VWA during the period commencing after the
employers liability for excess has been reached and ending when the claim is received
by the VWA.
143
If the employer has bought out the employers excess,
144
the employer will be liable
for a suitably adjusted amount.
145
3.207. Since the introduction of the employers liability in section 108(4), the proportion of claims
forwarded within the prescribed time has increased from 75% in June 2005 to around 90%
in 2007.
146
3.208. The VWA can impose an additional penalty on an employer who fails, without reasonable cause,
to forward a claim for weekly payments within the specified period of 10 days.
147
In addition,
it is an offence, punishable by 10 penalty units (a fine of $1,134.20) for a first offence, and
20 penalty units (a fine of $2,268.40) for a subsequent offence, to fail to comply with the
prescribed timeframe for forwarding claims.
148
3.209. In some circumstances, the liability imposed by section 108(4) of the AC Act may be an
inappropriate sanction for the employers omission to forward the claim. The additional penalty
is currently calculated on the amount of weekly benefits to which a worker was entitled
between the date of injury and the date the claim was received by the VWA, but that period
may not be the same as the period during which the employer delayed forwarding the claim.
An employer can be penalised for the workers delay in making the claim, which appears an
inappropriate basis for penalising the employer for a breach of the obligation to forward claims.
3.210. As the additional liability appears to have contributed to the earlier forwarding of claims, it
should be retained in substance. However, the calculation of the liability should be changed
to provide a fairer reflection of the extent of the employers breach.
3.211. I recommend that the additional liability provision in section 108(4) of the AC Act be amended,
to calculate the penalty by reference to the period between the date the claim was forwarded
to the employer and the date the claim was received by the VWA or the agent.
PROVIDING GREATER PROTECTION AGAINST DISCRIMINATION
3.212. Under section 242(3)(b) of the AC Act, it is an offence for an employer to dismiss a worker
because the worker has
given the employer notice of an injury;
taken steps to pursue a claim for compensation; or
given or attempted to give a claim for compensation to the employer or the VWA.
3.213. Section 242(2) of the AC Act provides that it is an offence for an employer to dismiss a worker
for complying with a request for information made by the VWA
149
or providing information in
the course of a statutory inspection.
150
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143 AC Act, s 108(4)(a).
144 Under s 125A(6) of the AC Act.
145 AC Act, s 108(4)(b).
146 Source: VWA.
147 AC Act, ss 108(4A), (5A).
148 AC Act, s 242(4)(b).
149 The VWAs power to require a person to furnish information is found in s 239 of the AC Act.
150 The VWAs power to require a person to give information in the course of a statutory inspection is
found in s 240 of the AC Act.
3.214. Victorias OHS Act also protects workers from discrimination for raising health and safety
concerns with their employer or with the VWA. Table 3.1 shows the key differences in the
protections afforded by the AC Act and those afforded by the OHS Act.
3.215. Comparable anti-discrimination provisions are also provided under the Long Service Leave Act
1992 (the LSL Act), the Equal Opportunity Act 1995 (the EO Act), the Outworkers (Improved
Protection) Act 2003 (the OIP Act) and the Workplace Relations Act 1996 (Cth) (the WR Act).
Table 3.1 also compares those provisions with section 242(3) of the AC Act.
TABLE 3.1: COMPARISON OF VICTORIAN ANTI-DISCRIMINATION PROVISIONS
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151 AC Act, ss 242(3), 252.
152 OHS Act, ss 7678, 130 and 131.
153 Health and Safety Representative.
154 Health and Safety Committee.
155 AC Act, ss 242(3), 252
156 LSL Act, ss 9093.
Act
Prohibited
conduct
Prohibited
reasons
Test for
establishing
breach
Standard and
onus of proof
Who can bring
an action?
Remedies/
Penalties
AC Act
151
Dismissal Giving notice of
an injury
Taking steps to
pursue a claim
Giving or
attempting to
give a claim to
an employer.
Dismissal must
be because of
the prohibited
reasons.
Effectively,
prohibited
reason must be
the sole reason
for dismissal.
Beyond
reasonable
doubt.
Onus on
prosecutor
(VWA) to prove
all elements of
the offence.
VWA or person
authorised by
VWA.
25 penalty units.
50 penalty units
for second and
subsequent
offences.
OHS Act
152
Dismissal
Injury in
employment
Alternation of
position to
detriment
Threats to do
the above
Failure to offer
employment
Less favourable
treatment
Being or
exercising
powers as a
HSR
153
or
member of a
HSC.
154
Assisting or
giving
information to
an inspector,
HSR or HSC
member.
Raising a health
and safety
issue.
Prohibited
reason must be
the dominant
reason for the
prohibited
conduct.
Beyond
reasonable
doubt.
Where all the
facts other than
the reason are
proved, the
defendant bears
the onus of
proving the
alleged reason
was not the
dominant
reason.
VWA or
inspector
authorised by
VWA.
A person can
request VWA to
prosecute and
give written
reasons for a
decision not to
prosecute.
Matter can also
be referred to
the DPP.
Individuals
6 months
imprisonment or
a fine of up to 500
penalty units.
Corporations
Fine of up to 2500
penalty units.
Orders for
compensation,
reinstatement and
employment.
LSL Act
156
Termination or
threatened
termination
Alteration of
position to
prejudice
Because an
employee is
entitled to or
seeks to
exercise any
entitlement
under the Act.
Prohibited
conduct must
be actuated
by the
proscribed
reason.
Balance of
probabilities.
Defendant
bears the onus
of proving that
conduct not
actuated by
proscribed
reason.
The employee
or an
organisation of
which the
employee is a
member or is
eligible to be
a member.
Civil penalty of up
to $10,000.
Orders for
reimbursement of
lost remuneration,
reinstatement or
up to 12 months
remuneration.
TABLE 3.1: COMPARISON OF VICTORIAN ANTI-DISCRIMINATION PROVISIONS continued
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157 EO Act, ss 9697, 104, 136 and Part 7 generally.
158 AC Act, ss 242(3), 252.
159 OIP Act, ss 50 and 55.
160 AC Act, ss 242(3), 252.
Act
Prohibited
conduct
Prohibited
reasons
Test for
establishing
breach
Standard and
onus of proof
Who can bring
an action?
Remedies/
Penalties
AC Act
160
Dismissal Giving notice of
an injury
Taking steps to
pursue a claim
Giving or
attempting to
give a claim to
an employer.
Dismissal must
be because of
the prohibited
reasons.
Effectively,
prohibited
reason must be
the sole reason
for dismissal.
Beyond
reasonable
doubt.
Onus on
prosecutor
(VWA) to prove
all elements of
the offence.
VWA or person
authorised by
VWA.
25 penalty units.
50 penalty units
for second and
subsequent
offences.
EO Act
157
Victimisation,
subjecting or
threatening to
subject a
person to
detriment.
Making a
complaint or
bringing
proceedings
under the Act
Giving evidence
in proceedings
under the Act
Otherwise
acting in
accordance
with Act
It is irrelevant
whether the
proscribed
reason is the
sole or
dominant
reason, as long
as it is a
substantial
reason.
Balance of
probabilities.
Onus on person
alleging
prohibited
conduct.
Person claiming
contravention or
person
authorised to
act on that
persons behalf,
person entitled
to claim on
behalf of others
re common
conduct, a
representative
body with
sufficient
interest in the
complaint.
Orders to refrain
from committing
further breaches
and to pay
compensation for
loss and damage.
Outworkers
Act
159
Victimisation,
subjecting or
threatening to
subject a
person to
detriment.
Claiming a
benefit or
exercising a
power, right or
entitlement
under the Act
Bringing a
proceeding
under the Act
Informing a
person of an
alleged
contravention of
the Act.
That the
proscribed
conduct
occurred for a
proscribed
reason.
Beyond
reasonable
doubt.
Onus on
prosecutor.
A person
authorised by
either the
Minister, the
Secretary or a
person
employed in the
Department
(where the
Minister has
authorised the
Secretary or
person)
An officer of the
Textiles Clothing
and Footware
Union of
Australia
(Victorian
Branch).
120 penalty units.
TABLE 3.1: COMPARISON OF VICTORIAN ANTI-DISCRIMINATION PROVISIONS continued
3.216. In his recent review of the administration of the OHS Act, the Hon Bob Stensholt MP
recommended that the adequacy of the current protections for workers against discrimination
should be considered in this Review, with a view to harmonisation the protections afforded by
the AC Act and the OHS Act.
3.217. The Stensholt review also supported consideration of a right for an individual to institute
proceedings in relation to alleged discrimination under both the AC and OHS Acts.
164
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161 WR Act, ss 659(2)(e), 664, 665, 841.
162 AC Act, ss 242(3), 252.
163 WR Act, ss 792, 793, 807, 809 and 841.
164 Bob Stensholt MP, A Report on the Occupational Health and Safety Act 2004: Administrative Review,
December 2007, pp 6162.
Act
Prohibited
conduct
Prohibited
reasons
Test for
establishing
breach
Standard and
onus of proof
Who can bring
an action?
Remedies/
Penalties
AC Act
162
Dismissal Giving notice of
an injury
Taking steps to
pursue a claim
Giving or
attempting to
give a claim to
an employer.
Dismissal must
be because of
the prohibited
reasons.
Effectively,
prohibited
reason must be
the sole reason
for dismissal.
Beyond
reasonable
doubt.
Onus on
prosecutor
(VWA) to prove
all elements of
the offence.
VWA or person
authorised by
VWA.
25 penalty units.
50 penalty units
for second and
subsequent
offences.
WR Act
161
Termination of
employment
Filing a
complaint, or
participating in
proceedings,
against an
employer
involving
violation of laws
or regulations or
recourse to
competent
administrative
authorities.
An employer
must not
terminate
employment for
a proscribed
reason.
Balance of
probabilities
Employee need
not prove
termination was
for proscribed
reason, but it is
a defence if
employer
proves that
termination was
for a reason/s
not including a
proscribed
reason.
Employee
Trade union
entitled under
its rules to
represent the
interests of the
employee.
Penalty of not
more than $10,000
(payable to the
employee).
Reinstatement.
Compensation of
up to 6 months
remuneration.
Any other order
necessary to
remedy effect of
termination.
WR Act
163
Dismissal
Injury in
employment
Alteration of
position to
prejudice
Refusal to
employ
Discriminate in
employment
terms
Terminate
contract for
services
Threats to do
any of the
above.
Making or
proposing to
make an
application for a
secret ballot
Participating in a
secret ballot
Making an
inquiry to seek
compliance with
industrial
law/instrument
Participating in a
proceeding
under industrial
law
Giving evidence
in an industrial
law proceeding.
Proscribed
conduct must
not be for a
proscribed
reason.
Balance of
probabilities
Where
proscribed
conduct is
alleged to have
occurred for
proscribed
reason, conduct
presumed to be
for that reason
unless proven
otherwise.
Workplace
inspector
Person affected
by
contravention
Prescribed
persons.
Order imposing
pecuniary penalty
(payable to
employee).
Order requiring
payment of
compensation for
loss and damage.
Any other orders
the Court thinks fit
(including
injunctions).
3.218. In reaching his conclusions, the Hon Bob Stensholt MP referred to the following commitment
given by the Government prior to the 2006 State election:
165
Labor recognises that workplace health and safety representatives play a crucial role in
creating safer workplaces. Labor will legislate to provide enhanced protection from
discrimination and dismissal for health and safety representatives and workers who raise
safety issues, report injuries or make a claim, including the right for an individual to institute
proceedings in relation to an alleged breach with remedies to redress the discrimination.
3.219. In its response to the Stensholt review, the Government indicated that it would move to
implement the necessary legislative amendments to give practical effect to its election
commitment.
166
Additional remedies for discrimination
3.220. There is a degree of overlap between the AC Act discrimination provisions and the protections
afforded under the WR Act (for unlawful dismissal on the grounds of temporary absence or
filing a complaint, or unfair dismissal generally) and the EO Act (for discrimination on the basis
of the attributes of employment activity or impairment). However
the prohibited grounds for dismissal under the WR Act and the relevant attributes for
discrimination under the EO Act do not coincide with the prohibited grounds for dismissal
under the AC Act;
access to remedies for unfair dismissal under the WR Act is subject to significant exclusions;
and
the WR Act prohibitions on dismissal and remedies for unfair dismissal are limited to
employees.
3.221. The Commonwealth Government has expressed its intention to amend the WR Act before
1 January 2010, so as to allow greater protection of workers from unfair dismissal. However,
those amendments will not cover all workers and it is likely that restrictions based on a
minimum period of employment with an employer will remain.
3.222. It is clear that those alternative remedies for discrimination, either taken on their own or in
combination, do not comprehensively protect workers from discrimination arising from making
or pursuing compensation claims or raising health and safety issues.
Stakeholder views
3.223. The Workers Occupational Health Centre submits that there is anecdotal evidence that a high
proportion of workers who submit claims eventually lose their employment. The Centre is also
concerned that there is active discrimination in workplaces to avoid the employment of those
who have previously submitted a claim, or have an injury or an illness, and submits that this
inhibits workers from submitting claims or reporting injuries in a timely manner.
167
3.224. The National Union of Workers
168
and the VTHC
169
submit that the provisions in the AC Act
should reflect those in the OHS Act.
3.225. The ANF submits that greater protection from discrimination by employers should be provided
to workers. They support the prohibition of wider categories of discrimination, including less
favourable treatment, demotion, threats and unreasonably changing the injured workers
position as a result of a workplace injury.
170
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165 The Hon Bob Stensholt MP, A Report on the Occupational Health and Safety Act 2004: Administrative
Review, December 2007, p 61.
166 Victorian Government Response to: A Report on the Occupational Health and Safety Act 2004
Administrative Review, June 2008, p 5.
167 Workers Occupational Health Centre, Submission, 2 May 2008, p 2.
168 National Union of Workers, Submission, 2 May 2008, p 1.
169 VTHC, Submission, 2 May 2008, p 15.
170 ANF, Submission, 2 May 2008, p 4.
3.226. JobWatch, an employment rights legal centre that provides advice and assistance to Victorian
workers via a telephone information service, submits that it is all too common for a worker [to]
find that their employment is terminated or that they are treated less favourably shortly after
they have provided a WorkCover claim form to their employer.
171
3.227. JobWatch submits that
. . . any amendments to the AC Act should go further than just aligning the offences and
penalties with the OHS Act and actually give individual workers standing to commence legal
action for breach of the anti-discrimination provisions of the AC Act.
172
3.228. JobWatch further submits that the test required for a Court to find in favour of an individual
applicant/complainant or the VWA should be in line with the current test for unlawful
termination of employment under the Federal WR Act, namely
(a) the onus of proof should be reversed such that the employer must prove that the reason
for the termination/discrimination did not include the making of a WorkCover claim by the
worker; and
(b) where there is more than one possible reason for the termination/discrimination, the
WorkCover claim element need not be the dominant reason so long as it was at least one
of the reasons or part of the reason for the discriminatory conduct.
173
3.229. The AMIEU submits that currently, if an employee of a labour hire firm is discriminated against
by the host employer, the host employer cannot be penalised under the anti-discrimination
provisions.
174
3.230. VECCI strongly opposes aligning the AC Act provisions with those in the OHS Act. VECCI
asserts that sections 76 and 77 of the current OHS Act are
. . . probably the only law in the Westminster system where a citizen can be imprisoned
without the prosecution having to prove its case.
175
3.231. VECCI asserts that, because of the reversal of the onus of proof, the provision removes the
fundamental right of employers to be regarded as innocent until proven guilty.
176
3.232. VECCI and Ai Group oppose the VTHCs proposal that workers should be able to bring an action
for discrimination. VECCI submits that workers can already use
. . . the Federal Disability Discrimination Act and the Workplace Relations Act to bring actions
against their employer.
177
The nature and extent of discrimination
3.233. In 2000, the Australian Bureau of Statistics conducted a national survey of 477,800 workers who
reported they had suffered a workplace injury: 60.5% of these workers did not receive workers
compensation. The reasons for this varied; however, 4.2% (or approximately 12,140 workers)
reported that they did not make a claim for fear of harming their employment prospects.
178
3.234. Prior to the significant changes to Federal industrial laws in 2006 (the WorkChoices
amendments), Victorian employees dismissed for exercising rights under the AC Act could bring
unfair dismissal claims and seek reinstatement and/or compensation due under the general
prohibition in those industrial laws on harsh, unjust or unreasonable dismissals.
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171 Job Watch Inc, Submission, May 2008, p 4.
172 Job Watch Inc, Submission, May 2008, p 5.
173 Job Watch Inc, Submission, May 2008, p 6.
174 AMIEU, Submission, 2 May 2008, p 9.
175 VECCI, Submission, April 2008, p 23.
176 VECCI, Submission, April 2008, p 23.
177 VECCI, Submission, April 2008, p 24.
178 ABS, Work-Related Injuries, Australia, September 2000.
3.235. In the full calendar year before the WorkChoices amendments, the Australian Industrial
Relations Commission (the AIRC) heard and determined 13 claims from Victorian employees
involving workers who had made or pursued workers compensation claims. According to the
2004/2005 and 2005/2006 AIRC Annual Reports, settlement rates at the conciliation conference
stage for unfair dismissal cases were 77% and 73% respectively. Using those figures, the 13
decided cases would represent approximately a quarter of claims made, that is, around three
quarters of claims would have settled earlier at the conciliation stage.
3.236. Data from the Workplace Rights Information Line (the WRIL), established by the Office of the
Victorian Workplace Rights Advocate, gives a further indication of the extent of complaints of
discriminatory conduct related to workers exercising rights under the AC Act.
3.237. A review of calls to the WRIL from 17 March 2006 to 30 April 2008 indicates that there were
333 workers compensation-related calls. Of those calls, approximately 45 callers described
circumstances that could amount to discrimination.
3.238. JobWatch submits that, over the last eight financial years, the JobWatch telephone information
service has received 3,835 inquiries relating to workers compensation (2.5% of all inquiries
relating to problems in the workplace). There were 412 telephone calls from workers who
alleged that their employment had been terminated because they had made a workers
compensation claim.
179
3.239. JobWatch provided a number of case studies relating to discrimination against workers who
had lodged a workers compensation claim, as follows:
Mandy worked on a casual full time basis as a labourer on a farm for nearly 6 months when
she was injured at work. She had a fall and made a WorkCover claim. While Mandy was
away from work on WorkCover her employer sacked her for being off on WorkCover
he complained the insurance was too high. She had only been off work for 3 days.
Paul worked as a technician for 2 months. He incurred a workplace injury whereby he tore a
muscle and the next day he informed his employer and gave them his WorCover claim. The
OHS Manager said to Paul that he would be foolish to try and submit a WorkCover claim,
and then said they were kidding.
Paul was dismissed three weeks later. The first thing the employer said to Paul when
terminating his employment was that Paul had thrown a lot of paperwork at him over the
past couple of weeks in reference to his WorkCover claim and then the employer said,
almost as an after thought, that Pauls performance had not been that great and proceeded
to dismiss him summarily. Paul says his performance was fine, and he had not had any
complaints from his employer about his performance previous to the dismissal.
Con worked as a storeman at a transport company. He was injured at work when his foot
was run over by a forklift that was driven by an unlicensed fork lift driver. Cons WorkCover
claim was accepted and he returned to work on modified duties. He has had limited contact
with WorkCover and issues have emerged in the workplace since his return. Con has been
treated differently by his employer since he has returned to work and has been disciplined
for issues that are accepted in the workforce. For example he was called into his managers
office when he took parental leave and told that it was not acceptable to do so.
180
3.240. It is difficult to ascertain the nature and extent of discrimination arising from making or pursuing
workers compensation claims. However, the available information demonstrates that
discrimination by employers against workers exercising their rights under the AC Act occurs,
and that the conduct complained of is not trivial. It is clear that protections are needed to
address the conduct of a small proportion of employers who engage in discriminatory conduct
and to provide a general deterrent to employers from engaging in such conduct.
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179 Job Watch Inc, Submission, May 2008, p 5.
180 Job Watch Inc, Submission, May 2008, p 4.
Improve protections against discrimination
3.241. I consider that the anti-discrimination provisions in the AC Act are not a satisfactory means for
protecting workers from discrimination or providing workers with a remedy for discrimination.
3.242. The current provisions are aimed at an overly narrow category of conduct; they are very difficult
to prosecute; they provide inadequate remedies; and they may only be enforced by the VWA.
3.243. Section 242(3) of the AC Act only prohibits dismissal of a worker, so that a wide range of
detrimental conduct falling short of dismissal (such as demotion, transfer or reduction in hours)
is not punishable under the AC Act. The OHS Act, EO Act and LSL Act provide protection from
those broader forms of detrimental treatment.
3.244. Section 242(3) only prohibits discrimination against workers that is, current employees and
other deemed workers. It does not protect job applicants. It follows that, although it is an
offence to dismiss a worker because the worker has made a claim, it is not an offence to refuse
to employ a job applicant for the same reason.
3.245. To prosecute an offence under section 242(3) of the AC Act successfully, the VWA must
establish that the sole reason for the dismissal was a prohibited reason. An employer will
not commit an offence under that provision unless it can be proved beyond reasonable doubt
that the actions of the worker in making or pursuing the claim were the sole reason for the
employers discriminatory action. If there is any other reason for the employers action, the
prosecution will not succeed.
3.246. Questions of motivation can be difficult to prove and it is conceivable that there may be a range
of other reasons for a workers dismissal that could be used to disguise the dominant reason
for the dismissal. I recommend that the AC Act be amended to provide that an offence is
committed by an employer where a proscribed reason was the dominant reason for the
discriminatory conduct, aligning the test for liability with the test under the OHS Act.
3.247. I further recommend that, where the prosecution has proved all of the facts constituting an
offence under section 242(3), other than the reason for the alleged discriminatory conduct, the
onus of proof should shift to the defendant to prove that the dominant reason for the conduct
was not a proscribed reason, further aligning the test for liability with the test under the OHS
Act. I am convinced that reversing the onus of proof is justified primarily because the offence
turns on a particular matter (being the reason for certain conduct) that is peculiarly within the
knowledge of the employer. It is therefore appropriate that the employer be required to explain
why the employer took a particular course of action, rather than requiring the VWA to prove the
employers motivation.
3.248. Furthermore, as the offence under section 242(3) of the AC Act is of an equivalent level of
seriousness to the discrimination offences under the OHS Act, I consider that the maximum
financial penalty for an offence under section 242(3) should be equivalent to the financial
penalties under the OHS Act. I agree with VECCIs concern that reversing the onus of proof
is inappropriate for offences punishable by imprisonment. Accordingly, I recommend that an
offence under section 242(3) should not be punishable by imprisonment. However, orders for
compensation and reinstatement and, in the case of prospective employees, orders requiring
employment should be available to the Court when sentencing.
3.249. Only the VWA is permitted to bring a prosecution under section 242(3). Although I consider
that this should remain the case, I believe that workers should have some capacity to prompt
the bringing of prosecutions and to hold the VWA to account for decisions not to prosecute.
3.250. I recommend that the AC Act should be amended to include a provision, along the lines of
section 131 of the OHS Act, allowing a worker (within a prescribed timeframe) to request that
the VWA bring a prosecution for an alleged offence. The VWA should be required to investigate
the alleged breach within a prescribed timeframe and, following that investigation, advise the
worker whether a prosecution will be brought. If a prosecution is not to be brought, the VWA
should provide reasons for its decision. The worker should be able to ask the Director of Public
Prosecutions to review the VWAs decision not to prosecute.
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3.251. Although I do not consider that workers (or their representatives) should be able to bring
prosecutions for discrimination offences under the AC Act, a worker should be able to make
a complaint about discriminatory conduct and seek remedies for that conduct, without relying
on the VWA to bring a criminal prosecution.
3.252. The EO Act already provides an avenue for workers to make direct complaints about certain
types of discrimination. However, it is far from clear that a worker who has suffered
discrimination arising from making or pursuing a workers compensation claim or raising a
health and safety issue will be covered by the EO Act. I recommend that amendments be made
to the EO Act to ensure that workers who suffer such discrimination can make complaints to
the Equal Opportunity and Human Rights Commission as the first step in seeking redress.
3.253. If the proposed anti-discrimination provisions were included in the EO Act, it would be likely
that only relatively serious breaches of the anti-discrimination provisions in the AC Act would
be prosecuted by the VWA (as is currently the case). The VWAs prosecution guidelines provide
that prosecutions are only to be brought where such action is in the public interest. A
significant element in considering whether the prosecution is in the public interest is the
severity of the offence.
181
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181 Victorian Government Gazette, VWA Prosecution Guidelines, No S 127, 1 July 2005, Guidelines
12 and 14.
SUPPORTING WORKERS TO GET
BACK TO WORK AFTER INJURY
The importance of early and durable return to work
How should the AC Act support return to work?
A new approach to the legislative framework
Planning return to work
Providing pre-injury or suitable employment
Exemption from the obligation to provide pre-injury
or suitable employment
Risk management and occupational rehabilitation programs
Return to work coordinators
Labour hire
Compliance and enforcement
Workers right of action
Roles of other workplace parties involved in return to work
Issue resolution
Return to work incentives
4.1. The importance of early, safe and lasting return to work outcomes in workers compensation
schemes cannot be overstated.
4.2. There are obvious benefits for workers in returning to work as soon as possible after an injury
or illness; and it is well established that getting back to work can assist rehabilitation and
improve a workers long-term health and wellbeing. With the appropriate treatment and support,
most injured workers can continue working or get back to work relatively quickly.
4.3. Early and sustained return to work also benefits the workers compensation scheme because
the longer workers are off work, the greater the drain on the schemes financial resources.
4.4. The challenge for any workers compensation scheme is to create appropriate incentives for
employers and workers to participate in the return to work process, while providing adequate
income and medical support following work-related injury.
4.5. The AC Act has a specific focus on returning injured workers to work. The objects of the Act
include providing injured workers with effective occupational rehabilitation and suitable
employment to enable them to return to work as soon as possible.
1
4.6. The AC Act seeks to achieve those objectives by imposing specific obligations on employers
and workers. This prescriptive approach affords workplaces little flexibility in choosing how they
meet their return to work obligations.
4.7. Most Australian jurisdictions impose similar return to work obligations, but the AC Act is one
of the most prescriptive.
4.8. Many stakeholder submissions to the Review argue that the current approach is overly
prescriptive and complicated. Employer groups strongly believe that the AC Act has an
inappropriate focus on paperwork, and support the adoption of a more outcome-focused model
along the lines of the OHS Act. Worker groups suggest alternatives to ensure better return to
work and rehabilitation outcomes for injured workers, and point to a need for more effective
enforcement of the AC Acts return to work provisions.
4.9. In this chapter, I:
examine the importance of return to work in any workers compensation scheme and discuss
Victorias performance;
explore how the Act should support return to work, and propose a new outcome-focused
approach;
discuss how issues associated with the current return to work provisions will be
accommodated in the new approach;
propose changes to the size, function and powers of the return to work inspectorate;
discuss the roles of workplace parties in return to work;
examine the issues involved with return to work in the labour hire context; and
consider other incentives available to enhance return to work outcomes.
THE IMPORTANCE OF EARLY AND DURABLE RETURN TO WORK
4.10. Research overwhelmingly demonstrates that returning to work after an injury or illness improves
a workers long-term physical and mental health and wellbeing, decreasing the risk of chronic
disability.
2
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1 AC Act, s 3(b) and (c).
2 G Waddell, K Burton and M Aylward, Work and common health problems, Journal of Insurance
Medicine, 39(2), 2007, pp 109120; G Waddell and K Burton, Is work good for your health and well-
being?, 2006, p ix, viewed 13 May 2008; <www.workingforhealth.gov.uk/documents/is-work-good-for-
you.pdf>; Return to Work Knowledge Base, The issue for treaters, viewed 13 May 2008;
<www.rtwknowledge.org/browse.php?article_id=178&searchresult=true&view_type=research>.
4.11. Long-term unemployment (or what some studies describe as worklessness) is associated with
poorer health outcomes
3
as well as substantial economic impacts.
4.12. The costs associated with a work-related injury are borne not only by the worker, but also by the
employer (both directly and through the WorkCover injury insurance scheme) and by the
community (through the social security and health systems). Direct costs include medical
expenses (hospitalisation, medical and allied health practitioner visits and rehabilitation), legal
costs and the costs of hiring a replacement worker. Indirect costs include lost output due to
reduced productivity, lower staff morale and the administration of workers compensation claims.
4
4.13. The National Occupational Health and Safety Commission has estimated that the total
economic cost of workplace injury, illness and death to workers, employers and the wider
community is more than $31 billion annually, or some 4.3% of gross domestic product.
5
4.14. Early and sustained return to work significantly benefits the scheme, because scheme liabilities
are driven largely by continuance rates (the average length of time injured workers continue to
receive weekly benefits).
4.15. While most people return to work quite quickly, a small but significant proportion (see Table 4.1
below) are off work for longer periods, some permanently. The long-term incapacitated account
for most of the costs of work-related illness and injury not only in terms of weekly benefits
and medical and like benefits, but more importantly in terms of the immeasurable social costs
of damage to individuals health and quality of life.
6
Victorias performance in return to work
4.16. A key measure of the success of injury management is the rate of durable, or long-term, return
to work.
4.17. According to the Return to Work Monitor,
7
in 2006/2007 Victoria had a return to work rate of
85%,
8
which was the same as the national average. The Commonwealth scheme had the best
return to work rate at 92%, with Tasmania following at 91%.
9
4.18. However, Victorias durable return to work rate is almost 76%,
10
just below the national average
of 77%.
11
The Commonwealth scheme has a durable return to work rate of 85% and Tasmanias
rate is 83%.
12
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3 G Waddell, K Burton and M Aylward, Work and common health problems, Journal of Insurance
Medicine, 39(2), 2007, pp 109120.
4 Australian Social Trends, ABS 4102.0, Work-Related Injuries, 2007, p 4; Productivity Commission,
National Workers Compensation and Occupational Health and Safety Frameworks, inquiry report,
no 27, 2004, p xxiv.
5 Australian Social Trends, ABS 4102.0, Work-Related Injuries, 2007, p 4; Productivity Commission,
National Workers Compensation and Occupational Health and Safety Frameworks, inquiry report,
No. 27, 2004, p XXIV.
6 Return to Work Knowledge Base, Improving return to work outcomes, the Knowledge Base,
and the world wide movement to reduce work disability, viewed 26 June 2008;
<www.rtwknowledge.org/browse.php?article_id=173&view_type=employee>.
7 Campbell Research & Consulting, Return to Work Monitor 2006/2007, HWCA, pp 1-2. The RTW Monitor
is an annual comparative review of rehabilitation and Return to Work outcomes across workers
compensation schemes in Australia (except Western Australia) and New Zealand. For 2006/2007, a
sample of 3019 workers was drawn from all injured workers who have received 10 or more days
weekly compensation within nine months of lodging a claim.
8 The Return to Work rate is the percentage of injured workers who have returned to work for some
period within six months of their claim.
9 Campbell Research & Consulting, Return to Work Monitor 2006/2007, HWCA, p 1.
10 The durable return to work rate is the percentage of injured workers who return to work within
six months of their claim and are still at work 6-7 months after injury.
11 The national durable return to work rate of 77% is below its peak level of 80% in 2005/2006, although
it remains higher than the comparative rates compiled in 2000/2001 to 2002/03, Campbell Research &
Consulting, Return to Work Monitor 2006/2007, HWCA, p i.
12 Campbell Research & Consulting, Return to Work Monitor 2006/2007, HWCA, p 2.
4.19. While such comparative reviews have some value, it is important to note that a combination of
factors can influence return to work rates. Further, the timing of the survey and the survey size
may also affect the results of the reviews.
4.20. In 2006, the VWA introduced a new survey to assess sustainable return to work outcomes and
give the VWA an internal benchmarking tool.
13
4.21. For 2008, the VWA survey indicated that the sustainable return to work rate was 78.3%, up from
the 75.8% reported for 2007 and from the 75.5% reported for 2006.
14
The rate was higher
among self-insurers at 84.1%, which had also improved from 82.9% in the previous year.
4.22. Overall, government employers had a return to work rate of 82.5%, large employers
15
had a rate
of 79.9% and small employers
16
had a rate of 75.5%, all improved from 2007.
17
The different
rates may reflect the fact that larger employers (including government employers) generally
have greater capacity and resources for providing suitable employment for injured workers.
18
4.23. As mentioned in paragraph 4.14 above, weekly benefit continuance rates are a major driver of
scheme liabilities. The VWA measures the percentage of workers who continue to receive
weekly benefits at 13, 26, 52 and 134 weeks after injury. Although continuance rates do not
necessarily correlate with the number of workers who have returned to work, because weekly
benefits may cease for a range of reasons, the continuance rates are a useful proxy measure
for return to work.
4.24. As Table 4.1 shows, data for the 2007/2008 financial year indicates that more than a quarter of
all injured workers were receiving some form of weekly benefit six months after their injury.
TABLE 4.1: CONTINUANCE RATES VICTORIA (APRIL 2008)
4.25. There are also some differences based on the size of the employer. As Table 4.2 shows, small
and government employers have poorer continuance rates than medium and large employers.
TABLE 4.2: CONTINUANCE RATES AT 26 WEEKS VICTORIA (APRIL 2008)
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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13 Sweeney Research, RTW Sustainability Survey Report, research report prepared for the VWA. The
survey includes over 2000 injured workers and identifies the percentage of injured workers (with at
least 10 days off work) who have returned to work and remain working 14-19 months after injury.
14 Sweeney Research, RTW Sustainability Survey Report, research report prepared for the VWA, 2008, p 7.
15 Remuneration more than $20 million.
16 Remuneration less than $1 million.
17 Sweeney Research, RTW Sustainability Survey Report, research report prepared for the VWA, 2008, p 17.
18 Sweeney Research, RTW Sustainability Survey Report, research report prepared for the VWA, 2007, p 29.
19 Source: VWA.
20 Source: VWA.
Weeks of weekly benefits 2007/2008 YTD
19
13 44.33%
26 25.59%
52 15.33%
134 4.33%
Employer size 2007/2008 YTD
20
Small 29.76%
Medium 25.27%
Large 20.52%
Government 26.99%
4.26. It is clear that, although Victorias return to work performance overall is comparable with other
Australian jurisdictions, there is room for improvement.
HOW SHOULD THE AC ACT SUPPORT RETURN TO WORK?
4.27. For injured workers, the principal incentives provided by the AC Act to return to work include:
the financial impacts associated with the step-downs in weekly benefit arrangements, under
which the amount of weekly benefits decreases at certain intervals the longer the worker
remains off work;
21
the termination of weekly benefits for workers who do not make reasonable efforts to
participate in the return to work process;
22
and
the use of notional earnings as a basis for reducing or terminating payments (effectively
allowing the VWA to determine the amount that a worker could earn each week, even when
the worker has not returned to work or has only partially done so).
23
4.28. For employers, the principal incentives are built into the WorkCover injury insurance system. The
system is designed to promote improvements in return to work outcomes by linking premiums
to claims performance (so that employers with good claims performance are rewarded with
lower premiums, and vice versa). The linkage provides financial benefits (lower workplace injury
insurance premiums) for employers who return workers to work and achieve early and
sustained return to work. Those employers can also expect other financial benefits, such as
reduced retraining and recruitment costs and improved productivity.
4.29. While healthcare professionals play a central role in ensuring that injured workers are fit to
return to work, their role under the AC Act is less clear. There are no legislated incentives for
healthcare professionals to assist and encourage return to work.
4.30. The VWA has set itself an ambitious target of becoming a return to work centre of excellence
24
and improving return to work outcomes by 30% by 2012.
25
The VWA has developed a number
of strategies to improve return to work outcomes on the basis of best-practice research. These
include the establishment of a $10 million return to work fund to support initiatives by
workplace parties that focus on improving opportunities for injured workers to return to work
successfully.
26
4.31. However, it is clear from the research that a range of factors is critical to ensuring the
successful return to work of an injured worker, and that there are opportunities to improve
Victorias return to work performance and further secure the schemes financial viability.
4.32. The literature suggests that certain interventions are especially effective in reducing the
duration of incapacity for work. A systematic review of the literature conducted by the Canadian
Institute for Work and Health
27
found that three components early contact with the worker by
the workplace, an offer of modified work, and contact between healthcare providers and the
workplace significantly reduce work disability duration and costs.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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21 AC Act, ss 93CA, 93CB, 93CC, 93CD. In Victoria, for the first 13 weeks of incapacity, an injured worker
receives 95% of their PIAWE. Between the 14th and 130th weeks, the worker receives 75% of PIAWE.
Entitlement to weekly benefits ends at 130 weeks, except in some circumstances: see Chapter 5,
Better income replacement , paragraphs 5.16, table 5.1.
22 See Chapter 5, Better income replacement, paragraphs 5.18
23 See Chapter 5, Better income replacement, paragraphs 5.140-5.147.
24 VWA, Business Plan 2006/2007, viewed 17 June 2008, p 18 <www.worksafe.vic.gov.au/wps/wcm/
resources/file/eb260245a28ba1e/biz_plan_07_08.pdf>.
25 VWA, Annual Report 2007, p 7 <>http://www.worksafe.vic.gov.au/wps/wcm/resources/file/
eb947c4f47bfd9c/AR2007_final.pdf>.
26 An overview of those initiatives is provided in Appendix 4.2.
27 RL Franche, K Cullen, J Clarke, E MacEachen, J Frank, S Sinclair and R Reardon, Workplace-based
return-to-work interventions: a systematic review of the quantitative and qualitative literature, 2004,
p 5, viewed 17 June 2008, <www.iwh.on.ca/sr/wd_rtw_interventions.php>.
4.33. While the traditional understanding was that medical treatments and recovery most determine
whether a person is able to return to work, the evidence increasingly demonstrates that many
other factors influence return to work and health outcomes for injured workers.
28
4.34. Personal beliefs, attitudes and behaviours, and the level of partnership in the workplace
between the employer and the injured worker have a real and measurable influence on whether
the person is able to return to work successfully.
29
4.35. It seems that real progress in return to work is not possible without cooperation and
commitment from all parties involved in the process, including healthcare providers, insurance
agents and employers.
30
However, this approach is not fundamentally supported by the current
return to work provisions in the AC Act.
4.36. Recent reviews in other jurisdictions have recommended fostering a supportive culture in the
workplace, because this has been shown to enhance injury management and return to work.
31
4.37. For example, the 2007 review of the South Australian workers compensation scheme
recommended that the scheme administrator
. . . build upon existing initiatives to make the fostering and facilitating of more supportive
workplace cultures within and across the scheme employer community (both levy-paying and
self-insured) a key part of its regulatory mission and programme.
32
4.38. I believe that there are further opportunities that can be realised and that an overhaul of the
legislative framework needs to be considered if the AC Act is to support the scheme in meeting
its return to work targets.
A NEW APPROACH TO THE LEGISLATIVE FRAMEWORK
4.39. The AC Act seeks to achieve its objectives by imposing specific obligations on employers and
workers in the return to work process.
4.40. I do not believe that the detailed prescription in the AC Act assists employers to focus on the
need to return the injured worker to work as soon as it is safe and possible to do so. Nor does
it encourage a focus on building a workplace culture that will enable the workers return to work
to be durable.
4.41. It is understandable that employers and workers can be overwhelmed by having to navigate
the complex maze of prescriptive and technical provisions in the current AC Act. Although
the policy behind the current provisions is generally clear, the provisions themselves are often
confusing. As far as possible, the operation of the return to work provisions must be spelt out
clearly and must be capable of being understood by those who are expected to comply.
4.42. As discussed in paragraphs 4.324.35 above, the successful return to work of an injured worker
depends on a complex set of factors, such as the will of the worker to return to meaningful
employment, the culture of the workplace where the injury occurred, the willingness of the
employer to keep in contact with the worker and encourage the worker to return to the
workplace and the availability of suitable duties.
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28 Return to Work Knowledge Base, Improving return to work outcomes, the Knowledge Base, and the
world wide movement to reduce work disability, viewed 13 May 2008 <www.rtwknowledge.org/
browse.php?article_id=173&view_type=insurer>.
29 Return to Work Knowledge Base, Improving return to work outcomes, the Knowledge Base, and the
world wide movement to reduce work disability, viewed 13 May 2008 <www.rtwknowledge.org/
browse.php?article_id=173&view_type=insurer>
30 P Foreman, G Murphy and H Swerissen, Facilitators and Barriers to Return to Work: A Literature
Review, Australian Institute for Primary Care, La Trobe University, 2006, p 5.
31 A Clayton, Review of the Tasmanian Workers Compensation System: Report, 2007, p 73; Campbell
Research & Consulting, Return to Work Monitor 2006/2007, HWCA, August 2007, p ii.
32 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System Report, 2007, p 174.
4.43. I believe the legislative framework should focus on supporting successful return to work and
provide mechanisms by which an employer can demonstrate compliance with legislative
requirements without the need for overly prescriptive obligations and tasks. The legislative
framework should be flexible enough to support innovation and be adaptable to emerging
practice in return to work and to disparate work situations.
Victorias OHS regime
4.44. To that end, it is instructive to compare the legislative regimes in Victoria for return to work
and OHS.
4.45. The successful prevention of work-related injuries and illnesses through OHS is another key
driver of the viability of any workers compensation scheme. As in the case of return to work,
a range of complex factors influence OHS performance, including the workplace environment
and culture, employers awareness of their legal obligations, and individual behaviour.
4.46. During the past 50 years, the legislative framework for OHS in all Australian jurisdictions has
evolved from a highly prescriptive regime to one that focuses on the duties of the various
parties in the workplace to ensure a safe working environment.
4.47. Under Victorias OHS Act (which is also administered by the VWA), employers are required to
provide a safe workplace for employees, so far as is reasonably practicable.
33
Other duties are
placed on self-employed people,
34
employees,
35
people who manage or control workplaces
36
and various other parties whose activities can affect health and safety in the workplace.
37
The
OHS Act provides for other matters such as consultation with employees,
38
representation of
employees,
39
the OHS inspectorate and enforcement,
40
and review of decisions made by the
VWA and inspectors.
41
4.48. Regulations made under the OHS Act set out more detailed requirements for particular
workplace hazards, hazardous industries, resolution of OHS issues that arise in the workplace
and a range of other matters.
4.49. To provide guidance to duty-holders about how to carry out their duties, the OHS Act provides
for compliance codes.
42
A duty-holder who meets a compliance code is taken to have complied
with the Act, although the duty-holder may also seek to comply by some other means.
A compliance code can be cited by an inspector in a notice, and failure to follow a compliance
code can be cited as evidence in a prosecution for a breach of the OHS Act.
4.50. The VWA publishes a range of other guidance materials to help workplace parties meet their
duties under the OHS Act and OHS Regulations.
Other workers compensation regimes
4.51. There are also some fundamental differences in legislative design among workers compensation
schemes in other States, most notably in New South Wales and Western Australia.
43
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33 OHS Act, s 21(1). OHS Act, s 20(2) provides for a number of matters, to which regard must be had in
determining what is reasonably practicable.
34 OHS Act, s 24.
35 OHS Act, s 25.
36 OHS Act, s 26.
37 OHS Act, ss 27-31.
38 OHS Act, Part 4.
39 OHS Act, Part 7.
40 OHS Act, Part 9.
41 OHS Act, Part 10.
42 OHS Act, Part 12.
43 A summary of return to work obligations under different workers compensation schemes is provided
in Appendix 4.1.
4.52. The New South Wales legislation reflects a broader approach to injury management and return
to work, supported by strict requirements for prompt injury reporting and the availability of
provisional liability.
4.53. In New South Wales, injury management obligations are imposed on insurers, with whom the
employer, worker and treating doctor are required to cooperate. An injury management plan
must be developed in consultation with all parties and must be commenced quickly for workers
with significant injuries (within three days).
44
4.54. The Western Australian scheme provides detailed guidelines on how to comply with return to
work obligations in codes of practice, rather than in primary legislation.
45
Stakeholder views
4.55. VECCI recommends that the legislation simply state the outcomes employers must seek
to achieve when assisting injured workers to rehabilitate and return to work. VECCI proposes
that
. . . an employer must do everything reasonably practicable to assist an injured worker return
to work. This is consistent with the outcome based style of the OHS Act. Employers can
consult with employees on whether a written policy is suited to their workplace.
46
4.56. Ai Group submits that the AC Act currently requires a focus on paperwork
. . . the focus on the completion of paperwork can distract from the real intent of the process
. . . an employer can be compliant with the obligations to develop a return to work plan, whilst
having made no real attempts to assist the person back to work. Alternatively, a person can be
back at work as part of an effective and sustainable return to work, whilst the employer is
technically in breach of the Act because there is no documented return to work plan.
47
4.57. Ai Group also advocates that
A performance based approach to facilitating return to work, such as that utilised in OHS
legislation . . . should be adopted.
48
4.58. Similarly, Freehills argues that, for the employer, the return to work process can be
. . . more about filling in mandatory paperwork, rather than focusing on clinically appropriate
goals that will assist an injured person to return to valuable employment.
49
4.59. In Freehills view, the AC Act should contain
. . . broad principles and essential processes, with the detail being provided in regulations,
codes and guidelines.
50
4.60. ResWorks submits that the focus of the legislation should be on facilitating cooperation, but
noted that the AC Act currently appears designed to foster conflicts of interest and oppositional
relationships between the employee and the worker. ResWorks argues that
. . . the very nature of the present legislation and its interpretation fosters an intervention in
which the employee/employer relationship too frequently develops into the primary obstacle
to a return to good health and normal duties. This presents whenever there is negativity,
pre-existing, or as a consequence of the injury, between the employee and employer.
51
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44 Workplace Injury Management and Workers Compensation Act 1998 (NSW), ss 43, 45, 46 and 47.
Significant injury is defined as an injury likely to result in incapacity for more than seven days.
45 Workers Compensation and Injury Management Act 1981 (WA), s 155.
46 VECCI, Submission, April 2008, p 34.
47 Ai Group, Submission, May 2008, p 35.
48 Ai Group, Submission, May 2008, p 35.
49 Freehills, Submission, 11 February 2008, p 14.
50 Freehills, Submission, 11 February 2008, p 18.
51 ResWorks, Submission, 23 April 2008, p 2.
4.61. MGA is concerned that
The current system penalises employers for failing to provide suitable employment for injured
employees and allows employees to decide whether or not to carry out those duties. MGA
members are mainly small business employers in the supermarket industry. Most tasks in
supermarkets are associated with manual handling or repetitive work. Due to the current
provisions where the employer is to provide suitable employment upon the return of an
employee into the workplace there is little opportunity for these employers to comply with
their obligations. Small employers are essentially forced into creating jobs with little value
to the business and are faced with paying wages and higher premiums for work that is
unnecessary.
. . . MGA submits that it would be beneficial to provide for a more flexible approach to return
to work programs, with greater emphasis on the need for doctors, employees and
rehabilitation providers to be realistic about the tasks that can be performed.
52
4.62. The SDA submits that
. . . the written communication presently favored [sic] by the Authority, the agents and self-
insurers is unnecessarily complex and incomprehensible to the great majority of claimants.
53
4.63. In its Discussion Paper,
54
the Review requested views on the question whether employers
should be required to consult injured workers (and treating doctors) on return to work.
4.64. The VTHC
55
and union groups, such as the AEU,
56
the VIEU
57
and the AMIEU,
58
submit that
employers should be required to consult and reach agreement with workers and treating
practitioners, particularly on offers of employment.
4.65. Similarly, the NUW submits that workers and their representatives should be consulted during
any agreement-making process, including return to work and offers of suitable employment.
59
4.66. Healthcare provider groups, such as the APA
60
and the COCA,
61
also advocate mandatory
consultation by employers with both injured workers and treating practitioners, especially
on return to work plans.
4.67. VECCI supports a requirement that employers consult with workers and treating doctors on
offers of suitable employment to the extent that is reasonably practicable.
62
4.68. Ai Group submits that
Consultation with injured workers (and treating practitioners) is a crucial step in the effective
implementation of return to work . . . any reference to consultation must include the words
so far as is reasonably practicable.
63
4.69. On the other hand, the SIAV argues that a duty to consult would duplicate the role of
rehabilitation providers and add to the costs imposed on employers.
64
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52 MGA, Submission, May 2008, p 6.
53 SDA, Submission, April 2008, p 3.
54 Accident Compensation Act Review: Discussion Paper, March 2008, p 24.
55 VTHC, Submission, 2 May 2008, p 17.
56 AEU, Submission, 2 May 2008, p 3.
57 VIEU, Submission, 2 May 2008, p 4.
58 AMIEU, Submission, 2 May 2008, p 10.
59 NUW, Submission, 2 May 2008, p 2.
60 APA, Submission, 2 May 2008, p 2.
61 COCA, Submission, 4 May 2008, p 1.
62 VECCI, Submission, April 2008. p 25.
63 Ai Group, Submission, May 2008, p 26.
64 SIAV, Submission, May 2008, p 9.
Introduce principles of return to work
4.70. In his review of the Occupational Health and Safety Act 1985, Mr Chris Maxwell QC (as his
Honour was at that time) recommended the inclusion of principles of workplace safety.
65
Those principles were included in the Occupational Health and Safety Act 2004 (the OHS Act).
66
A set of principles is also included in the Environment Protection Act 1970.
67
4.71. I recommend that the AC Act include a comparable statement of principles that apply to return
to work. The principles would help guide employers, injured workers and other stakeholders in
interpreting the legislative requirements, and foster the type of partnership between the various
parties that is essential to a successful return to work process.
4.72. I propose that the following principles be inserted in the return to work Part of the AC Act:
(a) Every injured worker should be enabled to return to meaningful work, consistent with his
or her capacity, as soon as it is safe and practicable to do so.
(b) Employers, injured workers and other parties involved in the return to work process should
cooperate to ensure that injured workers return to work successfully.
(c) Employers are responsible for providing pre-injury or other suitable employment to enable
injured workers to return to work.
(d) Injured workers are entitled, and should be encouraged, to be assisted, supported and
represented in the return to work process.
(e) Injured workers are entitled to receive effective rehabilitation to facilitate, where possible,
their early and sustainable return to work.
(f) Injured workers are responsible for participating in return to work planning and rehabilitation
and for taking up offers of pre-injury employment or suitable employment where they have
the capacity to do so.
Adopt an outcome-focused approach
4.73. Performance-based duties place the emphasis on achieving desirable outcomes, rather than
prescribing specific processes that must be followed.
4.74. Research has shown that prescriptive requirements involve high compliance costs, stifle
innovation, and prevent continuous improvement. They are efficient in only limited
circumstances.
68
4.75. I propose that the return to work obligations prescribed in the AC Act be reframed as
performance-based duties, which allow more flexibility to suit the circumstances of the parties
involved in the return to work process.
4.76. The core requirements should be that an employer:
take all reasonable steps to return an injured worker to work as soon as possible; and
consult as far as reasonably practicable with the injured worker and treating practitioner in
relation to the injured workers return to work.
69
4.77. The core duties will need to be supported by additional obligations under the AC Act, including
obligations on workers, which I discuss in paragraphs 4.2314.240 below.
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65 C Maxwell, Occupational Health and Safety Act Review, March 2004, Department of Treasury and
Finance, 2004, p 22.
66 OHS Act, s 4.
67 OHS Act, s 1A.
68 Industry Commission, Work Health and Safety: Report of the Inquiry into Occupational Health and
Safety, vols 1 & 2, Industry Commission/AGPS, Canberra, 1995, viewed 12 June 2008;
<www.pc.gov.au/__data/assets/pdf_file/0011/6995/47workhev2.pdf>, p 357.
69 Section 36(1) of the OHS Act sets out a process for consultation which may be a model. It may be
appropriate to define consultation similarly in the AC Act.
4.78. The approach of performance-based duties will also need to be supported by appropriate
subordinate instruments. Accordingly, the AC Act should be amended to provide for the making
of those instruments, including regulations and compliance codes.
4.79. Compliance codes should have the same status as compliance codes under the OHS Act, and
would facilitate the provision of specific guidance on how to comply in particular
circumstances.
4.80. Because of its similarity to the framework for OHS in Victoria, the proposed approach will be
familiar to the parties involved with return to work in Victorian workplaces; and it has a range
of other advantages, including:
clearly stating the duties of employers and workers in relation to return to work;
moving the focus from paper compliance with specific provisions, to compliance with the
key obligation to assist an injured worker to return to work as soon as possible;
providing more flexibility about the way in which return to work may be achieved in different
circumstances, including labour hire arrangements;
providing a clear basis for consultation and cooperation between employer and worker; and
providing a clear legal status for return to work guidance material issued by the VWA.
4.81. A performance-based approach, supported by regulations and guidance in compliance codes,
would clearly set out the standard that must be met, provide supportive advice on how to meet
the required standard and give greater consistency to the return to work process.
4.82. There may be some concern that a new approach to the return to work provisions will create
uncertainty, at least in the short term. The availability of clear comprehensive guidance at an
early stage will be critical to the success of the performance-based approach to return to work,
particularly guidance that is tailored to the needs of different industries and sectors.
4.83. However, I envisage that the VWA will develop the necessary supporting instruments and
guidance material in consultation with stakeholders.
PLANNING RETURN TO WORK
4.84. The AC Act requires all employers to prepare a return to work plan for an injured worker
as soon as practicable, but no later than 10 days after the relevant day.
70
4.85. The relevant day is defined in section 156(3) of the AC Act as the later of:
the earliest of the following days when a claim for weekly payments is accepted; or a
conciliation officer directs that weekly payments are to be paid; or a conciliation officer
recommends that weekly payments are to be paid and the recommendation is accepted
by the employer, the VWA or the self-insurer; or the claim is determined by a court in
favour of the worker; or
the day when the employer becomes aware, or ought reasonably to have become aware,
that the workers period of incapacity is likely to exceed 20 days.
4.86. The definition of the relevant day is critical for employers, but difficult to interpret.
4.87. Under section 160(1) of the AC Act, a return to work plan must include:
the name of the injured worker;
an estimate of the date on which the worker should be fit to return to work;
an offer of suitable employment (under section 155A); and
the steps taken to facilitate the workers return to work.
4.88. The plan must also specify any occupational rehabilitation services necessary for the workers
return to work and maintenance at work.
71
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70 AC Act, s 156(2). The requirement applies to injuries occurring on or after 1 March 2004.
71 AC Act, s160(1)(b).
4.89. The plan must be prepared and revised in accordance with guidelines issued by the VWA.
72
4.90. Although a return to work plan is required no later than 10 days after the relevant day, an
employers obligation to provide suitable employment arises only when the worker has a
current work capacity.
73
4.91. The VWAs Return to Work Guide for Victorian Employers
74
also sets out a number of
requirements, including that:
the employer must prepare a return to work plan in consultation with the injured worker,
treating practitioner and occupational rehabilitation provider (if involved); and
the employer must endeavour to arrive at a consensus with those people in relation to the plan.
Stakeholder views
4.92. VECCI
75
and Ai Group
76
both raise concerns that the obligation to prepare a return to work plan is
overly prescriptive and can distract from the real intent of the return to work process. Both argue
that clearer and simpler provisions would be welcome for the calculation of the relevant day.
4.93. VECCI recommends removing the requirement, because it simply achieves compliance and
makes no difference to return to work outcomes.
77
On the other hand, Ai Group argues that,
under a performance-based system, the preparation of a return to work plan may be one way
that the duty can be met.
78
4.94. VECCI submits that
Confusion between the return to work plan and a written offer of suitable employment results
in innocent non compliance because employers believe they cannot offer a return to work
until the worker is declared fit for suitable employment.
79
4.95. VECCI also note that once the plan is completed
. . . the employer may take the view that compliance has been achieved and do little or
nothing else to manage a return to work such as keeping regular contact, consulting with
the doctor or physiotherapist.
80
4.96. The VACC, on the other hand, submits that
. . . obligations in relation to return to work plans are not too onerous on employers and
therefore should remain as they currently are. Simple guidance material on the return to
work process would assist and also Return-to-Work Coordinator training courses should
be promoted further through different media outlets.
81
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72 AC Act, s160(1)(c), s160(2).
73 AC Act, s 155A(2).
74 WorkSafe Victoria June 2005, The Return to Work Guide for Victorian Employers, viewed 24 June 2008
<www.worksafe.vic.gov.au/wps/wcm/resources/file/ebd043435e51e02/returntoworkguide.pdf>.
75 VECCI, Submission, April 2008, p 34.
76 Ai Group, Submission, May 2008, p 34.
77 VECCI, Submission, April 2008, p 36.
78 Ai Group, Submission, May 2008, p 35.
79 VECCI, Submission, April 2008, p 35.
80 VECCI, Submission, April 2008, p 36.
81 VACC, Submission, 1 May 2008, p 9.
4.97. The VTHC submits that the obligation needs to be amended, arguing that mandated guidelines
should be introduced on return to work plans that include
the employers obligations regarding the preparation of return to work plans;
consultation and agreement with the worker and treating practitioners;
offers of suitable employment; and
the risk management practices to be adopted prior to the worker returning to employment.
82
Make planning return to work a core obligation
4.98. Research indicates that communication, cooperation and agreement on common goals
between the injured worker, the employer and healthcare professionals are critical for good
clinical and occupational outcomes.
83
4.99. It follows that return to work planning should commence at the earliest opportunity, regardless
of access to suitable employment, or the workers current work capacity. The current provision
does not support that objective.
4.100. The current rate of compliance with the obligation to prepare a return to work plan within the
current timeframe is 71.9% (the VWAs target is 90%).
84
4.101. Results from the Return to Work Monitor indicate that injured workers involved in the
development of a return to work plan are more likely to consider the plan helpful than those
who had no involvement.
85
The results further support my recommendation that consultation be
a core employer duty.
4.102. Most jurisdictions have similar requirements for the development of return to work plans.
4.103. However, in New South Wales the insurer must also establish an injury management plan.
86
The injured worker, employer and treating doctor must also be consulted in the establishment
of the plan (to the maximum extent that their co-operation and participation allow).
87
New South
Wales also requires prompt reporting of injuries
88
to the insurer or scheme to ensure early injury
management to support this process.
89
4.104. Effective planning for return to work can be frustrated by the AC Acts overemphasis on
timeliness of the paperwork rather than the plans content, consultation and relevance to the
particular circumstances of the injured worker and the workers workplace.
4.105. Nonetheless, planning for return to work should be commenced as soon as an injury occurs
and, to support that objective, I recommend that it be a core employer obligation in the AC Act.
4.106. Information about how to plan, consult and provide information to injured workers and other
workplace parties is more appropriately contained in supporting instruments or guidance
material.
4.107. This approach will allow the development of detailed material that may be tailored to a range
of workplace scenarios.
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82 VTHC, Submission, 2 May 2008, p 21.
83 For example, Bernacki and Tsai, 2003, and Franche and Krause, 2002, cited in P Foreman, G Murphy
and H Swerissen, Facilitators and Barriers to Return to Work: A Literature Review, Australian Institute
for Primary Care, La Trobe University, 2006, p 18.
84 Source: VWA.
85 Campbell Research & Consulting, Return to Work Monitor 2006/2007, HWCA, p ii.
86 Completion of an injury management plan is required for significant injury, which is defined as an
injury likely to result in incapacity for more than seven days. The worker and employer are required to
participate and cooperate in the preparation of the injury management plan. Workplace Injury
Management and Workers Compensation Act 1998 (NSW), ss 45, 46, 47.
87 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 45(2).
88 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 44.
89 Discussed in Chapter 3, Ensuring timely access to benefits and support, paragraphs 3.33-3.35.
PROVIDING PRE-INJURY OR SUITABLE EMPLOYMENT
4.108. Section 155A of the AC Act requires employers to provide employment to an injured worker
who can return to work within a specified period.
4.109. If the worker is able to return to her or his pre-injury role, the employer must offer the worker
that position or an equivalent position known as pre-injury employment.
4.110. If the worker is not able to return to that role but is nonetheless capable of doing some work,
the employer must offer the worker suitable employment. Suitable employment is work that
suits the nature of the workers injury and the workers current work capacity.
90
This may mean
that the worker performs different duties or works fewer hours while recovering fully.
4.111. The employers obligation to provide pre-injury or other suitable employment to an injured
worker runs for a total of 12 months. Section 155A of the AC Act sets out a complex method
for calculating the 12-month period.
91
4.112. The provision is prescriptive but difficult to interpret. The period during which pre-injury or
suitable employment must be provided starts on the day when:
92
a claim for weekly payments is accepted; or
a conciliation officer gives a direction that weekly payments are to be paid; or
a conciliation officer makes a recommendation that weekly payments are to be paid and the
recommendation is accepted by the employer or the VWA or the self-insurer; or
the claim is determined by a court in favour of the worker.
4.113. Under section 155A(3)(c)(i), any period in which the worker does not have an incapacity for work
is excluded from the calculation of the 12-month period. It follows that the obligation to provide
pre-injury or other suitable employment can stop and start over a considerable length of time.
4.114. The following periods may also be excluded from the calculation of the 12-month period:
the period between the VWAs rejection of a claim after it has been accepted by the employer
and the resumption of weekly benefit payments; or
the period between revocation of a conciliation officers direction that weekly payments be
made and the resumption of weekly benefit payments.
93
4.115. If the employer provides the worker with employment before the employer is required to do so,
the period of that employment is deducted from the 12 months.
94
4.116. The provisions outlined in paragraphs 4.114 and 4.115 above were introduced to ensure that
injured workers whose claims had been disputed retained an entitlement to suitable
employment, and that employers who provided employment when a claim was in dispute were
not required to provide employment for a longer period.
4.117. Given that an employers obligation is not continuous and a number of factors may affect the
currency of the obligation, the date on which the obligation ends may not be readily identifiable
by a worker. However, there is no obligation under the AC Act to advise a worker when the
employers obligation to provide pre-injury or suitable employment is ending.
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90 AC Act, s 5(1). The following factors need to be taken into account in determining suitable
employment: (a) the nature of the workers incapacity and pre-injury employment; (b) the workers
age, education, skills and work experience; (c) the workers place of residence; (d) the details given in
medical information, including the medical certificate supplied by the worker; (e) the workers return
to work plan, if any; and (f) if any occupational rehabilitation services are being provided to or for the
worker.
91 This provision only applies to injuries on or after 1 March 2004. For injuries before 1 March 2004,
re-employment obligations apply within the first 12 months after a workers injury while the worker
has an incapacity for work (or the sum of periods not more than 12 months in total). AC Act, s 122
(repealed).
92 AC Act, s 155A(1), (3)(a).
93 AC Act, s 155A(c)(ii).
94 AC Act, s 155A(3)(d)(ii).
Stakeholder views
4.118. Unions and the ALA
95
argue that the period in which pre-injury or suitable employment must
be provided should be extended beyond 52 weeks.
4.119. The VTHC submits that the period should be extended to 130 weeks, in line with the
entitlement period for weekly benefits.
96
The VTHC submits that
This provision discriminates against more seriously injured workers who have a longer
recuperation period, or against workers who require surgery during that intial 12 month
window.
97
4.120. The SDA submits that the period should be extended to two years.
98
4.121. The WOHC supports the VTHC view and argues that the period should be extended to up
to three years, to support workers with long-term injuries or illnesses.
99
4.122. VECCI recognises that the calculation of the period is overly complex and in need of clarification
but opposes any extension of the current period.
100
4.123. The SIAV endorses a clearer and simpler explanation as to when the 12-month period begins
and ends. The SIAV proposes that the date should begin from the date that a worker first
becomes incapacitated for employment and should conclude at an aggregate of 52 weeks of
incapacity for work.
101
4.124. Ai Group also welcomes clearer and simpler provisions provided any redrafted provisions do not
disadvantage employers or workers. Ai Group opposes any extension of the period in which
pre-injury or suitable employment must be provided, principally due to concerns about adverse
impacts on return to work rates. Ai Group notes that, in South Australia, where there is an
ongoing obligation to re-employ the worker, there is a comparably lower return to work rate.
102
4.125. The VACC considers that the current 12-month period should be retained as it
. . . provides a very reasonable opportunity for the employee to be rehabilitated in the
workplace, with a view to returning to full time pre-injury duties. Small to medium size
businesses would struggle both financially and also from an operational perspective if this
period was extended. These businesses have little or no capacity to pick up skilled or semi
skilled workers to be employed in a temporary fill capacity.
Furthermore, in the majority of cases where an employee is absent due to a work related
injury other employees have to pick up the job as well as do their own. In some cases the
person who picks up the role is the owner of the business. This in turn has the potential to
lead to a more stressful work environment.
Long term absences also have a financial impact as an employer in a small business operation
would have to meet the cost of trying to find a temporary replacement for the injured worker,
meet training costs for the replacement worker, recruitment costs and other resources
allocated to start a new person in the business. Larger businesses have the capacity to divert
resources from other areas to cover for an injured employee which limits costs.
An extension of the period would therefore have differential impacts on employers depending
on the size of the business.
103
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95 ALA, Submission, 8 February 2008, p 14.
96 VTHC, Submission, 2 May 2008, pp 17-18.
97 VTHC, Submission, 2 May 2008, p 17.
98 SDA, Submission, April 2008, p 3.
99 WOHC, Submission, 2 May 2008, p 5.
100 VECCI, Submission, April 2008, pp 25-26.
101 SIAV, Submission, May 2008, p 6.
102 The evidence on this point appears to be mixed. The Commonwealth scheme, which imposes
an ongoing obligation to re-employ injured workers, has the best return to work outcomes of any
Australian jurisdiction.
103 VACC, Submission, 1 May 2008, pp 6-7.
4.126. Freehills suggests that the 12-month period should have a clearly defined start and end point.
Freehills submits that the current 12-month period is unclear and misunderstood. Freehills
observes that the obligations can in fact exist for many years, given the exclusion, from the
12 months, of periods in which there is no incapacity (common where a condition is
intermittent).
104
4.127. The SDA submits that a large number of injured workers remain unaware of their limited job
protection until it is too late. The SDA says that the VWA should write to all injured claimants,
upon lodgement of their claims, advising them of the finite duration of their job protection.
105
4.128. The Compensation Law Bar Association notes that it is not uncommon for an employer to
dismiss an injured worker at the end of the 12-month period. The Association advocates a
notice period, which might galvanise both the employer and worker into pursuing return to work
options at that time.
106
4.129. Ai Group argues there would be no benefit in a notice requirement.
107
Similarly, the VACC does
not support a notice period because it
. . . would be pre-empting the outcome for the worker and therefore, would not assist the
rehabilitation process in any way.
108
4.130. The SIAV does not agree that a worker should be given notice, because it considers that this
may provide an incentive to some workers to place pressure on their treating medical
practitioners to provide them with a clearance for work.
109
Create a core obligation: the provision of pre-injury or suitable employment for an aggregate
period of 12 months
4.131. The argument that the obligation to offer pre-injury or suitable employment should continue for
as long as the injured worker is entitled to weekly benefits has some merit.
4.132. By definition, injured workers are only entitled to receive weekly benefits for as long as they are
incapacitated for work and security of employment is important in supporting the rehabilitation
of injured workers.
4.133. However, injured workers need for security of employment must be balanced with employers
need for commercial certainty. Long-term absences or long-term guarantees of employment
would have a financial impact on employers. Small employers, in particular, are less able to
meet the costs associated with long-term guarantees of employment.
4.134. In Australia, most workers compensation schemes that oblige employers to offer employment
to an injured worker limit the obligation to 12 months. In New South Wales, the worker is
entitled to suitable employment (if it is reasonably practicable)
110
and is protected from
dismissal for six months.
111
In South Australia, the obligation lasts indefinitely, subject to it
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104 Freehills, Submission, 11 February 2008, p 15.
105 SDA, Submission, April 2008, p 3.
106 Compensation Law Bar Association, Submission, 2 May 2008, p 9.
107 Ai Group, Submission, May 2008, p 28.
108 VACC, Submission, 1 May 2008, p 7.
109 SIAV, Submission, May 2008, p 6.
110 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 49.
111 An employer who dismisses an injured worker is guilty of an offence if the worker is dismissed
because the worker is not fit for employment as a result of the injury, and the worker is dismissed
within six months after the worker first became unfit for employment. If the employer offers a
dismissed injured workers position to another worker, the employer must advise them that the injured
worker may be reinstated to that position within two years of the date of injury. The Industrial
Relations Commission may order reinstatement. Workers Compensation Act 1987 (NSW), s 248.
being reasonably practicable to provide employment.
112
Under the Commonwealth scheme,
the employer is required to take all reasonable steps to provide an employee with suitable
employment where the employee is undertaking or has completed a rehabilitation program.
113
4.135. I believe the current provision in Victoria offers a reasonable compromise between the interests
of workers and the interests of employers.
4.136. However, the current provision is very complex and should be simplified to ensure transparency
and assist compliance.
4.137. I consider that the periods currently included and excluded by the AC Act in calculating the
12-month period are sound, because excluding periods during which the worker no longer has
an incapacity adequately supports the practical reality for many workers whose capacity may
fluctuate.
4.138. Accordingly, I recommend that the AC Act require employers to take all reasonable steps to
provide an injured worker with pre-injury or suitable employment for a period of 12 months as
a core duty to support return to work.
4.139. The AC Act should provide for appropriate subordinate instruments that would set out a clear
and detailed method for calculation of the 12-month period, based on the current provisions.
Introduce a notice period
4.140. Other jurisdictions (South Australia and Western Australia) require an employer to give an
injured worker notice if the employer intends to dismiss the worker.
114
New South Wales also
prohibits an employer from employing another person to replace an injured worker within two
years, without first notifying the injured worker.
115
4.141. Although termination of the employers obligation under the AC Act does not imply termination
of employment, it is arguable that workers should be advised in advance of the end of the
obligation.
4.142. This would ensure transparency and enable an injured worker to enter into discussions with the
workers employer or make decisions about future employment arrangements.
4.143. Injured workers in Victoria are generally given between 14 days and 13 weeks notice
116
of the
cessation of their entitlement to weekly benefits, and VWA policy states that workers should
be given 28 days notice that their entitlement to medical and like benefits is to end.
4.144. On balance, it seems reasonable that an employer should be required to notify an injured
worker before the employers obligation to provide employment comes to an end. I recommend
the introduction of a notice period to be prescribed in an appropriate subordinate instrument.
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112 Workers Rehabilitation and Compensation Act 1986 (SA), s 58B. The obligation does not apply where
the worker left the employment before incapacity for work commenced, the worker terminated the
employment after incapacity for work commenced or where less than 10 workers are employed and
the workers incapacity lasts longer than one year.
113 Safety, Rehabilitation and Compensation Act 1988 (Cth), s 40(1).
114 Workers Rehabilitation and Compensation Act 1986 (SA), s 58C; Workers Compensation and Injury
Management Act 1981 (WA), s 84AB.
115 Workers Compensation Act 1987 (NSW), s 247.
116 No notice is required where the worker has returned to work, has received less than 12 weeks of
weekly benefits, is no longer entitled to receive payments pursuant to the AC Act or has obtained
payments fraudulently. See AC Act, ss 114(6), 93E, 93EA, 93F, 96, 97(2) and 97(7).
EXEMPTION FROM THE OBLIGATION TO PROVIDE PRE-INJURY OR SUITABLE
EMPLOYMENT
4.145. Under section 155B an employer is exempt from the obligation to provide pre-injury or suitable
employment if complying with the obligation would cause the employer unjustifiable hardship.
This provision is similar to provisions in various anti-discrimination statutes,
117
under which the
onus is on the defendant to establish unjustifiable hardship.
4.146. Section 155B of the AC Act contains a non-exhaustive list of factors that can be relevant in
assessing unjustifiable hardship. The factors are:
the nature of the benefit likely to accrue, or the detriment likely to be suffered, by any relevant
person;
the effect on the worker of their incapacity for work;
the financial circumstances of the employer and the estimated cost to the employer of
compliance;
the extent of previous efforts by the employer to rehabilitate the worker;
the sustainability of the relevant work in the medium to longer term with regard to the
workers injury;
the workers length of service;
the employers documented return to work policy;
the potential for retraining the worker;
the number of workers to which the employer has already extended suitable employment;
the extent to which the injury that caused or materially contributed to the workers incapacity
is related to the workers employment with the employer; and
the workers potential to obtain suitable employment elsewhere if they are not given suitable
employment by the employer.
4.147. No further guidance is available to assist an employer in assessing whether this provision is
relevant to the employers situation. The absence of procedural fairness guidance is problematic
for both employers and workers.
Stakeholder views
4.148. VECCI submits that the meaning of unjustifiable hardship needs to be clarified, so that it will be
clear when employers are exempt from the duty.
118
4.149. Ai Group submits that is not appropriate to have an exemption clause which can only be used
as a defence, arguing that employers should be afforded certainty about whether their decision
not to provide duties is reasonable.
119
4.150. The Master Plumbers and Mechanical Services Association notes the lack of clearly defined
circumstances that constitute unjustifiable hardship, and also submits that the provision is
confusing in some areas and irrelevant in others.
120
4.151. The SIAV favours an extension of the exemption provision in section 155B(2) to include further
examples of situations where compliance would cause unjustifiable hardship to a self-insurer.
It contends that
The present list of exemptions does not refer to circumstances where there has been
misconduct or reasons other than the workers alleged injury for the termination of the
workers employment.
121
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117 See the Disability Discrimination Act 1992 (Cth), s 11; Anti-Discrimination Act 1977 (NSW), s 49C.
118 VECCI, Submission, April 2008, p 22.
119 Ai Group, May 2008, p 29.
120 Master Plumbers and Mechanical Services, Submission, 8 February 2008, p 3.
121 SIAV, Submission, May 2008, p 6.
4.152. VECCI submits that the following scenarios should be covered by the operation of section 155B:
The worker is an ex-employee who claimed after their employment ceased.
The worker is a deemed worker under section 8 or 9.
The worker was a casual or was engaged for a set period or particular task and that time or
task is passed and and no longer required.
The worker is one who had they never claimed compensation would now be redundant.
The worker and their Treating Doctor certify before the 12 month period that the worker can
never return to that place of employment.
The worker having been engaged on suitable employment engages in conduct that results
in a legal termination of the workers employment.
The employer is able to demonstrate that no work matching the matters specified in the
section 5 definition of suitable employment is available to the worker at the employers [sic]
workplace.
The employer is a small employer and able to satisfy the Authority that sustainable suitable
employment cannot be provided.
The worker was a key employee with rare skills and the employer is able to demonstrate it
was not possible to replace the worker with a temporary person with the same skills.
122
4.153. The VACC submits that an employer should be exempt from the obligation to provide
employment where the employer has no duties which satisfy the workers restrictions.
123
4.154. The VFF is concerned that
. . . many farmers are pressured into creating meaningless and non value adding duties for
employees in order to comply with the AC Act. Such duties may create frustration for workers
and employers, which could [lead] to a deterioration of the employment relationship. Farmers
have also expressed concern about the safety of workers performing alternative employment
on their farms. For these reasons, the VFF submits that the threshold test of unjustifiable
hardship for determining whether an employer may be exempt from providing suitable
employment should be lowered, or the AC Act should be amended to confer that the nature
of an employers business must be considered in determining whether unjustifiable hardship
exists.
. . .
Agricultural employment can be very seasonal and often dependent on many circumstances
outside the control of farmers, such as weather conditions and commodity prices . . . Put
simply, a farmer may have no work to offer and is forced into a situation of providing ongoing
casual employment which was never intended. The VFF submits that the AC Act be amended
to consider the situation where an employee is offered short term casual employment and the
employer has no job for the employee to return to.
124
Develop better supporting information
4.155. It is arguable that in a number of the situations outlined by stakeholders (see paragraphs 4.148
4.154 above), employers would be exempt from the requirement to provide pre-injury or
suitable employment under the current AC Act. However, my recommendation that employers
be required to take all reasonable steps to provide an injured worker with pre-injury or suitable
employment for a period of 12 months obviates the need for prescriptive exclusions.
4.156. I propose, instead, that the concept of taking all reasonable steps to comply with the
obligation to provide employment be covered in a compliance code or codes. Such instruments
are a more appropriate vehicle for detailed and specific guidance to provide employers with
greater certainty about their obligations and assist compliance with the revised performance-
based duty.
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122 VECCI, Submission, April 2008, p 27.
123 VACC, Submission, 1 May 2008, p 7.
124 VFF, Submission, May 2008, pp 8-9.
RISK MANAGEMENT AND OCCUPATIONAL REHABILITATION PROGRAMS
4.157. Employers with annual rateable remuneration of more than $1 million must establish and
maintain a risk management program and an occupational rehabilitation program at all times.
125
4.158. Employers with annual rateable remuneration of $1 million or less must establish and maintain a
risk management program and an occupational rehabilitation program where they have a worker
with an incapacity for work caused by a workplace injury.
126
The programs must be prepared
within three months after the relevant day.
127
4.159. The distinction between larger and smaller employers in relation to the obligation to implement
these programs (noted in paragraphs 4.157 and 4.158 above) was introduced in 1994. The
distinction was clearly designed to reduce administrative burdens on smaller employers.
4.160. Occupational rehabilitation programs must include a statement of the employers return to work
policy, the name of the return to work coordinator nominated by the employer and the name of
at least one occupational rehabilitation provider.
128
The AC Act requires that the program be
developed in consultation with the employers workers, be in writing, and be made available to
all workers.
129
4.161. A risk management program must set out the steps to be taken after an injury has occurred in
the workplace to reduce, as far as is practicable, the risk of subsequent injuries of that kind.
130
There is no express requirement that the program be in writing.
Stakeholder views
4.162. Ai Group is concerned that
The content of the [rehabilitation and risk management] programs are largely established
by the Act. On this basis, the requirement to develop the programs in consultation with
employees is problematic. Genuine consultation cannot occur when so much of the program
is prescribed.
131
4.163. VECCI questions whether there is a need for the development of an occupational rehabilitation
program. VECCI argues that large employers who operate most aspects of their business in
accordance with written policies may wish to develop a policy on return to work but such a
requirement should not be legislated.
132
4.164. The SIAV submits that the requirement to have occupational rehabilitation and risk management
programs does not generate better outcomes and increases administrative burdens.
133
On the
other hand, the VACC argues that the programs are satisfactory and do not impose a major
burden on employers.
134
4.165. According to VECCI, the requirements imposed on employers under the OHS Act mean there
is no need to articulate an equivalent duty in the AC Act to do what is reasonably practicable
to reduce risk through a risk management program.
135
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125 AC Act, s 156(1). These employers are required to establish and maintain these programs within
three months of the certification or assessment of their rateable remuneration.
126 AC Act, s 156(2)(b).
127 See paragraph 4.4.85 above for the definition of relevant day.
128 AC Act, s 158(1)(a). The occupational rehabilitation program must also provide for any additional
matters specified by the VWA: AC Act, s 158(1)(b).
129 AC Act, s 158(1)(c).
130 AC Act, s 159.
131 Ai Group, Submission, February 2008, p 34.
132 VECCI, Submission, April 2008, p 32.
133 SIAV, Submission, May 2008, p 7.
134 VACC, Submission, 1 May 2008, p 8.
135 VECCI, Submission, April 2008, p 33.
4.166. The CFA also supports the removal of the risk management requirement on similar grounds.
136
The SIAV submits that the obligation falls within the ambit of the OHS Act and should be
regulated in that fashion rather than by the AC Act.
137
4.167. Ai Group notes that the requirements of a risk management program in the AC Act are
. . . inconsistent with the contemporary definition of risk management which is about the
proactive identification and control of risks, prior to injuries occurring. In addition, the
requirements duplicate and possibly undermine the obligations in the Occupational Health
and Safety Act 2004.
138
4.168. According to the VACC, risk management programs provided for under the AC Act have very
little relevance in workplaces and the requirement to prepare them should be removed.
139
4.169. However, the VTHC believes risk management programs are of critical importance, submitting
that there is a difference between what is covered under the OHS Act and the AC Act. The
VTHC is of the view that
Under the OHS Act, employers are required to undertake risk assessments to prevent injuries.
Under the AC Act, the procedures required relate to steps to be taken after an injury has
occurred to prevent the risk of subsequent injury of that nature.
140
4.170. Ai Group
141
and the VACC
142
argue that the threshold for establishment of occupational
rehabilitation and risk management programs should be increased.
4.171. Some stakeholders indicate that another threshold should be used instead of rateable
remuneration. For instance, VECCI submits that a 20-employee threshold should be used;
143
and Ai Group submits that it may be more appropriate to base the threshold on risk.
144
4.172. The VTHC believes that all employers should be required to establish and maintain the
programs regardless of their size.
145
Make the obligation to develop and make available information about occupational rehabilitation
and return to work a core obligation
4.173. Providing workers with adequate information about occupational rehabilitation and return to
work is vital to establishing a workplace culture that supports returning injured workers to work.
4.174. However, navigation of the complex legislative requirements that relate to occupational
rehabilitation plans and an emphasis on paper compliance can divert attention from the desired
outcome.
4.175. The intent of the existing duties is to ensure that policies and procedures about:
occupational rehabilitation, including occupational rehabilitation providers; and
return to work, including (where appropriate) the nominated return to work coordinator;
are developed and made available to workers.
4.176. Thus, I recommend that the AC Act require employers to develop and make available to workers
information about those matters and that further details about that information be clearly set
out in regulations.
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PAGE 147
136 CFA, Submission, 29 April 2008, p 2.
137 SIAV, Submission, May 2008, p 8.
138 Ai Group, Submission, May 2008, p 33.
139 VACC, Submission, 1 May 2008, p 8.
140 VTHC, Submission, 2 May 2008, p 20.
141 Ai Group, Submission, May 2008, p 32.
142 VACC, Submission, 1 May 2008, p 8.
143 VECCI, Submission, April 2008, p 33.
144 Ai Group, Submission, May 2008, p 33.
145 VTHC, Submission, 2 May 2008, p 20.
4.177. Information about how to consult with workers on those matters and appropriate means of
making information available to workers should be provided in detailed guidance or compliance
codes, to assist employers to meet their return to work obligations and provide greater certainty
about compliance.
Remove the explicit obligations to establish a risk management program
4.178. Employers are not expressly required to develop a risk management program under the OHS
Act. However, the obligation to provide and maintain a working environment that is safe and
without risks to health requires employers to eliminate (or otherwise reduce) risks to health and
safety so far as is reasonably practicable.
146
4.179. Part 3 of the OHS Act sets out other general duties relating to health and safety and further
particulars are provided in the OHS Regulations 2007.
4.180. The VWAs Return to Work Guide for Victorian Employers describes risk management program
activities following an injury as including:
an injury report;
investigation to identify the cause(s) of the injury;
risk assessment to review the cause(s) of the injury;
risk control via identifying and implementing all practicable measures to eliminate or reduce
the cause of the injury; and
once implemented, monitoring of any risk controls to ensure the controls are effective in
preventing further injury.
4.181. The duties set out in the OHS legislation are broad and clearly encompass the risk management
program required under the AC Act. To avoid duplication, reduce red tape for employers and
ensure consistency between both Acts, I recommend that the requirement to establish a risk
management program be removed from the AC Act.
RETURN TO WORK COORDINATORS
4.182. A large employer is required to nominate a return to work coordinator as part of the employers
occupational rehabilitation program.
147
All other employers are required to nominate a return to
work coordinator as soon as practicable, but no later than 10 days, after the relevant day.
148
4.183. Although the AC Act requires the appointment of a return to work coordinator and sets out the
coordinators functions,
149
there is no requirement that the return to work coordinator have
appropriate seniority in order adequately to perform those functions, nor is there any
requirement for training.
4.184. The absence of any prescribed qualifications or skills may mean (particularly in a small
workplace) that the return to work coordinators role is undertaken by a person working in
administration, such as a pay clerk.
4.185. A two-day return to work coordinator training course developed and endorsed by the VWA is
available. The training was developed in consultation with key employer associations, the VTHC
and representatives from the SIAV. It is conducted by approved training providers.
150
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146 OHS Act, ss 20, 21(1).
147 AC Act, ss 156(1) and 158(1).
148 Refer to paragraph 4.85 for the definition of relevant day.
149 AC Act, s 161.
150 WorkSafe Victoria, viewed 3 July 2008; <www.worksafe.vic.gov.au/wps/wcm/connect/WorkSafe/
Home/Injury+and+Claims/Returning+to+Work/Return+To+Work+Co-ordinators/>.
4.186. To date, 3255 people have completed the training, representing approximately 13% of medium
and large (including government) Victorian employers, and there are currently 6061 return to
work coordinators registered with the VWA.
151
4.187. Both New South Wales
152
and Queensland
153
require return to work coordinators to undertake
approved or accredited training.
4.188. The return to work obligations under the AC Act are placed on the employer. Section 242(6) of
the AC Act makes it clear that the liability for failing to comply with a provision in Part VI of the
AC Act (which deals with return to work plans) falls on an employer.
4.189. However, the return to work coordinator provisions (in particular, section 161) create the
impression that the return to work coordinator may be personally liable if the coordinator fails
to meet some of the obligations under the AC Act.
4.190. This issue is addressed in section 58(3) of the OHS Act, which ensures that duties are not
imposed directly on health and safety representatives. The subsection provides:
Nothing in the Act or the regulations imposes, or is to be taken to impose, a function or duty
on a health and safety representative in that capacity.
Stakeholder views
4.191. Ai Group suggests that
It may be appropriate to mirror the provisions in the OHS Act associated with the nomination
of a management representative to deal with OHS Issues, i.e. that the RTWC must have an
appropriate level of seniority, and be sufficiently competent to undertake the role.
This approach may also overcome the tendency for some organisations to view the RTWC role
as one that is focused on paperwork and therefore allocated to a person of relatively low
seniority, with good administration and keyboarding skills.
154
4.192. The VTHC submits that return to work coordinators should attend compulsory training,
accredited by the VWA and paid for by the employer through paid time off work to attend
the training.
155
4.193. Ai Group is concerned that mandating specific training for return to work coordinators may
be problematic and particularly difficult for small employers. Ai Group submits
Highly skilled and experienced RTWCs who have been undertaking the role for an extended
period are unlikely to need additional training. Whilst they may get some value out of a
refresher, our trainers have reported that it can be unnecessary to cover the base level of
information for these participants. This cohort would get greater benefit from attending a skills-
enhancing seminar or conference . . .
At the other end of the continuum, RTWCs in small organisations do not benefit greatly from
the experience of attending the endorsed program. In fact, the nature of the course requires a
reasonable amount of experience if one is to participate effectively. Our trainers have reported
that it is particularly difficult to deliver this course when all participants are new to the role of
RTWC.
We have found that a 1/2 day seminar which outlines all the key legislative obligations
associated with WorkCover, or one-on-one assistance when a claim occurs, is a much better
approach for those RTWCs who work in organisations with a low level of claims.
156
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151 Source: VWA.
152 In New South Wales, only return to work coordinators at category 1 employers (base tariff premium of
over $50,000) must undertake approved training. Workers Compensation Regulations 2003, reg 15l(1)(a).
153 Workers Compensation and Rehabilitation Act 2003 (Qld), s 41(a); Workers Compensation and
Rehabilitation Regulation 2003 (Qld), reg 99A.
154 Ai Group, Submission, February 2008, p 38.
155 VTHC, Submission, 25 January 2008, p 4.
156 Ai Group, Submission, February 2008, pp 37-38.
4.194. The ANF urges the Review to consider imposing a duty on employers to ensure that return to
work coordinators have the skills, resources and authority to discharge their functions. The ANF
submits that return to work coordinators often fail to meet their obligations and survey results
indicate that 51% of nurses were very unsatisfied with the service provided by their return to
work coordinator.
157
Appointment of appropriate person to manage return to work to be a core obligation
4.195. Most jurisdictions place more onerous return to work obligations on larger employers. In
Victoria, the more onerous obligations include nomination of a return to work coordinator as
part of an occupational rehabilitation program, regardless of whether an injury has occurred:
see paragraph 4.182 above.
4.196. In order to identify larger employers, schemes take into account various aspects such as
remuneration, premium and/or the number of workers employed.
4.197. In Victoria, rateable remuneration of $1 million
158
is used as the threshold at which the
requirement to implement an occupational rehabilitation program is activated.
4.198. In New South Wales, all employers are required to establish return to work programs.
159
An employer is also required to develop a customised return to work program if the employer
employs more than 20 workers and is insured by a specialist insurer, if the employers premium
exceeds $50,000 a year, or if the employer is self-insured.
160
4.199. Similarly, an employer is required to employ or engage a return to work coordinator if the
employer employs more than 20 workers and is insured by a specialist insurer, if the employers
premium exceeds $50,000 a year, or if the employer is self-insured.
161
4.200. Queensland requires an employer to implement a rehabilitation policy and procedure
162
and
appoint a rehabilitation and return to work coordinator
163
if the employer has 30 or more
workers at a workplace in a high-risk industry
164
or if the employer has a payroll in Queensland
of more than $4.9 million for the preceding financial year (subject to variation by notice in the
Industrial Gazette).
165
4.201. In Tasmania, employers who employ more than 50 workers must provide a rehabilitation
coordinator.
166
Employers who employ more than 20 employees must prepare a rehabilitation
policy.
167
4.202. Considering the Victorian obligation to implement an occupational rehabilitation program
(see paragraph 4.197 above), the current equivalent to rateable remuneration of $1 million
in 1994 (when s 156 was enacted) would be $1.76 million.
168
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157 ANF, Submission, 2 May 2008, p 8.
158 AC Act, s 156(1).
159 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 52.
160 WorkCover NSW, Standard Return to Work Programs, p 1; viewed 23 July 2008;
<http://www.workcover.
nsw.gov.au/NR/rdonlyres/599236E2-EA98-45E4-A675-8FFFE8600956/0/standard_return_to_work_
program_0004.pdf>.
161 Workers Compensation Regulation 2003 (NSW), regs 3A and 15I.
162 Workers Compensation and Rehabilitation Act 2003 (Qld), s 227.
163 Workers Compensation and Rehabilitation Act 2003 (Qld), s 226.
164 Defined in schedule 5A of the Workers Compensation and Rehabilitation Regulation 2003 (Qld).
165 Workers Compensation and Rehabilitation Regulation 2003 (Qld), regs 99C, 99D.
166 Workers Rehabilitation and Compensation Act 1988 (Tas), s 143A.
167 Workers Rehabilitation and Compensation Act 1988 (Tas), s 143.
168 Using Australian Bureau of Statistics table 6302.0 average weekly earnings full-time adult ordinary
time earnings for private and public sectors, comparing the November 2007 trend estimate figure with
the November 1994 trend estimate figure.
4.203. Recent VWA projects, aimed at more effectively targeting compliance and enforcement
initiatives, have segmented employers on the basis of remuneration. For that purpose, the VWA
considers small employers to be those with remuneration of up to $2 million, medium-sized
employers to be those with remuneration between $2 million and $20 million, and large
employers to be those with remuneration over $20 million.
4.204. An alternative approach would be to use the premium payable by each employer as a basis to
differentiate employers, factoring in a measure of each employers risk of claims. However, that
approach would not reflect the claims experience of the smallest employers, whose premiums
are calculated on the bases of remuneration and industry rate.
4.205. The role of return to work coordinators is critical to the overall return to work process. They are
a dedicated resource for coordinating a workers return to work on behalf of the employer.
4.206. Thus, I recommend that, following an injury, nomination of an individual to manage the workers
return to work should be a core employer obligation
169
under the AC Act.
4.207. Small employers should be allowed sufficient flexibility to meet the requirement to appoint a
return to work coordinator without imposing an undue financial burden: they should be able to
nominate themselves or a management representative for the duration of the injury.
4.208. On the basis of the VWAs segmentation strategy, the AC Act should require employers with
remuneration of $2 million or more (indexed annually) to maintain a return to work coordinator
at all times.
4.209. The role and functions of the return to work coordinator should be set out in more detail in
supporting instruments and guidance material.
4.210. In all cases, the person nominated to manage return to work should be of appropriate seniority
within the workplace to perform the role adequately.
Allow for a flexible approach to developing competencies
4.211. Although it is imperative that the person nominated to manage return to work is competent
to perform that role effectively, it is arguable whether training should be mandatory.
4.212. For some employers, especially those who have few claims, mandatory training may impose
an unreasonable cost.
4.213. Without undermining the critical value of training, I consider that a more flexible approach
to developing the required competencies is needed.
4.214. A preferable approach would be to specify the competencies required of each person
appointed to manage return to work, without demanding training as the only way of achieving
competence. That approach would allow other means of gaining appropriate skills and
experience, such as workplace mentoring.
4.215. That approach has been adopted for employer representatives under the OHS Act, and the VWA
has produced guidance on the competencies required of employer representatives.
170
Ensure the person appointed is not personally liable
4.216. The AC Act clearly states that it is the employer who is liable for failing to comply with a
provision in Part VI of the AC Act: see paragraph 4.188 above. It is imperative to ensure that no
personal liability is imposed on a return to work coordinator (in that capacity) for an employers
failure to comply with Part VI.
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169 That is, an obligation imposed by the AC Act.
170 WorkSafe Victoria, Employer Representative Competencies, viewed 20 June 2008;
<www.worksafe.vic.gov.au/wps/wcm/resources/file/ebce42435de8942/employer_rep_comp.pdf>.
4.217. A provision equivalent to section 58(3) of the OHS Act should therefore be included in the
AC Act to ensure that return to work coordinators are protected against liability.
LABOUR HIRE
4.218. It is estimated that over a quarter of all Victorian workplaces use labour hire arrangements;
171
and the number of workplaces doing so has grown rapidly in recent years. In 2005, labour hire
employees were estimated to represent up to 3% of Australias workforce.
172
It is likely that, in
2008, the proportion of the Victorian workforce made up by labour hire employees has grown
beyond 3%.
4.219. Although labour hire agencies and host employers share responsibility for the workplace health
and safety of labour hire workers,
173
if a worker who is employed by a labour hire agency is
injured at the workers host firm, the statutory obligations relating to return to work fall only
on the labour hire agency.
4.220. The definition of employer in section 5(1) of the AC Act provides that the labour hire firm is
the employer when there are labour hire arrangements. The definition has been in place since
1985 and employer was similarly defined under the earlier Workers Compensation Act
1958.
174
4.221. Host employers currently have no obligation to participate in the rehabilitation and return to
work of injured labour hire workers. The absence of any obligation on the host employer to
provide the worker with suitable employment reduces the opportunities for effective workplace
rehabilitation for these workers.
Stakeholder views
4.222. The RCSA, which represents labour hire agencies, submits that the obligation to provide
suitable employment to the injured worker should extend to host employers so far as it is
reasonably practicable for the host employer to do so. Alternatively, the RCSA suggests that the
host employer should at least assist the worker back to work in conjunction with the labour hire
firm.
175
4.223. VECCI opposes the imposition of any new legal obligation on host employers through the AC
Act. VECCI notes that it would be unfair to impose a burden on the host employer, particularly
where the contract was short-term. VECCI also argues that providing such employment would
be costly and, where the requirements of section 138 recoveries are maintained, would make
the use of labour hire a high-risk option.
176
4.224. Similarly, Ai Group argues against the AC Act placing obligations on host employers, particularly
where the employment was intended to be short-term. Ai Group submits that the arrangements
should be left to the commercial environment and not be placed in legislation.
177
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171 Economic Development Committee, Victorian Parliamentary Inquiry into Labour Hire Employment in
Victoria, final report, 2005, p xxii; citing Ian Watson, Earnings, Employment Benefits and Industrial
Coverage in Victoria: A Report to the Victorian Industrial Relations Taskforce (Volume 1), ACIRRT,
University of Sydney, July 2000, p 30.
172 Economic Development Committee, Victorian Parliamentary Inquiry into Labour Hire Employment in
Victoria, final report, 2005, p 1; citing P Laplagne, M Glover and T Fry, The Growth of Labour Hire
Employment in Australia, Staff Working Paper, Productivity Commission, Melbourne, February 2005,
p 7.
173 Economic Development Committee, Victorian Parliamentary Inquiry into Labour Hire Employment in
Victoria, final report, 2005, p 100.
174 Workers Compensation Act 1958, s 3.
175 RCSA, Submission, 2 May 2008, p 3.
176 VECCI, Submission, April 2008, p 29.
177 Ai Group, Submission, May 2008, p 30.
4.225. On the other hand, the VTHC recommends that
. . . the legislation be amended to provide a dual obligation on both the labour hire firm and
the host employer to provide suitable employment.
178
Make cooperation between host employers and the labour hire agencies a core obligation
4.226. In my view, requiring all host employers to provide suitable employment for workers employed
by labour hire agencies, if applied generally, would be oppressive and undermine the cost-
effectiveness of labour hire arrangements.
4.227. However, I am persuaded by the argument that the reduction in suitable employment
opportunities for labour hire workers places greater pressure, not only on the health of
individual workers, but also on the costs of workers compensation claims for labour hire
agencies and the scheme as a whole.
179
4.228. Cooperation between workplace parties is critical for achieving the best return to work and
rehabilitation outcomes. I believe that a requirement that (host) employers take all reasonable
steps to cooperate with labour hire agencies in the return to work of injured labour hire workers
would signal the importance of this approach.
4.229. The VWA, in consultation with stakeholders, should develop the necessary supporting
instruments and guidance material to indicate how host employers should cooperate with
labour hire agencies on return to work.
4.230. Guidance material should focus on specific industries and address the issue of compliance
in short-term and long-term labour hire arrangements.
Workers obligations
4.231. To facilitate return to work, the AC Act also imposes requirements on injured workers.
4.232. In particular, in order to continue to receive weekly benefits,
180
a worker is required to
make every reasonable effort to participate in an occupational rehabilitation service or
a return to work plan;
181
make every reasonable effort to return to work in suitable employment;
182
and
participate in assessments of the workers capacity, rehabilitation progress and future
employment prospects when requested to do so.
183
4.233. The worker must also submit at reasonable intervals to an examination by an independent
medical examiner.
184
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178 VTHC, Submission, 2 May 2008, p 19.
179 Economic Development Committee, Victorian Parliamentary Inquiry into Labour Hire Employment in
Victoria, final report, 2005, p 102.
180 These apply where a worker has no work capacity.
181 AC Act, s 93CA(3)(a)(i); s 93CB(3)(a)(i); s 93CC(3)(a). During the first and second entitlement periods
where the worker has a capacity for work, the worker is required to participate in an occupational
rehabilitation service or return to work plan, rather than make every reasonable effort to participate:
AC Act, s 93CA(3)(b)(i); s 93CB(3)(b)(i).
182 AC Act, s 93CA(3)(a)(ii); s 93CB(3)(a)(ii); s 93CC(3)(b). During the first and second entitlement period,
where a worker has a current work capacity, the worker is required to make every reasonable effort to
return to work in suitable employment at the workers place of employment in cooperation with the
employer and the Authority (or self-insurer): AC Act, s 93CA(3)(b)(ii); s 93CB(3)(b)(ii); s 93CB(3)(c)(ii0.
Where the workers employer cannot provide suitable employment, the worker must make every effort
to return to work at another place of employment: AC Act, s 93CA(3)(b)(iii); s 93CB(3)(b)(iii);
s 93CB(3)(c)(iii).
183 AC Act, ss 93CA(3)(a)(iii), 93CA(3)(b)(iv); ss 93CB(3)(a)(iii), 93CB(3)(c)(iv); s 93CC(3)(c).
184 AC Act, s 112.
4.234. To receive weekly benefits, a worker must also obtain certificates of capacity from a healthcare
professional (prescribed in the AC Act).
185
Finally, if the worker is receiving weekly benefits,
the worker must attend an interview with the VWA or the self-insurer for the purpose of
determining whether the workers opportunities for employment can be enhanced, when
required by the VWA or self-insurer.
186
Realign workers obligations and provide guidance
4.235. I believe it is appropriate to require injured workers to engage in the return to work process.
4.236. That requirement is already expressed in the AC Act. However, the obligation is currently
expressed as a ground for the termination of weekly benefits and are located with the
provisions that relate to weekly payments.
187
4.237. The location of the obligation detracts from the significance of worker engagement in the return
to work process. A more appropriate signal of the importance of the obligation would be
provided if the duty was framed positively and placed alongside employers duties, to provide a
degree of symmetry to the return to work obligations.
4.238. I propose that the AC Act should continue to require workers to make reasonable efforts to
participate in the return to work process (as currently required under the AC Act), including:
participating in an occupational rehabilitation service and return to work planning;
returning to work in suitable employment, either at the pre-injury workplace or at another
place of employment; and
participating in assessments of capacity, rehabilitation progress and future employment
prospects when requested to do so.
4.239. I also recommend that further guidance about what constitutes reasonable efforts to return to
work be included in a compliance code.
4.240. I consider that the sanction for failure to make reasonable efforts to participate in the return to
work process should initially involve suspension of weekly benefits, with termination to follow if
the failure is not remedied within 28 days.
4.241. I discuss the application of penalties for non-compliance with return to work obligations more
broadly in paragraphs 4.2614.262 below, and in chapter 5, Better income replacement,
at paragraphs 5.157-5.162.
Summary of recommendations
4.242. In summary, then, I recommend that the current return to work obligations be reframed
as performance-based duties, thus allowing duty holders more flexibility in the means of
compliance. Crucially, this approach is intended to shift the focus away from paper compliance
and towards achieving early and sustained return to work for injured workers.
4.243. I propose that the core employer obligations
188
should be to:
take all reasonable steps to return an injured worker to work as soon as possible;
take all reasonable steps to provide an injured worker with pre-injury or suitable employment
for a period of 12 months;
consult as far as is reasonably practicable with the injured worker and treating practitioner
on the injured workers return to work;
189
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185 AC Act, s 111.
186 AC Act, s 162.
187 AC Act, ss 93CA, 93CB, 93CC.
188 That is, obligations imposed by the AC Act.
189 Section 36(1) of the OHS Act sets out a process for consultation which may be a model. It may be
appropriate to similarly define consultation in the AC Act.
take reasonable steps to plan an injured workers return to work from the date of the injury;
for employers with remuneration of $2 million or more, maintain the appointment of a person
of appropriate seniority to manage return to work at the employers workplace a return to
work co-ordinator;
for employers with remuneration below $2 million, appoint a return to work coordinator (of
appropriate seniority) following an injury in the employers workplace;
develop and make available to the employers workers such information about return to work
and occupational rehabilitation as is prescribed by the regulations; and
take reasonable steps to co-operate with labour hire employers on the return to work of
injured labour hire workers (host employers), with the content of those reasonable steps to be
guided by a compliance code.
4.244. I also propose that the AC Act should continue to require workers to make reasonable efforts to
participate in the return to work process (where currently required under the AC Act), including:
participating in an occupational rehabilitation service and return to work planning;
returning to work in suitable employment, either at the pre-injury workplace or at another
place of employment; and
participating in assessments of capacity, rehabilitation progress and future employment
prospects when requested to do so.
The sanction for failure to make those reasonable efforts should initially involve suspension of
weekly benefits, with termination to follow if the failure is not remedied within 28 days.
4.245. The current requirement to implement a risk management program (sections 156(1)(b) and 159
of the AC Act) is an unnecessary duplication of the extensive obligations imposed on employers
under the OHS Act. Although employers should continue to maintain a safe and healthy
environment, I propose removing that requirement from the AC Act.
4.246. The VWA should, in consultation with stakeholders develop subordinate instruments that set
out how to comply with the requirements imposed by the principal legislation.
4.247. The subordinate instruments will deal with issues such as
how employers should plan for a workers return to work, including the development of more
formal plans for workers who remain incapacitated for longer periods;
how and when employers should consult with injured workers and treating practitioners;
what policies and procedures should be maintained by employers to manage return to work
and occupational rehabilitation in their workplaces (including procedures for the nomination
of the three approved occupational rehabilitation providers from whom workers may choose
when they need such services);
how those policies and procedures should be made available to workers;
how employers should maintain a safe and healthy working environment for workers returning
to work following injury;
how each of the participants in the return to work process (employers, workers, health and
safety representatives (HSRs), treating practitioners and the VWA) should work together to
promote return to work outcomes; and
how host employers should cooperate with labour hire agencies on return to work.
4.248. The move to a new compliance framework should be complemented by a properly resourced
inspectorate with appropriate powers, responsible for monitoring and enforcing return to work
obligations and giving advice and support to workplace parties about compliance issues:
see paragraphs 4.2874.292 below.
COMPLIANCE AND ENFORCEMENT
4.249. The VWA supports, monitors and enforces compliance with return to work obligations through
its Compliance and Enforcement branch and the recently established return to work
inspectorate.
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4.250. The VWA carries out a range of activities to encourage compliance with the return to work
requirements, including providing information and guidance, such as the Return to Work Guide
for Victorian Employers,
190
as well as enforcement through prosecution where appropriate.
4.251. The tools available to the VWA, aside from prosecution, include the imposition of additional
liabilities for breaches of certain provisions,
191
letters of caution, sentencing options and post-
prosecution activities such as publishing information about the outcome of the prosecution.
192
Penalties for non-compliance
4.252. The AC Act creates offences and penalties that aim to encourage employers and workers to
comply with their return to work obligations.
4.253. The AC Act provides that, where employers fail to meet their return to work obligations, they
can be prosecuted and fined. The current maximum penalty for failing to provide pre-injury or
suitable employment is 250 penalty units (currently $28,355).
193
For other employer obligations
relating to return to work, the maximum penalty is 120 penalty units (currently $13,610).
194
4.254. There are also sanctions for workers under the AC Act. For example, as discussed in paragraph
4.232 above, an injured workers weekly benefits may be terminated if the worker fails to make
every reasonable effort to return to work in suitable employment and participate in an
occupational rehabilitation service or a return to work plan.
4.255. Further, the AC Act provides that, where a worker fails to meet certain obligations in relation to
return to work, the worker may be subject to prosecution. It is an offence for an injured worker
to fail to attend an interview with the VWA or the self-insurer for the purpose of determining
whether the workers opportunities for employment can be enhanced.
195
The maximum penalty
is 20 penalty units (currently $2268).
196
4.256. It is also an offence for a worker who is on weekly benefits to fail to notify the employer or the
VWA when the worker returns to work.
197
The maximum penalty is 10 penalty units for the first
offence (currently $1134) and 20 penalty units for subsequent offences (currently $2268).
198
Stakeholder views
4.257. The Compensation Law Bar Association submits that the current sanctions for a worker who
fails to comply with the return to work obligations are extremely harsh.
199
4.258. VECCI submits that benefit termination is an adequate incentive for workers to participate
in return to work programs, but points out that agents rarely apply the sanction in the first
26 weeks. VECCI also argues that omitting to make a decision to cease payments when
there are grounds to do so should be subject to independent review.
200
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190 WorkSafe Victoria, The Return to Work Guide for Victorian Employers, viewed 24 June 2008;
<www.worksafe.vic.gov.au/wps/wcm/resources/file/ebd043435e51e02/returntoworkguide.pdf>.
191 For example, AC Act, s 108(4A).
192 VWA, RCBU Compliance and Enforcement Policy (Incorporating the General Prosecution Guidelines),
2003.
193 AC Act, s 242(1).
194 AC Act, s 242(6).
195 AC Act, s 162.
196 AC Act, s 242(8).
197 AC Act, s 123(2) and (3).
198 AC Act, s 242(5).
199 Compensation Law Bar Association, Submission, 2 May 2008, p 8.
200 VECCI, Submission, April 2008, p 41.
Introduce a broader range of measures to address non-compliance
4.259. In my view, penalties for non-compliance with workers obligations should be proportionate to
the gravity of the non-compliance. The AC Act should provide for a range of sanctions.
4.260. For example, I consider that a failure to participate in an interview to determine future
employment prospects should be subject to suspension or termination of weekly benefits,
rather than criminal consequences.
201
4.261. Criminal consequences should not flow from a workers failure to report a return to work, a
failure that may occur inadvertently. However, fraudulently obtaining (or attempting to obtain)
payments should remain a separate offence under the AC Act, and be subject to criminal
consequences
.202
4.262. With those comments in mind, I recommend that an appropriately proportionate regime of
sanctions be constructed to underpin my recommendation that a new compliance framework
be adopted to support injured workers returning to work.
The return to work inspectorate
4.263. The AC Act confers on authorised persons powers to enter, inspect and examine any premises
to monitor and enforce compliance with the AC Act and the ACWI Act.
203
4.264. The AC Act also gives the VWA the power to require, for specific purposes, any person to
provide information, attend and give evidence, and produce all books in the persons custody
and control.
204
The specific purposes include:
determining whether a provision of the AC Act or the ACWI Act has been contravened;
inquiring into or ascertaining a persons liability or entitlement under the AC Act or the
ACWI Act; and
ascertaining the identity of any person who may have a liability or entitlement under either Act
or who may affect the liability or entitlement of another related, associated or connected
person.
4.265. Traditionally, the powers have been delegated to investigators whose role is to investigate non-
compliance with the AC Act and the ACWI Act. However, the VWA has recently expanded the
role of authorised persons and established a return to work inspectorate to carry out
compliance and enforcement activities in relation to the return to work obligations.
4.266. The functions of the return to work inspectorate are to:
raise awareness of the obligations of employers;
identify non-compliance;
facilitate the development of return to work plans through provision of relevant information;
encourage the establishment of occupational rehabilitation programs; and
encourage better liaison between key stakeholders.
4.267. As part of a pilot program for the return to work inspectorate, six inspectors conducted
479 workplace visits between November 2006 and November 2007.
4.268. A minority of visits demonstrated some non-compliance in relation to return to work plans, but
100% compliance was achieved at the time of each follow-up visit.
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201 See the discussion and recommendations in Chapter 5, Better income replacement,
paragraphs 5.162 and 5.165.
202 AC Act, s 248.
203 AC Act, s 240.
204 AC Act, s 239.
4.269. A larger proportion of employers did not have an occupational rehabilitation program in place
that met all the requirements of the AC Act. Deficiencies included a failure to develop a return
to work policy and a failure to consult with workers on the policy. Similarly, there was 100%
compliance by the time of the follow-up visits.
4.270. Some employers did not meet all the requirements of the AC Act in relation to risk management
programs, but were able to demonstrate compliance based on the work they had done to
comply with the OHS Act.
205
4.271. Overall, satisfaction with the return to work inspectorate is very high.
206
Approximately three-
quarters of employers who were visited reported that the inspectors visits led to a greater
understanding of return to work issues. Over half the employers indicated that the visit changed
their workplaces approach and practices relating to return to work.
207
4.272. The return to work inspectorate is being increased to 10 inspectors, and the VWA is employing
inspectors with a wider range of skills (such as rehabilitation or case management skills) to
address the different needs of employers in the return to work context, as opposed to the OHS
context.
4.273. It has recently been proposed that the Victorian model be adopted in South Australia.
208
4.274. Table 4.3 summarises the results of the VWAs compliance and enforcement activities.
TABLE 4.3: COMPLIANCE BRANCH ENFORCEMENT ACTION, 1 JULY 2006 30 JUNE 2007
AND 1 JULY 2007 30 APRIL 2008 (YTD)
209
4.275. As seen in table 4.3, letters of caution and advice are the main enforcement activity in relation
to return to work. The other available enforcement mechanism is prosecution. Unlike their OHS
counterparts, return to work inspectors do not have the power to issue improvement notices or
directions during site visits to require contraventions to be remedied.
4.276. Although the recent establishment of a return to work inspectorate has improved the VWAs
capacity to ensure compliance with return to work requirements, the effectiveness of the
inspectorate is constrained by the narrow range of tools available to ensure compliance. At the
same time, the consequences of enforcement activity for employers are either low (letter of
caution or advice) or extremely high (prosecution).
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205 Source: VWA.
206 Source: VWA.
207 Source: VWA.
208 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System Report, December 2007, p 180.
209 Source: VWA.
Offence
Caution/Letter of advice Prosecutions completed
06/07 07/08 (YTD) 06/07 07/08 (YTD)
Failure to prepare an return to work plan 19 27 10 2
Failure to provide suitable employment 0 7 2 0
Stakeholder views
4.277. Unions strongly support a dedicated return to work inspectorate with appropriate powers and
resources. In particular, the VTHC is of the view that the return to work inspectorate should
have the power to
issue formal notices requiring employers to prepare or provide offers of employment suited
to the worker;
issue penalty notices for breaches of the AC Act, including failing to provide return to work
plans, rehabilitation and employment suited to the worker;
ensure compliance with the objects of the AC Act.
210
4.278. VECCI does not object to the return to work inspectorate having additional powers to issue
notices. However, VECCI submits that the inspectors should not be involved in
identifying suitable work and offering that to the worker and/or treating doctor;
identifying suitable work and issuing a notice directing the employer to offer a specific job
of suitable employment;
consulting with the treating doctor about return to work unless the treating doctor has
sought the inspectors intervention;
[issuing] a notice directing the worker to accept an offer of suitable employment;
[acting] as a Case Manager for a worker;
[engaging] in any investigation for the purpose of prosecution (but like OHS Inspectors be
required to refer suspected non-compliance to the compliance branch for comprehensive
investigation in accordance with the [Authoritys] Prosecution Policy).
211
4.279. Ai Group argues that VWAs agents are best placed to identify whether employers are meeting
their return to work obligations and contended that
It is not appropriate to overlay an inspection process where agents are currently well-equipped
to deal with return to work issues which are currently the focus of the inspectorate.
212
4.280. Ai Group submits that, if there is to be a return to work inspection regime, it would seem
appropriate to enable the current OHS inspectorate to address return to work issues during
other compliance programs and activities. In particular, Ai Group contends
It is not appropriate to establish a separate Return to Work inspectorate, at a significant cost
to the scheme (and therefore employers), as it would result in the following outcomes:
duplication of responsibilities between the Agents and the inspectorate;
duplication of roles between the OHS inspectorate and the Return to Work inspectorate;
confusion amongst employers and workers about what a WorkSafe inspector does; and
increased expense to the scheme with little, if any, benefit to injured workers or
employers.
213
4.281. Ai Group further submits that, if there is to be a separate return to work inspectorate (which
it opposes), it would appropriate that the inspectorate generally has the same processes for
workplace visits as its OHS counterparts.
214
4.282. The SIAV similarly opposes increasing the return to work inspectorates powers.
215
4.283. The VACC supports the strengthening of existing powers to ensure enforcement of the AC Act,
provided the powers are supplemented by an internal review process.
216
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210 VTHC, Submission, 2 May 2008, p 22.
211 VECCI, Submission, April 2008, pp 38-39.
212 Ai Group, Submission, May 2008, p 37.
213 Ai Group, Submission, May 2008, p 38.
214 Ai Group, Submission, May 2008, p 38.
215 SIAV, Submission, 2 May 2008, p 9.
216 VACC, Submission, 1 May 2008, p 9.
Provide the return to work inspectorate with broader enforcement powers
4.284. There is general support for an inspectorate that can provide guidance and advice about the
complex operations of the AC Act.
4.285. A variety of tools should be available to encourage compliance ranging from providing support
and guidance to administrative and criminal enforcement measures.
4.286. Although the VWA has achieved a great deal by initiating a pilot inspectorate, and there are
plans for its expansion, I believe its independence and accountability must be better supported
by the AC Act.
4.287. In my view, there is a strong case for more effective compliance and enforcement activity to
support the return to work requirements in the AC Act. The need for that activity will be
amplified by the transition from prescriptive to performance-based legislation.
4.288. I recommend that the powers of the return to work inspectorate be expanded and that the
inspectorate be provided with appropriate tools to monitor and encourage compliance with the
AC Act. As suggested by stakeholders, the OHS inspectorate offers an appropriate model for
compliance and enforcement activities on return to work and for review of decisions.
4.289. In particular, inspectors should be authorised to direct employers to remedy contraventions
on the spot, rather than having to rely on voluntary compliance or the threat of prosecution.
4.290. Return to work inspectors should also be authorised to issue improvement notices, which
would cover failures to take reasonable steps to return a worker to work. The notices would
require that breaches of the AC Act be rectified within a timeframe specified in the notice.
Failure to comply with an improvement notice would be grounds for prosecution.
4.291. A provision of a compliance code could be cited in an improvement notice as the basis of
evidence of the employers failure to take reasonable steps to return a worker to work.
4.292. A person whose interests were affected by a decision to issue or not to issue an improvement
notice could request internal review of that decision.
Ensure powers and review mechanisms are consistent with the OHS Act and Government policy
4.293. The Victorian Parliamentary Law Reform Committees report on coercive powers indicated that
those powers should only be available where they are necessary to enforce the objects of the
relevant legislation.
217
4.294. The report made a large number of recommendations, many of which are relevant to the exercise
of power by return to work inspectors. The Government has issued a response to the report,
supporting many of its recommendations in principle. That response should inform any proposals
for further reform of the powers of the return to work inspectorate following this Review.
4.295. The OHS Act gives the VWAs OHS inspectors powers of inspection that differ from those
provided to return to work inspectors under the AC Act.
4.296. An OHS inspector may enter any place that the inspector reasonably believes to be a workplace
at any time during working hours, or at any other time the inspector believes there is an
immediate risk to health and safety.
218
An OHS inspector who enters a workplace has a range
of powers after entry.
219
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217 Victorian Parliament Law Reform Committee, The Powers of Entry, Search, Seizure and Questioning by
Authorised Persons, 2002.
218 OHS Act, s 98.
219 OHS Act, s 99. The powers include the power to inspect, examine, and make enquiries of persons and
things; seize relevant items; take photographs, measurements or make sketches or recordings;
exercise any other power conferred on the inspector under the OHS Act or its regulations; and do any
other thing reasonably necessary for the purpose of performing the inspectors functions or exercising
the inspectors powers under the OHS Act or its regulations.
4.297. The powers of an authorised person under the AC Act are less specific as they were not drafted
with an inspectorate in mind.
4.298. Under the OHS Act, the inspector must take all reasonable steps after entry to the workplace
to notify the occupier, or apparent occupier, and the relevant HSR,
220
and show the inspectors
identity card to those persons.
221
However, under the AC Act there are no legislated
requirements for the inspector to notify an occupier or produce identification.
4.299. The Victorian Parliamentary Law Reform Committees report recommended that all Acts
conferring relevant powers on inspectors require inspectors to produce identification
automatically.
4.300. Following an inspection, the OHS Act requires that a report about that entry must be provided
to the occupier and the relevant HSR.
222
The report must include particulars about the purpose
of entry
223
and a description of things done.
224
There is no equivalent requirement under the
AC Act.
4.301. Given that the VWA administers both inspectorates, I believe it is desirable to align the basic
processes that inspectors must follow during entry and inspections (such as showing
identification and providing a written report about the entry). Alignment would ensure a
consistent approach and improve transparency and accountability. It would also set consistent
expectations for employers.
4.302. As stakeholders have argued, it is appropriate that the AC Act contain the same provisions
about legal professional privilege and protection against self-incrimination as are found in the
OHS Act.
4.303. The Victorian Parliamentary Law Reform Committees report made several recommendations
about legal professional privilege and protection against self-incrimination. The Governments
response to the recommendations should inform the drafting of the provisions in the AC Act.
4.304. There is also a strong case for a transparent means of reviewing the decisions made by
inspectors and the VWA in relation to return to work.
4.305. The OHS Act prescribes a clear process for review of inspectors activities by the VWA and
VCAT. The process allows workers and employers to seek a quick and informal review of a
wide range of decisions made by OHS inspectors.
4.306. Although relatively new, the mechanisms appear to be operating well. There were 686 requests
for review of an OHS inspectors decision during 2006/2007. Seven people were not satisfied
with the outcome of the review performed by the VWAs Internal Review Unit and sought
external review by VCAT.
4.307. There are currently no review mechanisms for decisions by return to work inspectors, and this
lack of accountability should be addressed.
4.308. I recommend that the processes for review of decisions made by the OHS and return to work
inspectorates be the same, to ensure consistency and improve transparency and accountability.
4.309. The AC Act should identify which decisions are reviewable and which parties are entitled to
request a review in respect of each decision.
225
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220 OHS Act, s 102(1).
221 The inspector is not obliged to do so if it would defeat the purpose of entry or cause unreasonable
delay, or if the person is already aware the inspector has entered the place or was notified in advance
of when the entry would occur; OHS Act, s 102(2).
222 OHS Act, s 103(1).
223 OHS Act, s 103(2)(b).
224 OHS Act, s 103(2)(c).
225 See OHS Act, s 127 for a model.
Substantially increase the size of the return to work inspectorate and provide appropriate training
4.310. The OHS inspectorate conducted 42,924 workplace inspections in 2006/2007.
226
The return
to work inspectorate, as part of the pilot program, visited 479 workplaces.
227
For 2008/2009,
1500 visits are planned. The return to work inspectorate should be expanded to the level
where the inspectorate can conduct a credible workplace intervention program.
4.311. The proposed move to a performance-based approach, which will allow employers more
flexibility in how to achieve compliance, will provide new challenges for the return to work
inspectorate.
4.312. Like the OHS inspectorate, the return to work inspectorate will require a training program
to equip it for compliance and enforcement activities directed at performance-based duties.
The inspectorate will also need expertise in the appropriate use of the new enforcement
tools that would be available to it in particular, improvement notices and directions.
4.313. Following the proposed move to performance-based legislation and the obvious similarities
between the proposed return to work and OHS inspectorates, consideration may need to be
given to whether the two inspectorates should continue to operate as separate entities.
WORKERS RIGHT OF ACTION
4.314. Section 252 of the AC Act gives the VWA the exclusive power to commence prosecution
proceedings under the Act.
4.315. It has been suggested that workers should be given a right to take their own legal action,
particularly in relation to failures by employers to offer suitable employment.
4.316. The question of the right of parties other than the VWA to prosecute for breaches of legislation
was recently examined by Chris Maxwell QC (as his Honour was at that time) in his review of
the OHS Act.
228
Mr Maxwell rejected the proposition that parties other than the VWA should
be given the right to prosecute for health and safety breaches on the following grounds:
prosecution for criminal offences is a matter of the utmost seriousness and is properly the
exclusive function of the State;
there is no evidence of under-prosecution by the VWA;
the role of the prosecutor is a specialist one and it is desirable that the relevant expertise be
concentrated in one place; and
it is important to the integrity and consistency of the enforcement side of the scheme that
the VWA have exclusive control over prosecutions.
4.317. In New South Wales, where unions have the right to prosecute employers for breaches of their
OHS Act, prosecutions are relatively few in number.
229
4.318. Under the New South Wales scheme, if an injured worker is dismissed because the worker is
not fit for employment as a result of a work-related injury, the worker may seek reinstatement.
If the employer does not reinstate the worker, the worker may apply to the Industrial Relations
Commission for a reinstatement order. That order can be sought within two years of the injury.
Aside from that example in New South Wales, no other party has a right to bring an action in
relation to such a breach of workers compensation laws in any other jurisdiction.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 4 SUPPORTING WORKERS TO GET BACK TO WORK AFTER INJURY
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226 VWA, Annual Report 2006/2007, p 19.
227 Source: VWA.
228 C Maxwell, Occupational Health and Safety Act Review, March 2004, Department of Treasury and
Finance, 2004, pp 360-361.
229 Hon Paul Stein, Inquiry into Report on the Review of the Occupational Health and Safety Act 2000, April
2007, viewed 29 July 2008; <http://www.workcover.nsw.gov.au/NR/rdonlyres/2E8123F1-1505-4A4C-
AED7-23033E22595D/0/stein_inquiry_report_5625.pdf>.
Stakeholder views
4.319. The VTHC proposes that
. . . the right to take legal action by injured workers against employers who fail to offer suitable
or pre-injury employment should be underwritten by the Regulator. This will ensure that
workers are properly protected and have genuine recourse against employers who act
unlawfully. This approach would be consistent with the fact that the costs of employer litigation
with respect to disputed claims are met by the VWA.
230
4.320. The VTHC argues that giving workers the right to take their own legal action is important, given
that the VWA has only attempted a handful of prosecutions under section 155A (or that
sections predecessor).
231
4.321. Other stakeholders reject the proposal. Ai Group submits that it is not necessary to introduce
additional rights, because workers can apply to the ACCS if an employer fails to provide suitable
employment.
232
4.322. VECCI also opposes the introduction of a right of action for workers. VECCI notes that workers
who have been disadvantaged as a result of their injury can seek damages elsewhere.
233
4.323. Nonetheless, employer organisations submit that an efficient means of settling compliance
disputes is warranted.
4.324. The ALA is concerned at the lack of avenues for workers to seek meaningful review of any
failure to offer suitable employment: other than referral to the ACCS, the ALA says, there is no
power to direct an employer to offer suitable employment. The ALA also submits that workers
should be able to have a failure to offer suitable employment judicially considered and
determined.
234
Retain the existing arrangements
4.325. I agree with the Maxwell report (see paragraph 4.316 above) that prosecution for criminal
offences is a matter of the utmost seriousness, and that it should remain the exclusive function
of the State (through the VWA) to deal with non-compliance.
4.326. One alternative, granting a worker the right to sue for damages for a breach of the employers
obligations under the AC Act, would foster an adversarial culture, reducing the prospects of a
successful return to work at the workplace. To provide such a remedy would simply establish
another ground for disputation and legal action.
4.327. For those reasons, I do not consider it appropriate to allow other parties to prosecute for
breaches of the AC Act, or to permit workers to initiate legal action to recover damages for
breaches of the AC Act.
4.328. The OHS legislation
235
allows a person to request that the VWA bring a prosecution for an
offence against the Act where no prosecution has been brought within six months of the
alleged offence; and, if the VWA decides not bring the prosecution, the person may require
the VWA to refer the matter to the Director of Public Prosecutions, who is to advise in writing
whether a prosecution should be brought.
4.329. Although the VWA should retain the exclusive right to prosecute, the AC Act should be
amended to allow any person to seek of a review of the VWAs decision not to prosecute
an offence, consistent with the OHS legislation.
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230 VTHC, Submission, 2 May 2008, p 19.
231 VTHC, Submission, 2 May 2008, p 18.
232 Ai Group, Submission, May 2008, p 30.
233 VECCI, April 2008, p 28.
234 ALA, Submission, 8 February 2008, p 14.
235 OHS Act, s 131; Dangerous Goods Act 1985, s 40A; Equipment (Public Safety) Act 1994, s 28A.
4.330. I acknowledge the importance of ensuring that employer obligations are enforced in a timely
and appropriate way. Workers who believe that suitable employment has not been provided
should be encouraged to contact the return to work inspectorate, which can intervene with
appropriate advice and guidance or, as I discuss above in paragraphs 4.2844.292, take
enforcement action where necessary.
ROLES OF OTHER WORKPLACE PARTIES INVOLVED IN RETURN TO WORK
4.331. Although the key return to work obligations are placed on employers, the cooperation of all
workplace parties (including injured workers, occupational rehabilitation providers, healthcare
providers, the VWA and its authorised agents) is crucial.
Worker representatives
4.332. Given the number of parties who are usually involved, the return to work process can be
daunting for the injured worker, who is unlikely to be familiar with the complex requirements of
the AC Act and the range of services that may be available. It has been suggested that injured
workers may benefit from further advice and representation to assist them as part of this
process.
4.333. Under the OHS Act, employees are entitled to be represented on health and safety issues
by one or more elected HSRs.
236
HSRs are elected by members of designated workgroups
(DWGs). The composition of the DWGs is agreed between the employer and employees.
4.334. HSRs are entitled to paid time off work to attend initial and annual refresher training courses
approved by the VWA. HSRs are also entitled to paid time off work to attend other approved
training courses.
Stakeholder views
4.335. VTHC
237
and union groups such as the VIEU
238
submit that workers have a right to be
represented throughout the return to work process. VTHC also expresses the view that the
AC Act should be amended to require employers to consult elected HSRs on the content of
risk management programs.
239
4.336. The NUW suggests that the AC Act be amended to include a workers right to elected
representation along the same lines as the OHS Act. The NWU also submits that the
representative should be permitted to attend training on the same lines as under the
OHS Act.
240
4.337. The AMWU and the MUA submit that the AC Act should be amended to provide for worker
representatives with powers, rights and provisions similar to those found in the OHS Act.
241
They also submit that such persons could be HSRs or worker representatives elected by
workers.
242
4.338. In its submission, the APA notes that physiotherapists tend to become involved in advocacy
for their clients, due to the absence of independent, non-legal advocacy services.
243
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CHAPTER 4 SUPPORTING WORKERS TO GET BACK TO WORK AFTER INJURY
PAGE 164
236 OHS Act, Part 7.
237 VTHC, Submission, 2 May 2008, p 7.
238 VIEU, Submission, May 2008, p 4.
239 VTHC, Submission, 2 May 2008, p 23.
240 NUW, Submission, 2 May 2008, p 1.
241 AMWU, Submission, 2 May 2008, p 1; MUA, Submission, 2008, p 1.
242 AMWU, Submission, 2 May 2008, p 1; MUA, Submission, 2008, p 1.
243 APA, Submission, May 2008, p 5.
Extend the role of HSRs to represent injured workers on return to work
4.339. To assist workers to participate actively in the return to work process and to understand their
rights and responsibilities, I believe that workers should have access to representation and
assistance from a worker advocate. In my view, an elected HSR is in a good position to provide
that kind of support.
4.340. HSRs could make a constructive contribution to the workers return to work by providing
support and information. Indeed, they are familiar with the workplace and are likely to be aware
of the suitable employment opportunities that might be available to an injured worker. Their
HSR training covers representation and negotiation skills, which would help them advocate for
an injured worker.
4.341. Where an injured worker has returned to work, the HSR could assist in achieving a smooth
transition back into the workplace.
4.342. At the same time, clear and open communication between the employer and the injured worker
is essential to good return to work outcomes; so the HSR should not be the sole intermediary
through whom all communications between the employer and the worker must pass. Nor
should HSRs exercise their role in a way that works against a culture of support and
communication by adopting an adversarial approach rather than one based on cooperation.
4.343. There is currently nothing in the AC Act to prevent a worker from obtaining the support of
another person (such as a union representative, an HSR or a relative) to assist the worker
through the return to work process.
4.344. However, it would be appropriate to provide a formal basis for that support, and I recommend
that the AC Act and the OHS Act be amended to extend the role of HSRs, so that they can also
represent workers in the return to work process.
4.345. However, I do not propose that the formal recognition of HSRs role should limit in any way
a workers right to seek support from other parties, as is currently permitted.
4.346. HSRs current powers
244
would need to be extended to authorise an HSR to:
attend interviews between an injured worker who is a member of the HSRs DWG and any
other party involved in the return to work process (if the worker agrees);
be consulted by the employer on the establishment of an occupational rehabilitation program,
the nomination of a return to work coordinator and other relevant matters affecting the DWG;
be informed of (and, where appropriate, be consulted about) any activity that a return to work
inspector is undertaking that is relevant to the DWG;
issue a Provisional Improvement Notice, after consulting with the employer, to require
that a contravention or suspected contravention of return to work requirements be fixed;
be given the facilities and assistance the HSR needs to carry out the role;
seek the assistance of other people; and
take time off work with pay to attend training approved by the VWA.
4.347. The matters that are currently required to be taken into account when negotiating the
establishment of DWGs
245
would also need to be expanded in relation to the HSRs enhanced
return to work role.
4.348. Similarly, the training of HSRs would need to be expanded to cover their new role. The training
would need to address, not only the return to work requirements of the AC Act, HSRs role and
the roles of others involved in the return to work process, but also how to exercise HSRs role
in a way that fosters the type of partnership between workplace parties that is essential for a
successful return to work process.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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244 OHS Act, s 58(1).
245 OHS Act, ss 46 and 49.
4.349. Currently, the duration of the initial HSR training course is five days, and the annual refresher
training is one day. The periods are not specified in legislation, but are determined by the VWA
following consultation with unions and employers.
4.350. The training periods would need to be extended to cover the matters outlined in paragraph
4.348 above, which would impose additional costs on employers. However, I expect that the
benefits to employers of having more injured workers return to work would outweigh the
additional costs of training.
4.351. I also recommend that HSRs be permitted to act as a workers representative only where the
worker consents to that representation.
4.352. As part of the expansion of the HSRs role, an employer will be obliged to provide the relevant
HSR with access to certain information. However, information relating to the workers medical
condition should only be provided with the workers consent.
4.353. Although I acknowledge that there may be some concerns about this approach, I believe that
the potential benefits outweigh those concerns.
Occupational rehabilitation providers
4.354. Occupational rehabilitation is one of a number of defined medical and like services in the
AC Act.
246
Currently the AC Act requires that the return to work plan for an injured worker
include any occupational rehabilitation services that are reasonably necessary to assist the
worker in returning to and remaining at work.
247
4.355. Occupational rehabilitation refers to services designed to help workers return to work, either
with their pre-injury employer or, if that is not possible, with a new employer. The AC Act
defines occupational rehabilitation services to include workplace assessments, advice
concerning job modification, counselling and vocational re-education, where those services
are provided by a person approved by the VWA.
248
4.356. The provision of occupational rehabilitation services is an exception to the general principle
that workers can choose their own healthcare providers.
Under the AC Act, a worker is required to choose from a list of at least three approved
providers nominated by the VWA, employer or self-insurer.
249
If the worker fails to choose a provider within 14 days, the VWA (or employer or self-insurer)
determines the occupational rehabilitation provider.
250
However, if the VWA (or employer or self-insurer) does not provide a list of occupational
rehabilitation providers, the worker can choose from all VWA-approved occupational
rehabilitation providers.
251
Stakeholder views
4.357. The VTHC submits that workers should be able to choose any approved occupational
rehabilitation provider.
252
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 4 SUPPORTING WORKERS TO GET BACK TO WORK AFTER INJURY
PAGE 166
246 I discuss the services further in Chapter 6, Treatment expenses, paragraph 6.5.
247 AC Act, s160(1)(b).
248 AC Act, s 5(1).
249 AC Act, s 99(3A)-(3D).
250 AC Act, s 99(3D).
251 AC Act, s 99(3A)(b).
252 VTHC, Submission, 2 May 2008, p 21.
4.358. The AEU believes that
. . . the current practice of restricting choice of occupational rehabilitation providers to 3
nominated by the claims agent, should be replaced by the worker having a choice from
all providers on the list approved by the VWA.
253
4.359. The APA supports the right for injured workers to choose their occupational rehabilitation
providers.
254
4.360. The ARPA submits that the choice of three providers creates a layer of administration that
works against early intervention. It suggests that removing the current provision would
eliminate delays and enable earlier return to work planning.
255
4.361. Employer groups support maintaining the choice from three providers. However, some
employer groups criticise aspects of the provisions. For example, Ai Group submits that
. . . the current 14-day delay can significantly impact on the employers ability to provide timely
return to work.
256
4.362. VECCI submits that when, the provision giving workers a choice from a list of three providers
was proposed as an amendment to the AC Act, it believed the change would delay the
commencement of rehabilitation services, and contends that the provision has done precisely
that.
257
VECCI also submits that it would be an improvement if the worker was required to
select a provider within four days, with the right of choice then reverting to the employer.
258
Allow workers seven days to select an occupational rehabilitation provider
4.363. There are advantages in allowing an employer some say in a workers choice of occupational
rehabilitation provider. The provision of occupational rehabilitation requires some knowledge of
the workplace in order to assist workers back to work effectively. Some employers therefore
establish appropriate relationships with certain providers in order to reduce the need to educate
other providers about the workplace.
4.364. The current provisions balance the aims of ensuring that injured workers have some choice in
selecting their occupational rehabilitation provider, and that employers retain some influence
over the provider that is used. I recommend that the current provision allowing workers to
choose from at least three occupational rehabilitation providers be maintained.
4.365. However, in my view it is important that the balance should not inhibit timely receipt of
occupational rehabilitation services. The current provision has the potential to sacrifice earlier
intervention. I therefore recommend reducing to seven days the time within which the worker
needs to choose a provider.
4.366. Although each employer is required to nominate an occupational rehabilitation provider as
part of the employers occupational rehabilitation program,
259
the AC Act does not require
that provider to be included in the list of three providers.
4.367. VWA policy indicates that the nominated provider should be included on the list where the
occupational rehabilitation service required relates to return to work.
260
It is understood that
most employers include the nominated provider on the list offered to workers. I suggest that
further guidance on this matter should be provided.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 4 SUPPORTING WORKERS TO GET BACK TO WORK AFTER INJURY
PAGE 167
253 AEU, Submission, 2008, p 4.
254 APA, Submission, 2 May 2008, p 3.
255 ARPA, Submission, 25 April 2008, p 2.
256 Ai Group, Submission, May 2008, p 34.
257 VECCI, Submission, April 2008, p 34.
258 VECCI, Submission, April 2008, p 35.
259 AC Act, s 158(1)(a)(iii).
260 VWA Claims Manual, paragraph 8.2.9.
Healthcare providers
4.368. Communication and coordination between all parties, including the treating practitioner, have
been demonstrated as having a positive influence on health and return to work outcomes. The
evidence suggests that participation by healthcare providers is important in achieving early
return to work.
261
For example, a study commissioned by WorkCover WA confirmed that
increased liaison between the injured workers general practitioner and the workplace was
associated with better return to work rates and lower claim costs.
262
4.369. Employers tend to respond positively to the advice of healthcare providers about the
modification of work space and duties,
263
and workers respond well to positive
recommendations to return to work.
264
4.370. Under the AC Act, certain healthcare providers have a key role in certifying whether a worker is
fit for work via a certificate of capacity. The certificate of capacity is a critical document in the
return to work process and should provide timely and detailed information to assist the
development of a return to work plan.
265
4.371. A certificate relating to a workers medical condition or work capacity is raised in at least three
different situations under the AC Act.
Section 105 covers a medical certificate that accompanies a workers claim for
compensation.
266
The certificate must be provided by a medical practitioner and is limited
to 14 days unless there are special reasons for extending that period.
267
Section 111 covers the certification of a workers capacity for work in order for the worker
to receive weekly payments. The certificate can be provided by a medical practitioner,
registered physiotherapist, chiropractor or osteopath, and can be issued for up to 28 days
unless special reasons apply.
268
Section 113 allows the VWA, a self-insurer or an employer (at its expense) to require a worker
to obtain a medical certificate from a nominated healthcare provider (a medical practitioner,
registered physiotherapist, chiropractor or osteopath). The AC Act limits the number of
requests to one every three months, and requires the nominated healthcare provider to be
accessible to the worker.
269
There are no sanctions under the AC Act for a worker who fails
to obtain a section 113 certificate.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 168
261 A Kosny, RL Franche, J Pole, N Krause, P Ct and C Mustard, Early healthcare provider
communication with patients and their workplace following a lost-time claim for an occupational
musculoskeletal injury, Journal of Occupational Rehabilitation, vol 16, no 1, 2006, pp 27-39. Source:
Return to Work Knowledge Base, Healthcare Provider Participation is Important in Achieving Early
Return to Work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?article_id=21
&view_type=insurer>.
262 D Morrison, GA Wood and D Munrowd, Management Practices, Medical Interventions and Return to
Work, 1998, viewed 13 May 2008; <www.workcover.wa.gov.au/NR/rdonlyres/41AD9216-1AA9-4450-
9320-5A167BB363F5/0/ManagementPracticesMedicalInterventionsandReturntoWork.pdf>. Source:
P Foreman, G Murphy and H Swerissen, Facilitators and Barriers to Return to Work: A Literature
Review, Australian Institute for Primary Care, 2006, p 24.
263 Return to Work Knowledge Base, Healthcare Provider Participation is Important in Achieving Early
Return to Work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?article_id=21
&view_type=insurer>.
264 Return to Work Knowledge Base, Healthcare Provider Participation is Important in Achieving Early
Return to Work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?article_id=21
&view_type=insurer>.
265 Issues relating to medical certificates and certificates of capacity are discussed further in Chapter 5,
Better income replacement benefits and Chapter 6, Treatment expenses.
266 AC Act, s 103(1)(b) states that, unless the claim is for compensation under ss 92, 92A, 92B, 98, 98A,
98C or 99, the claim must be accompanied by a certificate under s 105.
267 AC Act, s 105(1)(a) and (3). The certificate must be issued by a medical practitioner, be in a form
approved by the VWA, and specify the expected duration of the workers incapacity and whether the
worker has a current work capacity or has no current work capacity. The certificate is for 14 days
(unless the VWA or self-insurer is satisfied there are special reasons which require an extension).
268 AC Act, s 111(2)(a)(ii) and (b).
269 AC Act, s 113(3). The worker must obtain the medical certificate from a medical practitioner or a
person authorised under the AC Act within 14 days of being required to do so: s 113(2).
4.372. Healthcare practitioners provide workers with initial treatment and prognoses for rehabilitation
and return to work. They can also play a central role, together with the employer and the
worker, in developing injury management and return to work strategies.
270
4.373. In contrast, the New South Wales system adopts a consolidated injury management approach
that outlines the responsibilities of all parties in the return to work process. However, that
system does not impose any duties on treating health practitioners.
Stakeholder views
4.374. NewCare suggests that
. . . the role and responsibility of the injured workers treating doctor [is] one of the great
deficiencies within the Act and, with further limitations on obtaining information from an
alternative source, return to work activities are sometimes restricted and delayed.
271
4.375. VECCI submits that, in the overwhelming view of employers, the biggest weakness in the
compensation system is the involvement of medical practitioners. VECCI notes that
Successful return to work is achieved best by regular contact between the critical parties
(employer and injured employee). While treating practitioners are very relevant to the process
they do not always agree to consult with employers. Some because the doctor shortage
doesnt allow them the time. Some because the VWA wont pay them for the time and some
because they prefer to preserve patient confidentiality totally. It would be necessary for any
obligation to require reasonable effort to consult rather than have an employer non compliant
because of a [doctors] refusal to engage.
272
4.376. The AMA notes that the return to work sections of the AC Act
. . . do not highlight the crucial role of the [medical practitioner] in this part of the patient
journey.
273
4.377. VECCI submits that medical practitioners should be paid for their time consulting with
employers.
274
4.378. Ai Group argues that higher payments should be available for treating practitioners who are
skilled in the return to work area. Ai Group also submits that doctors should be paid for
participation in conference calls and meetings.
275
4.379. Australian Automotive Air Pty Ltd suggests that the New South Wales and Australian Capital
Territory models should be considered, which would enable treating practitioners
. . . to be more actively involved and committed to participate in the treatment and
rehabilitation process.
276
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 4 SUPPORTING WORKERS TO GET BACK TO WORK AFTER INJURY
PAGE 169
270 Productivity Commission, National Workers Compensation and Occupational Health and Safety
Frameworks, inquiry report, No. 27, 2004, p 202.
271 NewCare, Submission, 7 February 2008, p 1.
272 VECCI, Submission, April 2008, p 37.
273 AMA, Submission, 8 February 2008, p 1.
274 VECCI, Submission, April 2008, p 41.
275 Ai Group, Submission, May 2008, p 55.
276 Australian Automotive Air Pty Ltd, Submission, 7 February 2008, p 9.
Provide support for treating practitioners
4.380. Research indicates that most treating practitioners do not have specific training in work
disability or occupational medicine. Nevertheless, treating practitioners frequently evaluate how
a persons illness or injury might affect the persons work.
277
Treating practitioners are called
on to recommend how much time off work a worker needs, to refer workers to rehabilitation
programs, and to verify information to insurance agencies, employers, and workers
compensation bodies.
278
4.381. Further, anecdotal evidence suggests that managing return to work and treating compensable
patients is more difficult than treating other patients.
279
4.382. A 2002 study examined the issues around the role of physicians in evaluating work ability and
managing disability.
280
The results indicated that better communication between employers and
physicians is required, as is more education for employers, workers and doctors. Physicians
also require more specific guidelines directed at when patients can safely return to work, and
require more details from employers about what tasks can be assigned to a returning worker.
281
4.383. Provision of compensation to injured workers and supporting their occupational rehabilitation
and return to work are among the primary objectives of the AC Act.
282
The framework
prescribed by the AC Act to meet those objectives focuses on the key parties involved
that is, employers and workers. While the co-operation of treating practitioners is important
in achieving the best return to work outcomes, they are not central to the employment
relationship.
4.384. Compensable patients represent a very small proportion of medical practitioners caseload:
recent statistics indicate that injured workers make up approximately 2% of the patients seen
by general practitioners
.283
4.385. In my view, it would be inappropriate to impose statutory duties on treating practitioners in this
area. The imposition of duties may discourage practitioners from treating injured workers.
4.386. I recommend that additional guidance material be developed to assist and support healthcare
professionals in their treatment of injured workers.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 170
277 G Pransky, JN Katz, K Benjamin, J Himmelstein, Improving the physician role in evaluating work ability
and managing disability: a survey of primary care practitioners. Disability & Rehabilitation 2002;
24(16):897-874. Return to Work Knowledge Base, The roles and Obstacles Faced by Family GPs
Assisting Patients to Return to Work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?
article_id=87&view_type=health>.
278 G Pransky, JN Katz, K Benjamin, J Himmelstein, Improving the physician role in evaluating work ability
and managing disability: a survey of primary care practitioners. Disability & Rehabilitation 2002;
24(16):897-874. Return to Work Knowledge Base, The roles and obstacles faced by family GPs
assisting patients to return to work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?
article_id=87&view_type=health>.
279 Return to Work Knowledge Base, The issue for treaters, viewed 13 May 2008;
<www.rtwknowledge.org/browse.php?article_id=178&view_type=health>.
280 G Pransky, JN Katz, K Benjamin, J Himmelstein, Improving the physician role in evaluating work ability
and managing disability: a survey of primary care practitioners. Disability & Rehabilitation 2002;
24(16):897-874. Return to Work Knowledge Base, The roles and obstacles faced by family GPs
assisting patients to return to work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?
article_id=87&view_type=health>.
281 G Pransky, JN Katz, K Benjamin, J Himmelstein, Improving the physician role in evaluating work ability
and managing disability: a survey of primary care practitioners. Disability & Rehabilitation 2002;
24(16):897-874. Return to Work Knowledge Base, The roles and obstacles faced by family GPs
assisting patients to return to work, viewed 13 May 2008; <www.rtwknowledge.org/browse.php?
article_id=87&view_type=health>.
282 AC Act, s 3(b) and (d).
283 Source: VWA.
Review remuneration arrangements for medical and allied health providers
4.387. Treating practitioners clearly play an important role in the return to work process; and I believe
that more needs to be done to ensure that practitioners are appropriately reimbursed for their
participation. I recommend that the VWA should provide appropriate incentives to encourage
healthcare providers to be part of the scheme.
4.388. A network provider model, which is discussed further in Chapter 6, Treatment expenses,
284
would deal with a number of stakeholder concerns. The advantages of such a model would
include providing increased financial incentives to a select group of skilled professionals willing
to engage with the scheme.
4.389. I also propose that the VWA should pay treating practitioners for their time in facilitating return
to work. For example, the VWA should pay for telephone consultations between a healthcare
professional and an injured worker or other related parties, including the agent, employer or
occupational rehabilitation provider.
4.390. The Reviews independent actuaries estimate that paying healthcare professionals for telephone
consulations to facilitate return to work will cost between $2 and $3.5 million a year, with a
corresponding increase in claims liabilities of between $10 million and $17 million.
4.391. An independent review of the fees payable by the VWA, covering medical and like services,
should be carried out as soon as possible. I discuss this recommendation further in Chapter 6,
Treatment expenses.
285
The review of fees should consider financial incentives for healthcare
professionals to achieve better return to work outcomes, taking into account market rates and
scheme viability.
Repeal section 113 relating to medical certificates
4.392. Section 113 was introduced in 1994 as part of a series of reforms that shifted the focus of
return to work back to the workplace by creating incentives and obligations for both employers
and workers to achieve return to work outcomes.
286
4.393. The provision appears to have been designed to offer an employer the opportunity to direct a
worker to a health professional of the employers choosing in order to provide a certificate
where capacity for work was in dispute.
4.394. However, the effectiveness of the process is limited by the absence of any sanction for non-
compliance.
4.395. Section 112 of the AC Act already provides for an independent medical examination. However,
only the VWA or a self-insurer can require a worker to attend an independent medical
examination.
4.396. One option would be to improve the enforcement of section 113 by attaching a sanction for
non-compliance. Another option would be to use section 112 to obtain an independent review
of the workers capacity.
4.397. I consider that strengthening the section 113 process would only provide another medical
opinion on the workers capacity, albeit by a practitioner of the employers choosing. In order to
resolve a dispute relating to capacity, the agent would need to obtain an independent review
under section 112. There seems to be little that a strengthened section 113 process can offer
and I therefore recommend that the section be repealed.
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284 Chapter 6, Treatment expenses, paragraphs 6.103-6.105.
285 Chapter 6, Treatment expenses, paragraphs 6.75-6.93.
286 Victoria, Legislative Assembly, Debates, 3 May 1994, p 806. Accident Compensation (Amendment) Bill, 1994.
ISSUE RESOLUTION
4.398. As discussed earlier, cooperation between the employer, injured worker and other parties
involved in the return to work process is of central importance to its success.
4.399. Cooperation should also extend to the resolution of contentious issues between parties in
relation to return to work. Resolution of such issues within the workplace fosters trust and
avoids the issues becoming barriers to the return to work process.
4.400. Currently, there is no process prescribed in the AC Act for the resolution of issues relating to
return to work.
4.401. The OHS Act
287
provides that, if an OHS issue arises at the workplace or from the employers
undertaking, the employer or its representative and the employees or their HSR must attempt to
resolve the issue in accordance with an agreed procedure. If there is no agreed procedure, they
must attempt to resolve the issue in accordance with the procedure set out in the OHS
Regulations.
288
4.402. The employer must ensure that its representative is appropriately senior and sufficiently
competent to act as its representative.
4.403. The VWA publishes guidance material to assist workplaces that wish to develop their own issue
resolution procedures (rather than using the procedure set out in the Regulations).
289
4.404. If an issue is not resolved within a reasonable time, any party can request an inspector to attend
the workplace to assist in resolving it.
4.405. The OHS Act model provides workplaces with a degree of flexibility and offers the workplace
parties certainty as to how issues should be raised and resolved. It also encourages resolution
of issues within the workplace in a cooperative framework that supports the maintenance of
good relations between the employer and the worker.
Prescribe an issue resolution procedure
4.406. A clear workplace-based issue resolution process can provide for timely resolution of issues
without the need to involve the inspectorate.
4.407. The issues that arise in return to work are almost always at an individual worker level, unlike the
issues that arise in the OHS context, which are generally at the workplace level. Therefore, the
resolution process will need to be tailored to the different issues that arise in the context of
return to work.
4.408. Despite those differences, I believe that the framework provided under the OHS Act provides
a suitable model for the resolution of issues relating to return to work in the workplace.
4.409. I propose that a similar framework be adopted for resolving issues that arise in the context of
return to work under the AC Act. The framework should allow for issues to be resolved using an
agreed workplace procedure or, if no such procedure has been agreed, a prescribed procedure
set out in AC regulations.
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287 OHS Act, s 73.
288 OHS Regulations, part 2.2.
289 WorkSafe Victoria, Employee Representation, 2006.
RETURN TO WORK INCENTIVES
Returning to work with a new employer
4.410. Although the large majority of Victorian injured workers return to their pre-injury employers,
290
the limited availability of alternative duties and return to work options with some employers
can frustrate the return to work process.
291
Finding alternative duties for an injured worker with
capacity to work can be particularly difficult for smaller employers and for labour hire firms.
4.411. The issues surrounding incentives for new employers to employ workers with earlier injuries
are broadly similar to the incentives for employers to support the return to work of their injured
workers, with the following exceptions:
where a worker is returning to work with the workers current employer, the employer has
a legal obligation to support return to work, and has a direct financial incentive through the
premium system; and
where an injured worker with some work capacity is taking a job with a new employer, the
new employer may be eligible for wage subsidies and premium protection against new and
recurring injuries for up to 12 months during the Worksafe Incentive Scheme for Employers
(WISE) program.
4.412. Claims are generally classified as one of the following:
a new injury;
a continuation of an earlier injury; or
a further injury (either a recurrence, aggravation, acceleration, exacerbation or deterioration
of any pre-existing injury or disease).
4.413. For the purposes of premium calculation, particularly where the worker has returned to work
with a new employer, there is an important distinction between a continuing injury and a further
injury. New injuries and further injuries are considered as new claims, and affect the premium of
the current employer. Continuing injuries are considered as part of the original claim and affect
the premium of the employer with whom the injury originally occurred.
4.414. In addition, where a worker has a recurrence, aggravation, acceleration, exacerbation or
deterioration of any pre-existing injury or disease, compensation is only payable if the workers
employment was a significant contributing factor to the injury.
292
4.415. There are also obligations on a worker, when requested, to disclose a pre-existing injury or
disease to the workers employer. A worker is not entitled to compensation if the worker has
failed to respond to a request that the worker advise the employer of a pre-existing injury or
disease that the worker was aware of before commencing employment or has made a false
or misleading disclosure.
293
4.416. Whether an injury is considered to be a further injury or a continuation of a prior injury is a
liability decision that is influenced by:
the circumstances of the injury for example was there a separate incident that caused the
recurrence, etc.? and
medical information for example is the current injury a recurrence, aggravation, acceleration,
exacerbation or deterioration of the same pre-existing injury?
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290 According to the Return to Work Monitor 2006/2007, in Victoria of those workers who returned to
work 86% of injured workers returned to work with the employer for whom they were working when
they suffered their injury. The RTW Sustainability Survey 2008 indicated that, 68.3% were with their
pre-injury employer (even if they had not returned to work).
291 According to the RTW Sustainability Survey 2008, small employers had a return to work rate of 75.5%
compared with Government (typically larger employers) of 82.5% and large employers of 79.9%.
292 AC Act, s 82(2C)(c).
293 AC Act, s 82(7) and (8).
4.417. The VWAs functions include developing programs to meet the special needs of target groups,
including injured workers who are unable to return to their pre-injury occupation.
294
4.418. The VWA has a number of programs to assist workers to return to work where their employers
are unable to offer suitable employment or are no longer obliged to do so.
4.419. The Job Seeking Assistance (JSA) program is a 16-26 week service designed to equip workers
with the competencies and skills to become independent job seekers and return to work. The
VWA may also fund the cost of vocational re-education where a workers employability would
be enhanced by gaining particular competencies.
4.420. The WISE program is aimed at securing suitable employment for workers who are ready, fit and
motivated to return to work, but do not have the option of returning to work with their previous
employers.
4.421. The WISE program offers incentives for employers to employ such workers through wage
subsidies as well as premium protection against the costs of new or recurring injuries.
4.422. The current WISE incentives include payments up to $14,860, depending on the number of
hours offered by the employer to the worker (15 hours is the minimum requirement). The
payments are structured into three areas designed to encourage sustainable jobs. The three
types of payment are:
a work commencement payment covering the first four weeks, payable as variable lump
sums as follows:
less than 20 hours per week $1000
20-30 hours per week $1500
more than 30 hours per week $2000
wage subsidies in the form of two payments covering weeks 5-12 and 13-24 respectively,
payable at 50% of the workers verified gross weekly earnings (excluding any compensation
payments) to a maximum of $443 per week (that is, a maximum total of $8860); and
work stability payments made at weeks 45 and 52 as variable lump sums as follows:
less than 20 hours per week $1000
20-30 hours per week $1500
more than 30 hours per week $2000
4.423. Where an employer has hired a worker through the WISE program, the employers premium is
unaffected by the workers compensation costs of any new injuries and recurring injuries that
may occur during the WISE placement.
4.424. All employers are eligible to participate in the WISE program except employers that are
on-hiring workers to other businesses, such as labour hire agencies, employment agencies or
group training organisations. However, if those types of employers intend to employ directly
and pay workers, they are eligible for the WISE program.
4.425. Other jurisdictions have similar kinds of programs, such as JobCover in New South Wales and
RISE in South Australia. The incentives that they provide include wage subsidies and
indemnification against costs arising from an aggravation of a pre-existing injury or a new claim
during a specific program.
4.426. All of the programs provide a wage subsidy as well as protection to employers from liability
if a worker aggravates a pre-existing injury. The WISE program compares favourably to the
programs offered in other States.
4.427. It is possible that such subsidy programs provide a signal to some employers that the
subsidised workers are less capable, or are more prone to injury. On the other hand, the
programs are of great benefit to the worker by improving their skills and preserving contact with
the workforce, so as to provide an important stepping stone towards permanent employment.
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294 AC Act, s 20(1)(s).
4.428. However, recent figures indicate that the uptake of the programs in Victoria is low. Each year,
approximately 200 employers participate in WISE and approximately 1800 workers commence
the JSA program.
295
4.429. The JSA program currently accounts for $4.9 million in annual expenditure; however, a
proportion of workers whose entitlements to benefits have ceased for reasons other than return
to work have not received the services that the program provides.
4.430. WISE participation has declined by 50% since 2004 to approximately 200 placements a year.
296
4.431. The VWA is in the process of establishing a host employer program. The aim of the program
will be to improve access to work hardening in the workplace for workers who are unable to
return to their pre-injury employer. Work hardening includes rehabilitation activity that builds the
specific strength and stamina required for a particular job. Work hardening rehabilitation
activities are conducted at the workplace. The proposed program will allow workers to build up
fitness for work in a safe environment, with minimal risk to themselves and the host employer.
4.432. Host employer programs currently operate in the New South Wales, Queensland and
Commonwealth schemes as well as the Victorian transport accident scheme.
Stakeholder views
4.433. VECCI supports the introduction of greater incentives and protections for employers to employ
workers with prior injuries, or who have subsequent claims.
297
4.434. VECCI also suggests
Such protections could take the form of work trials before a formal engagement of the worker,
a supported wage based on the productivity of the worker and some form of premium
protection for the new employer from new compensation claims due to recurrence or
aggravation of the pre-existing injury.
298
4.435. Ai Group cites concerns among employers that a recurrence or aggravation of a prior injury will
have an adverse premium impact and also create a range of obligations.
299
4.436. Freehills expresses the view that
Premium liability for an injury should lie with the employer who caused the injury. For
instance, if an employee aggravates or further injures their back but the injury is significantly
still associated with the contribution by former employment, the claims cost and experience
factor should be noted according to contribution . . .
300
4.437. VECCI specifically recommends
. . . the system used by the TAC in encouraging employers to return injured workers to suitable
employment. The TAC cannot rely on compliance. They offer wage subsidies based on the
productivity of the worker and they offer that any aggravation etc. workers compensation claim
will be financed through the TACs WorkCover policy and not the employers. TAC also offer a
work trial system which is a try before you buy arrangement that is not offered by
WorkCover.
301
4.438. Some stakeholders consider that there are other areas of improvement that could supplement
the programs.
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295 Source: VWA.
296 Source: VWA.
297 VECCI, Submission, April 2008, p 32.
298 VECCI, Submission, April 2008, p 32.
299 Ai Group, Submission, May 2008, p 32.
300 Freehills, Submission, 11 February 2008, p 17.
301 VECCI, Submission, April 2008, p 31.
4.439. Ai Group submits that
One area of improvement would be the early identification of circumstances where workers
are unlikely to return to sustainable long-term employment with their current employer. This
would overcome the difficulties experienced by injured workers and their employers when
repeated failed attempts at return to work are made in order to meet the legislated obligations,
even when all parties are confident that the return to work will be unsuccessful.
302
Expand and improve the JSA and WISE programs
4.440. Although both the JSA
303
and WISE programs contain important protections and incentives to
encourage employers to hire previously injured workers, it is my view that further reforms
should be considered in order to improve their uptake by employers. While the design of these
programs seems sound, improvements could be made to improve their effectiveness.
4.441. I understand the VWA is currently making the following changes:
introducing a new service for workers with capacity for work who have not returned to work
and are nearing the end of their entitlements to weekly benefits; and
increasing the subsidy that can be paid to employers under WISE to $26,000 for a 12-month
WISE placement.
4.442. A lack of awareness among employers may be one reason for the low uptake of the programs,
and I recommend that this should be addressed by promoting their advantages more widely.
4.443. I also recommend that more should be done to identify eligible workers as early as possible in
order to promote access to the programs and services.
4.444. I believe that the VWA should review the improvements proposed for the programs and take
further steps if necessary to improve uptake by employers. The performance of the programs
should continue to be assessed regularly and greater incentives should be provided where
appropriate.
4.445. I am also aware that the VWA is exploring opportunities to link the WISE program to host
employer programs. That linkage would provide greater options for workers who have difficulty
returning to their pre-injury employer. The AC Act should be amended as necessary to support
host employer programs.
Premium protection for subsequent injuries
4.446. Before July 1993, the AC Act provided employers with premium protection if a worker suffered
any injury during the first 12 months after having resumed work. Employers also received
ongoing premium protection for recurrences of pre-existing injuries. The protective provisions
were progressively tightened and now employers do not receive premium protection for
subsequent compensable injuries suffered by their workers. However, a recurrence,
aggravation, acceleration, exacerbation or deterioration of a pre-existing injury is only
compensable if employment was a significant contributing factor to the injury.
304
4.447. The original provisions gave employers an incentive to return injured workers to work, in
addition to their legal responsibility to re-employ injured workers and the incentives provided by
the experience-rated premium system. However, those provisions did not provide an incentive
to improve OHS.
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302 Ai Group, Submission, May 2008, p 31.
303 JSA to be known as New Employer Services from 28 July 2008.
304 AC Act, s 82(2C)(c).
4.448. The original provisions were also difficult to administer, with employers claiming that many
injuries were recurrences of pre-existing injuries, rather than new injuries, to avoid premium
impacts. With the costs of those injuries being allocated across the scheme, rather than
attributed to individual employers, the provisions undermined the premium systems incentives
for OHS and return to work.
4.449. The transition towards an experience-based premium system was clearly intended to support
and encourage employers to return injured workers to work safely and in a timely manner
following injury.
Stakeholder views
4.450. MAV suggests that
. . . no employer should be worse off for providing suitable employment than they would have
been if they had not provided such employment.
305
4.451. VECCI recommends that
. . . employers who provide a return to work be protected from second injury new claims as
section 125 (1AA) claims used to provide by excluding any second claim from premium
inclusion. This is particularly important with incapacity caused by underlying conditions which
were very likely to reoccur.
306
4.452. Freehills submits that
Secondary injuries (e.g. injuries sustained in obtaining treatment for a compensable
condition) should not result in a second claim or inflation in claims estimates.
An employer should have the option of lifting the excess on a claim to a specified upper
limit . . . Such a scheme would give greater flexibility over premium setting.
307
Continue to include subsequent compensable injuries in an employers claims costs where workers
return to work
4.453. There appears to be a perception that workers who have been injured once are more likely to
sustain injuries. The Return to Work Monitor for 2006/2007 provides a picture of the proportion
of workers who have made previous claims. In Victoria, 36% of injured workers who made a
claim of 10 days or more in duration reported making a previous claim.
308
However, the Review
was unable to obtain reliable data on whether workers who have made a previous claim are
more likely or less likely than other workers to make another claim.
4.454. There may also be a perception that an employers premium is impacted more severely by a
worker who suffers a subsequent injury compared with a worker who does not return to work
at all.
4.455. The impact of an injury on premium is determined by the cost of the claim, measured by the
claims statistical case estimate (SCE), described in Chapter 11, Employer premiums.
309
The SCE for a claim falls when a worker returns to work, and continues to fall the longer a
worker remains at work.
4.456. If an injury is a continuing injury, the claims costs of that injury will attach to the original claim
and affect the original employers premium. The SCE on the original claim will increase as a
result of the subsequent injury, but will fall again once the worker returns to work.
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305 MAV, Submission, 7 February 2008, p 6.
306 VECCI, Submission, April 2008, p 40.
307 Freehills, Submission, 11 February 2008, p 17.
308 Campbell Research & Consulting, Return to Work Monitor 2006/2007, HWCA, p 21.
309 Chapter 11, Employer premiums, paragraphs 11.14-11.33.
4.457. If the workers subsequent injury is a further injury (that is, a recurrence, aggravation,
acceleration, exacerbation or deterioration of a pre-existing injury), then it will be treated as a
new claim with its own SCE. This will lead to two SCEs one SCE for the first injury, which will
continue to fall as no payments are recorded against it, and a second SCE for the new injury.
It will depend on the circumstances of the case whether the sum of the two SCEs will be less
than the SCE for the first injury would have been had the worker not returned to work. However,
when the worker returns to work following the recurrence of the injury, the SCE of the second
claim will fall, making the employer clearly better off from a premium perspective than if the
worker had stayed off work continuously.
4.458. Where the worker returns to work with a new employer and suffers a subsequent injury, that
employers premium is only affected if the injury is a new injury or a further injury. Clearly, for
premium purposes it is more attractive to the new employer for any subsequent injuries to be
seen as a continuation of a pre-existing injury, rather than as a further injury that is, a new
claim.
4.459. One option would be to retain the current provisions where new and further injuries are
included in the current employers claims costs for the purpose of calculating premiums. That
option would provide incentives for the current employer to protect workers from subsequent
injury, and would be easy to administer.
4.460. Another option would be to provide all employers with indefinite premium protection against
recurrences etc. of injuries. That option would address employers concerns about the potential
impact on premium of recurrences of an injury, and strengthen employers incentives to
facilitate return to work. However, the option would remove incentives for all employers to
protect workers from subsequent injury, and weaken the premium incentives for OHS and
return to work to the extent that claims were incorrectly classified as further injuries (that is,
recurrences etc.) of previous injuries. Incorrect classification may occur because of the fine
distinction between continuing injuries and further injuries and the commercial pressures on
agents to satisfy their employer customers, who have an interest in a claim being classified
as continuing injuries, so that the claims cost is borne by the workers previous employer.
4.461. There is also an option of providing all employers with premium protection for any subsequent
injuries for one year. That option would have similar costs and benefits to the second option
although, by putting a time limit on premium protection, there would be a lower risk of the
incorrect classification of claims, maintaining the integrity of the premium system.
4.462. In my view, the preferred option is to retain the current provisions, where new and further
injuries are included in the current employers claims costs for the purpose of calculating
premiums.
4.463. It is important to retain incentives for employers to protect workers from subsequent injury by
modifying the workplace or by accommodating restrictions included in the workers certificate
of capacity. It is also appropriate that employers claims costs are affected if these control
measures break down and a worker is re-injured.
4.464. Of the various options, the current provisions provide the clearest incentives to reduce the risk
of subsequent injuries, which ties in with the employers obligations under both the AC and
OHS Acts. New employers will benefit from the improvements to WISE that are discussed in
paragraphs 4.4404.445 above.
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Premium discounts for return to work programs
4.465. Some workers compensation schemes offer premium discounts for employers who implement
OHS and return to work improvement programs.
4.466. The New Zealand compensation scheme, for example, launched the Workplace Safety Levy
Discount Program in June 2006. The program has initially been made available to self-employed
people and small and medium-sized businesses,
310
operating in the six industry sectors with the
highest number of work-related injuries (agriculture, construction, forestry, motor trades, road
freight transport and fishing). The scheme offers a reduction
311
to an employers premium if the
employer has an established health and safety system.
312
The program recognises employers
who have established health and safety systems and good practices in injury prevention.
However, the employer needs to pass an independent safety audit. Ministerial approval is being
sought to expand the program.
4.467. Discount schemes raise the issue whether employers should be rewarded for outcomes
through their claims experience (as is currently the case), or for good workplace practices,
regardless of outcomes.
Stakeholder views
4.468. The Ai Group submits
The role of the premium system should be to provide tangible incentives for employers to
improve OHS and return to work activities with a view to reducing their premium.
313
4.469. Freehills states that there should be provision in the premium system for an immediate and
meaningful discount or rebate for good safety and workplace rehabilitation systems and
initiatives (as audited by the VWA).
314
Retain the current arrangements
4.470. There is only anecdotal evidence to suggest that discount schemes have led to behavioural
change. Nor does there appear to be any compelling research to demonstrate a relationship
between discount schemes and OHS outcomes warranting a shift towards such a model. There
is a risk of mere paper compliance with the requirements needed to obtain the discount, and
there are monitoring and compliance issues.
4.471. New South Wales introduced a premium discount scheme in 2001 as part of the reform of the
workers compensation system, but subsequently abandoned the scheme. Employers who
participated in the scheme could receive a discount on their premiums for up to three years if
they met performance standards for OHS and injury management. In 2005, New South Wales
discontinued the premium discount scheme because of the mixed reaction from stakeholders
regarding its ongoing value.
315
At the same time, the premium system was reformed to
provide longer-term incentives for employers to improve workplace safety and injury
management.
316
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310 Self-employed people and small to medium-sized businesses that have up to $380,000 per annum in
liable earnings, or employ the equivalent of up to 10 full-time employees.
311 Discounts on the levy are awarded on three levels, to recognise how comprehensive and effective the
workplace safety management practices are. The ACC decides whether a discount is awarded, and at
what level, on the basis of an independent audit of the employers workplace safety systems and
procedures. Discounts apply for 24 months.
312 ACC website, viewed 3 July 2008; <www.acc.co.nz/levies-and-cover/employers/how-to-pay-less/
workplace-safety-management-practices-programme/index.htm>.
313 Ai Group, Submission, May 2008, p 95.
314 Freehills, Submission, 11 February 2008, pp 16-17.
315 WorkCover NSW, viewed 3 July 2008; <www.workcover.nsw.gov.au/WorkersCompensation/
ReducingPremiums/DiscountScheme/default.htm>.
316 WorkCover NSW, viewed 3 July 2008; <www.workcover.nsw.gov.au/WorkersCompensation/
ReducingPremiums/DiscountScheme/default.htm>.
4.472. The VWA has a range of other programs to encourage better OHS and return to work
outcomes, including the proposed host employer program and free safety consultation sessions
for small employers with up to 50 employees. The sessions involve a free three-hour session
with an independent health and safety consultant.
317
4.473. In light of the New South Wales experience and the VWAs initiatives, I do not believe that there
is a compelling argument for the introduction of a premium discount program.
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317 WorkSafe Victoria, viewed 3 July 2008; <www.workcover.vic.gov.au/wps/wcm/connect/WorkSafe/
Home/Safety+and+Prevention/Small+Business/>.
APPENDIX 4.1 OVERVIEW OF RETURN TO WORK OBLIGATIONS ACROSS
JURISDICTIONS
318
a in NSW and ACT, employers are required to comply with the obligations imposed by the insurers injury
management program. A return to work program must also be prepared by the employer consistent with the
injury management program.
b in NSW and ACT, employers are required to take part and cooperate in the establishment of an injury management
plan (NSW) or personal injury plan (ACT) for workers with significant injuries.
c large employers (rateable remuneration greater than $1M) must maintain the appointment of a coordinator;
319
all
other employers must appoint a coordinator within 10 days of acceptance of a claim for weekly payments.
320
d the employer must provide work that is, so far as reasonably practical [sic] suitable or the same as or equivalent
to the workers pre-injury employment and otherwise suitable;
321
the requirement only applies if the worker asks
the employer to provide employment within six months after he or she became entitled to weekly compensation.
e the employer is required to take reasonable steps to provide the worker with suitable employment or assist the
worker to find such employment; because benefits continue to 65, there is a strong financial incentive for the
employer to provide, or assist the worker to find, such employment.
322
f large employers (employing 30 or more workers at a workplace in a high-risk industry; or paying wages of more
than $4.9 million, subject to variation by notice in the industrial gazette).
g large employers (an employer with a base premium exceeding $50,000, or who is self-insured, or who is insured
by a specialised insurer, and who employs more than 20 workers).
h all employers are required to prepare a return to work program. However large employers (an employer with a
base premium exceeding $50,000, or who is self-insured, or who is insured by a specialised insurer, and who
employs more than 20 workers) must develop a customised return to work program.
i the employer is required instead to assist the injured worker find suitable employment by taking all reasonable
steps to provide the worker with suitable employment and, so far as practicable, participate in efforts to retrain
the worker. Where the employer is unable to provide suitable employment, the employer must refer the worker to
an alternative incentive scheme developed by the Authority.
323
j the recent SA review recommended that return to work coordinators be appointed for any workplace with 30 or more
workers, to be reduced to 20 or more workers in the future.
324
The recommendation was accepted by Government
and is to be implemented on 1 January 2009: Workers Rehabilitation and Compensation (Scheme Review)
Amendment Act 2008 (SA), s 9, inserting s 28D in the Workers Rehabilitation and Compensation Act 1986 (SA).
k large employers (employing more than 50 workers).
l large employers (employing more than 20 workers).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 181
318 Productivity Commission, National Workers Compensation and Occupational Health and Safety
Frameworks, inquiry report, no. 27, 2004, p 199. Modified and updated from HWCA Comparison of
Workers Compensation Arrangements in Australia and New Zealand, October 2006, available at
<www.ascc.gov.au/ascc/WorkersComp/WorkersCompInformation/>.
319 AC Act, ss 156(1)(a), 158(1)(a)(ii).
320 AC Act, s 156(2)(a)(ii).
321 Workers Compensation Act 1951 (ACT), s 105(1) and (2).
322 Australian Safety and Compensation Council, Comparison of Workers Compensation Arrangements,
2006, p 78.
323 Work Health Act (NT), s75A.
324 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System Report, 2007, p 179.
Jurisdiction
Provide suitable
duties
Provide for
pre-injury
employment
(months)
Appoint rehab/
return to work
coordinator
Develop
rehabilitation
policy
a
Develop return
to work plan
b
Victoria Y 12 Y
c
Y
c
Y
ACT Y 6
d
N Y Y
Comcare Y Indefinitely
e
N Y Y
Queensland Y 12 Y
f
Y N
NSW Y 6 Y
g
Y
h
Y
NT Y Not stated
i
N N N
SA Y Indefinitely Y
j
Y Y
Tasmania Y 12 Y
k
Y
l
Y
WA Y 12 N N Y
APPENDIX 4.2 RETURN TO WORK INITIATIVES
Triage System
1. The development of a Triage System is being undertaken and piloted over two years (to 2009).
The Triage System aims to assist agents to focus their most skilled resources on claims that are
most likely to exceed expected time off work.
The Analytical Triage Tool, utilising demographic, employer and injury and claim data, will
identify high-priority claims at registration.
For those cases where return to work has not occurred within a specified timeframe, the
Psycho-Social Questionnaire will identify any potential psychosocial barriers to return to work.
Workplace Issues Resolution
2. The Workplace Issues Resolution Service is also being developed and piloted over 2007-2009.
The aim is to provide a clearly defined service to address interpersonal conflict when it is the
major barrier to return to work. The service would utilise qualified mediators, at the workplace,
for a fixed fee. The initial pilot will be run within the Government sector.
325
Host Employer Program
3. The development and implementation of a Host Employer Program over two years (to 2009) is
intended to provide workers with work conditioning opportunities before their return to work,
when this is not possible through their pre-injury employers. The program will give injured
workers an opportunity to test their capacity for work when they no longer have an employer
to return to. It will include a host employer placement, which seeks to provide supported
workplace based rehabilitation opportunities.
Occupational Rehabilitation Original Employer Service
4. The Original Employer Services objective is to optimise conditions under which injured workers
can return to work with their original employers. The model provides incentives to occupational
rehabilitation providers for achievement such outcomes as partial and full return to work, and
return to sustainable/productive duties. Implementation is to commence in 2008.
326
Occupational Rehabilitation JSA/WISE
5. The Job Seeking Assistance (JSA) and Workplace Incentive Scheme for Employers (WISE) are
programs designed to support injured workers who are unable to return to the workplace where
their injury was sustained.
327
Refinements of both programs are currently taking place with a
view to enhancing the support available for those workers.
Employer Engagement Initiatives
6. This suite of initiatives has been designed to raise awareness, educate and provide incentives
to employers with a view to improving return to work outcomes. Key initiatives include:
Return to Work Coordinator Training Program, designed to ensure return to work coordinators
have access to high-quality training to equip them with skills to undertake their role;
Return to Work Networks, providing a forum and opportunity to share knowledge and
experience with the intention of fostering and promoting best practice amongst return to
work coordinators; and
Return to Work e-comms, which provides a mechanism through which return to work
coordinators receive regular updates on return to work to assist employers to understand
their obligations whilst supporting safe and sustainable return to work.
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325 HWCA Jurisdictional Scan April 2008 pp 37-38. Available at http://www.hwca.org.au/projects.php.
326 HWCA Jurisdictional Scan April 2008 pp 37-38. Available at http://www.hwca.org.au/projects.php.
327 HWCA Jurisdictional Scan April 2008 pp 37-38. Available at http://www.hwca.org.au/projects.php.
Return to Work Fund
7. The Return to Work Fund was created to support initiatives that focus on improving
opportunities for injured Victorian workers to successfully return to work. The Return to Work
Fund encourages and supports collaboration between employer and worker groups and other
workplace parties to increase return to work opportunities. South Australia is planning to
establish a return to work fund following a review of its scheme in 2007.
328
8. The following projects are an example of those which have been approved for funding, and are
of particular interest in the context of this Review:
Victorian Trades Hall Council: More durable return to work outcomes through awareness.
The central aims of this project are to raise awareness by workplace parties of their rights and
obligations on return to work issues; improve capabilities among workers and employers; and
provide tools (ground level support and training) to improve return to work.
St Vincents and Mercy Private Hospitals Changing the culture: An integrated workplace
health management approach to improve return to work outcomes. The purpose of this
project is to test the hypothesis that, by creating a positive and supportive workplace culture
in the hospital, it is possible to reduce injury claims and achieve more timely, effective and
sustainable return to work outcomes.
National Union of Workers A collaborative approach to improving durability of
employer/employee return to work. This initiative will develop and trial a tailored return to
work training program targeted at health and safety representatives. In addition to the
training, the NUW will provide assistance to employers and employees to facilitate the
integration of the trained representatives into their workplaces.
Recruitment and Consulting Services Association Alternative return to work model research
project. The purpose of this initiative is to assist job ready injured workers to return to work,
when they are unable to return to their pre-injury host employer. The initiative will research
a complementary model that establishes a collaborative return to work solution with existing
return to work services.
ResWorks Return to Work Knowledge Base. This initiative will develop and pilot a research
database, to translate landmark return to work research into transparent practical knowledge
for all stakeholders. Access portals will allow access to information specific to the needs of
workers, employers, treating practitioners and insurers.
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328 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System Report, December 2007.
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BETTER INCOME
REPLACEMENT
Pre-Injury Average Weekly Earnings
Step-downs and entitlement periods
Weekly benefits after 130 weeks for
partially incapacitated workers
Weekly benefits for workers
who undergo medical procedures
after 130 weeks
Payments pending receipt of funds
from common law settlements
The relationship between annual and
long service leave and weekly benefits
Accrual of leave while in receipt of
weekly benefits
Notional earnings
Superannuation
Section 96
The method of calculating
entitlement periods
Redemption of weekly benefits
5.1 If a worker is incapacitated for work because of a work-related injury, the worker may be entitled
to weekly benefits intended to compensate the worker for lost income during periods of
incapacity for work.
5.2 Weekly benefits make up a significant proportion of scheme costs. In 2006/2007, the VWA paid
almost $460 million in weekly benefits.
1
5.3 All Australian workers compensation schemes link compensation for lost income to a workers
pre-injury earnings and impose limits on eligibility for, and the level and duration of, weekly
benefits.
5.4 The approach taken by each of the schemes varies considerably and represents each
jurisdictions attempt to strike the most effective balance between
adequate and fair compensation of injured workers for lost income;
the fair allocation of scarce scheme resources between the severely disabled and those
sustaining less serious injuries;
reinforcing incentives for employers and workers, including incentives
for employers and workers to create safer workplaces;
for workers to participate in rehabilitation and return to work;
for employers to facilitate return to work;
ensuring that the costs of workplace injury and illness are funded by employer contributions
and not shifted elsewhere and ensuring that other costs are not inappropriately shifted to the
workers compensation scheme; and
scheme viability and affordability.
5.5 As noted by the Productivity Commission, trade-offs are necessarily involved in striking the
balance referred to in the paragraph above:
A generous benefit structure may provide poor incentives for rehabilitation and return to work.
Conversely, benefits that impose limits in income replacement (as a means of encouraging
return to work) may be regarded as inequitable for workers with serious injuries which
respond slowly (or not at all) to rehabilitation.
Similarly, if benefits are reduced to provide incentives to employees to participate in
rehabilitation and return to work, this may encourage claimants to seek other forms of
compensation (shift costs away from the workers compensation scheme). If benefits are
increased, cost-shifting on to the workers compensation scheme can be encouraged.
2
5.6 It is also clear that the level and availability of weekly benefits, and the manner in which those
benefits are paid, can provide incentives for particular behaviours on the part of participants in
the scheme. However, the incentive effects of weekly benefits are complex and depend on
other scheme features (such as access to common law and dispute resolution mechanisms)
and the level and availability of financial support outside the workers compensation scheme
(for example, accident make-up pay and social security benefits).
5.7 In considering weekly benefits, the 2007 review of the South Australian workers compensation
scheme articulated the vexed question of incentive effects in the following way:
Most workers return to work as soon as their injuries have healed regardless of any issue of
the economic incentive articulated through the benefit system. However, for some workers
in unsatisfactory employment a high income replacement ratio from workers compensation
benefits is likely to increase benefit duration . . .
. . . the Review needs to balance two competing considerations. The first is the equity principle
that the benefit structure should, as a far as possible in monetary terms, replace the losses
brought about by a compensable injury or illness. The second is to be cognisant of the overall
general message of the economic literature in relation to return-to-work incentives associated
with levels of income replacement.
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1 VWA Annual Report 2006/2007, p 63.
2 National Workers Compensation and Occupational Health and Safety Frameworks, Productivity
Commission Inquiry Report, 6 March 2004, p 259.
There are further nuanced elements in relation to balancing principle and operational
coherence in relation to each of these considerations. As some prominent American
researchers have written, if the amount paid by way of income replacement was to attempt
to provide some measure of full indemnity it would probably be expressed in terms of 100
percent of after-tax losses, net of job-related expenses, plus any loss of fringe benefits and any
earnings lost by other family members because of the injury. Such a full measure of indemnity
would, if credence is to be given to the incentive effects of the pricing system for injury
prevention, increase employer efforts to control workplace hazards. However, these same
researchers recognise that resort to the fulcrum of economic theory may provide powerful
countervailing arguments for a lowering of income replacement rates.
First, providing full replacement reduces the incentive to return to work and thus may increase
the overall cost of injuries. In addition, employers worry that the resulting high costs may affect
their competitive position. Finally, although employers generally pay workers compensation
premiums, high premiums will reduce the demand for labour and may lead to lower wages.
3
5.8 In 1997, the HWCA recommended to the Labour Ministers Council a set of best practice
principles for consideration in the design of workers compensation schemes and
recommended that the following principles should guide policy development with respect
to weekly benefits:
4
Specified monetary limits should not be imposed on liability for compensation payable it
was thought that schemes that impose such monetary caps on liability have greater reliance
on common law and lump sum claims. Such lump sum claims are not seen to encourage
return to work and have a higher proportion of resources allocated to legal costs.
An ideal system would not limit all claimants to the same amount of time for which they can
be paid compensation, because such time limits do not recognise the more seriously injured
workers need for extended access to support and care.
There should be no floor on weekly compensation benefits that is, there should be no
minimum weekly payment, as this may act as a disincentive to return to work for lower paid
workers and also unfairly benefit part-time workers.
There should be step-downs in benefits and ceilings (upper limits). The following structure
was thought to provide adequate compensation for injured workers at various stages of injury
and recovery, while also providing the necessary incentive to encourage workers to return to
employment when appropriate:
first 5 days: 100% of pre-injury earnings;
day 6 13 weeks: 100% of pre-injury earnings;
14 26 weeks: 85% of pre-injury earnings (capped at 200% AWE);
27 260 weeks: 70% of pre-injury earnings (capped at 150% AWE).
5
Schemes should maintain measures to prohibit double-dipping by workers in receipt of
weekly benefits, in addition to other forms of compensation such as superannuation-based
disability payments.
Employers should be required to maintain statutory superannuation contributions for as long
as they are required to hold a job open for an injured worker. The contributions should be
made in addition to the benefits paid directly to the worker.
5.9 The Reviews terms of reference call for an examination of the fairness and effectiveness of
the current weekly benefit scheme and directs the Review to resolve anomalies and improve
employer and employee understanding of the Act.
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3 Review of the South Australian Workers Compensation System Report, Bracton Consulting Services
Pty Ltd and PriceWaterhouseCoopers, December 2007, pp 9798.
4 HWCA, Promoting Excellence: National Consistency in Australian Workers Compensation, Final
Report to Labour Ministers Council, May 1997, pp 2224.
5 HWCA, Promoting Excellence: National Consistency in Australian Workers Compensation, Final
Report to Labour Ministers Council, May 1997, p 94.
5.10 In this chapter, I:
examine the adequacy of the definition of pre-injury average weekly earnings used as
the basis for calculating weekly benefits;
recommend an increase in the level of income replacement for injured workers after
the first 13 weeks of incapacity;
make recommendations to improve understanding and remove anomalies, so that more
partially incapacitated workers will be encouraged to seek part-time work after spending
130 weeks on benefits, and be supported to do so through ongoing weekly benefits;
recommend that workers be entitled to weekly benefits after 130 weeks where they are
off work while undergoing surgery for their work-related injuries;
recommend clarifying the taking and accrual of annual, long service and sick leave areas
where the Act is currently silent, leading to misunderstanding by workers and employers;
recommend reform of the provisions for terminating and suspending weekly payments, so
that workers obligations are explicit and they have the opportunity to rectify non-compliance;
recommend the provision of superannuation for long-term injured workers; and
propose reforms to remove harsh and anomalous clawing back of benefits where injured
workers have access to other sources of income, such as superannuation pensions and
lump sums.
Overview
5.11 Under the AC Act, weekly benefits are calculated and paid to an injured worker based on the
workers PIAWE and the workers level of capacity. Weekly benefits also reduce (step down)
over time.
5.12 Under section 5A(1) of the AC Act, a workers PIAWE is defined as:
the workers average weekly earnings during the 12 months preceding the injury if the worker
was continuously employed by the same employer for that period; or
the workers average weekly earnings for the period less than 12 months preceding the injury
during which the worker has been continuously employed by the same employer.
5.13 Average weekly earnings are calculated using the workers ordinary rate of pay and the number
of hours normally worked each week, which are usually fixed by an award or industrial
agreement. Historically, this calculation was based on the notion that PIAWE represented basic
pay and not actual earnings.
5.14 The AC Act also provides specifically for the calculation of PIAWE for particular kinds of workers
who do not have regular or normal work patterns or wages, including students, apprentices,
contractors and occasional workers.
6
The changing nature of the workforce and the shift
towards casual employment
7
mean that an increasing proportion of workers is likely to fall into
this category. Although the nature and level of casual employment in Australia continues to be
debated, it is widely agreed that casual employment has increased over the last decade and will
continue to increase. In 2004, 26% of employees were casual, compared with 20% in 1994.
8
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6 AC Act, s 5A(1)(12). These provisions set out the different methods of calculating PIAWE for different
types of workers and apply to different employment arrangements, including apprentices and full-time
students.
7 Australian Bureau of Statistics 2004 Changes in types of employment, 19922003, Australian Labour
Market Statistics, October 2004, (6105.0), pp 10-17, ABS, Canberra.
8 Australian Bureau of Statistics, Year Book Australia 2006, 1301.0: Casual employees, ABS,
Canberra.
5.15 Shift and overtime allowances are included in the calculation of PIAWE for the first 26 weeks of
weekly compensation if it is likely that the worker would have worked paid overtime or carried
out shift work during that period.
9
Superannuation contributions are excluded when calculating
PIAWE,
10
an exclusion that is also imposed by all other Australian jurisdictions.
5.16 Table 5.1 summarises the current weekly benefit entitlements.
TABLE 5.1: WEEKLY BENEFIT ENTITLEMENTS
5.17 The AC Act provides limited scope for the redemption of weekly benefits. (Redemption refers
to the process by which entitlements to weekly benefits are redeemed or settled for a lump
sum payment).
5.18 Section 114 of the AC Act sets out the processes for termination or alteration of weekly
payments. The section includes the form of the notice and time for notice, time for payment,
interest on outstanding weekly payments and recovery of payments.
5.19 The notice periods for termination of weekly benefits vary from no notice to 13 weeks notice,
depending on the reason for ceasing payment.
5.20 It should also be noted that many workers may be entitled to accident make-up pay for a set
period of time under industrial instruments and agreements.
5.21 Accident make-up pay may entitle a worker to any or all of the following for a specified period
of incapacity caused by a work-related injury:
an amount to make up the difference between the workers pre-injury average wage and her
or his workers compensation payment;
continuing accrual of annual leave; and
continuing superannuation contributions.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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9 For injuries occurring on or after 1 February 2004 only: AC Act, ss 5A (1A)(1D). See also AC Act,
ss 93CA and 93CB. See paragraphs 5.32 to 5.45 below for discussion of overtime and shift
allowances.
10 AC Act, s 5A(1A), inserted in s 5A by s 24(1) of the Transport Accident and Accident Compensation
Acts Amendment Act 2007 (not to be confused with the other s 5(1A), which was added to s 5A with
effect from 1 February 2004: refer to Chapter 1: Improving understanding and clarity of the
legislation).
11 AC Act, s 93CC.
12 AC Act, s 93CD.
13 AC Act, s 93DA.
14 AC Act, s 96.
15 AC Act, ss 93F, 93E, 93EA. Retirement age is defined in s 5(1) of the AC Act as either the normal
retiring age for workers in a particular job, or 65 years of age, whichever is earlier.
16 AC Act, s 93CA(3) and (4), s 93CB(2)(b) and (c), s 93CB(3) and (4), s 93CC(3) and (5), s 93CD(6),
s 96, s 97.
Initial
income
replacement Step-down to at Limits
95% PIAWE 75% PIAWE 13 weeks Weekly benefits limited to $1250 (indexed).
Payments cease after 130 weeks unless the worker has no current work
capacity and is likely to continue so indefinitely,
11
or the worker has
returned to work for at least 15 hours per week and is earning at least
$146.
12
For workers with a capacity for work, payments are reduced by the
workers notional earnings.
13
Payments can be offset by any income received by the worker from
retirement, disability or superannuation pensions or
redundancy/severance payments.
14
Payments generally cease at retirement age (normally age 65).
15
Payments may cease or be reduced in certain circumstances, including
where the worker fails to make reasonable efforts to return to work.
16
5.22 Research commissioned by the Review suggests that roughly half of the Victorian workforce
is covered by some form of accident make-up pay arrangement.
17
The research indicates that
approximately 60% of Victorians rely on awards to set their employment conditions. A survey
of 48 awards that apply to Victorian workers (across various industries) revealed that 47 awards
contained accident make-up pay provisions, although the type and the duration of the
entitlements differed. In addition, almost 300,000 Victorian workers are covered by collective
agreements that include accident make-up pay provisions.
5.23 The obligation to make up a workers pay usually applies for a limited period. Research
commissioned by the Review suggests that most awards allow make-up pay for a period
of 39 weeks, although some allow up to 52 weeks.
5.24 Accident make-up pay can reduce incentives for workers to return to work. However, because
make-up pay is paid for directly by employers, it may strengthen employers incentives to
prevent illness/injury and facilitate return to work.
5.25 The extent and level of make-up pay provided in the labour market is also relevant when
considering any increase in weekly benefit rates, because increases in benefit rates will
shift to the scheme compensation that is currently borne directly by employers.
PRE-INJURY AVERAGE WEEKLY EARNINGS
5.26 Weekly benefits are calculated by reference to two separate components
an income component; and
step downs and other measures to increase the incentive for injured workers to return to
work in a timely manner (these incentives are applied by paying injured workers only a portion
of the amount calculated in the income component).
5.27 The income component lies at the heart of the calculation of weekly benefits. The fairness and
equity of the weekly benefits scheme depends on an accurate prediction of an injured workers
lost earnings during periods of incapacity.
5.28 The most obvious way of predicting forgone earnings is to use the workers income over the
recent past as a proxy for the workers income in the near future.
5.29 The AC Act aims to predict forgone earnings through the definition of PIAWE. It sets out how
adjustments should be made for earnings from shift work and overtime to produce a forecast
of earnings.
5.30 At present PIAWE is generally calculated by one of the following methods:
using the workers average weekly earnings during the 12 months preceding the injury if the
worker was continuously employed by the same employer for that period; or
using the workers average weekly earnings for the period less than 12 months preceding the
injury for which the worker has been continuously employed by the same employer.
18
5.31 Average weekly earnings are calculated using the workers ordinary rate of pay and the number
of hours normally worked each week, which is usually fixed by an award or industrial
agreement.
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17 Workplace Research Centre, Accident Compensation and Make-Up pay in Awards covering Victorian
employees. June 2008, p 6.
18 AC Act, s5A.
5.32 In 2000, a provision allowing the inclusion of overtime and shift allowances in the calculation
of PIAWE was inserted in the AC Act. However, the provision was found to be unwieldy and
restrictive, and a new provision was introduced for injuries occurring on or after 1 February
2004.
19
The provision allows for the inclusion of overtime and shift allowances in the calculation
of PIAWE for the first 26 weeks of weekly payments.
5.33 The inclusion of overtime and shift allowances in the calculation of PIAWE attempts to
compensate for the loss of those types of earnings. The limited period during which the
allowances are included in the calculation of PIAWE recognises that shift and overtime
allowances, by their very nature, are not likely to remain stable or available in the longer term.
20
5.34 In 2007, 15,070 workers
21
claimed weekly compensation under the Victorian scheme. Of those
workers, 7435 workers
22
(that is, almost half) had overtime and/or shift allowances taken into
account in the calculation of their weekly benefits for the first 26 weeks of payments. Those
figures indicate that, for a significant proportion (nearly 50%) of workers, regular overtime and
shift allowances form part of their pre-injury remuneration.
5.35 The inclusion of regular overtime and shift allowances in the calculation of PIAWE effectively
increases the weekly benefits payable to almost half those who receive weekly payments.
5.36 Adjustments are also made if it can reasonably be expected that a workers earnings would
have changed over the period of injury or where a workers past earnings are not likely to be
reflective of future earnings. For example, provision is made for students or apprentices who
could have been expected to receive qualifications over the period of injury.
5.37 Although the current method for calculating PIAWE is suitable for standard work
arrangements, the method does not adequately accommodate more complicated remuneration
arrangements, including the use of salary packages, in kind benefits, provisions for overtime
and shift work, superannuation and so on.
5.38 Modern workplace arrangements mean that work is frequently no longer remunerated by
reference to the number of hours worked. For example, remuneration may be based on
piecework or commission, or a substantial allowance may be included in a salary package
arrangement. Common salary arrangements, such as the use of a company vehicle, or
reimbursement of telephone and computer expenses, are not taken into account in the
calculation of PIAWE.
5.39 The current provision may under-compensate workers
whose annual income is salary packaged;
who are promoted within the 12-month period before injury, especially those who
are promoted immediately before injury;
who receive fringe benefits;
who rely largely on regular overtime and shift allowances to make up their weekly income;
whose annual wage increases, as set out in the relevant award or agreement, are greater than
the indexation rate applied by VWA to weekly payments; and
who have more than one employer at the date of injury, and thus may work more hours than
a standard working week.
5.40 In addition, the PIAWE provisions in the AC Act are complex, and identifying which payment
arrangements apply to a particular worker can be difficult.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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19 AC Act, s 5A(1A)(1D). This subsection (1A), added to s 5A with effect from 1 February 2004, should
not be confused with the subsection (1A) added to s 5A by s 24(1) of the Transport Accident and
Accident Compensation Acts Amendment Act 2007: see footnote 9 above.
20 Workers who suffer a serious injury may also be able to issue proceedings under common law to
recover an amount for financial loss that will include amounts for regular overtime and shift
allowances. Refer to Chapter 8, Access to justice for seriously injured workers: common law
Common Law, for further information on this topic.
21 Source: VWA.
22 Source: VWA.
Stakeholder views
5.41 VECCI proposes that the calculation of PIAWE should be amended to take into account modern
pay arrangements.
23
5.42 VECCI also submits that any amendment to PIAWE should be based on thorough actuarial
testing of the options and consultation with stakeholders. VECCI is concerned that a hurried
response may produce more problems than it solves.
24
5.43 The VACC submits that
. . . the current weekly payment entitlements are fair and should not be altered in any way.
25
5.44 MGA support the inclusion of regular shift allowances but not bonuses, meal and other
allowances, or overtime (unless it is regular overtime) in the calculation of PIAWE.
26
This view
is shared by Victoria Police, which submits that ad hoc overtime, or overtime not provided
on a regular basis, should not be included in the calculation of PIAWE.
27
5.45 The VTHC,
28
the AWU
29
and the ALA
30
submit that overtime, penalties and shift allowances
should be included in the calculation of PIAWE on a permanent ongoing basis. They submit that
many workers are in lower paid employment and rely on regular overtime and shift allowances
to increase their wages. As a result, a calculation of PIAWE that excludes those allowances
disadvantages lower paid workers.
The need for caution
5.46 The definition of PIAWE is central to the level of compensation received by injured workers,
and I acknowledge that the current definition leads to the under-compensation of some injured
workers. I agree with stakeholders that there is a pressing need to explore whether the
definition should be broadened to encompass the greater variety of remuneration practices
now in place.
5.47 However, to address the definition of PIAWE adequately it would be necessary to:
examine Victorias workforce and the variety of remuneration practices that need to be
accommodated;
conduct industry-specific consultations, because working and remuneration practices differ
markedly between industries;
distinguish employee benefits from employee reimbursements for example, whether meal
allowances, computers and cars should be considered as remuneration or reimbursements
for costs incurred in working;
decide how to compensate for lost earnings, in circumstances where past earnings may not
be an accurate predictor of future earnings; and
draft a definition of PIAWE that is comprehensive, but not overly complex.
5.48 I am not prepared to recommend an immediate resolution of the PIAWE issue because there
is little to be gained and potentially much to be lost by a hasty and ill-considered approach.
Weekly benefits are the most significant proportion of scheme costs. In November 2007 alone,
around $40 million was paid in weekly benefits. Even small changes in the calculation of PIAWE
could have significant effects on benefit levels for individual workers and scheme viability.
5.49 Furthermore, considerable further research would be necessary to estimate accurately the cost
of any changes in the definition of PIAWE.
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23 VECCI, Submission, April 2008, p 45.
24 VECCI, Submission, April 2008, p 45.
25 VACC, Submission, 1 May 2008, p 10.
26 MGA, Submission, 7 February 2008, p 6.
27 Victoria Police, Submission, 12 February 2008, p 4.
28 VTHC, Submission, 2 May 2008, p 27.
29 AWU, Submission, 21 January 2008, p 2.
30 ALA, Submission, 8 February 2008, p 11.
5.50 The timeframe set for the completion of this Review does not allow for completion of the work
necessary to review PIAWE. Therefore, I propose that a further comprehensive review of PIAWE
be conducted as a matter of priority once the Government considers its response to the report
of this Review.
5.51 The proposed PIAWE review should examine the frequency of different employment
arrangements. Any proposed changes to the method of calculating PIAWE should be analysed
to assess whether they would improve equity and remove anomalies, rather than simply add
complexity.
5.52 Whatever amendments are made to PIAWE must ensure that:
as many current and foreseeable working arrangements are covered as possible; and
PIAWE calculation accurately reflects the earnings to which workers would ordinarily be
entitled but for injury; and
there is minimal confusion in the minds of employers and agents about how PIAWE is
to be calculated.
STEP-DOWNS AND ENTITLEMENT PERIODS
5.53 The AC Act currently provides for weekly payments at the rate of 95% of PIAWE for the first
13 weeks of incapacity and 75% of PIAWE between 14 and 130 weeks. Limitations on access
to weekly payments are imposed after 130 weeks.
5.54 The structured reductions in weekly benefits depending on the period of incapacity are
commonly referred to as step-downs. The current step-downs have been in place since 2003.
5.55 Step-downs in weekly benefits provide an incentive for workers to return to work as quickly as
possible. Step-downs also allow for the savings that an injured worker can make by avoiding
certain expenses, such as work-related travel expenses, while incapacitated for work.
5.56 All jurisdictions have some form of step-down arrangement in their weekly benefits scheme.
The differences are found in the stage of incapacity at which step-downs take effect and the
percentage of PIAWE involved in the step-downs. The differences need to be viewed in the
context of each schemes overall weekly benefit structure, such as statutory maximums, the
definition of PIAWE, the duration for which benefits are payable and access to other benefits,
such as common law.
5.57 Table 5.2 compares the step-down arrangements in all Australian jurisdictions. The table reveals
that, with the exception of Queensland, Victoria has a lower percentage of income replacement
in the first 52 weeks. However, each schemes step-downs should also be considered in the
context of any ceiling that the scheme imposes on the level of weekly benefits, and the
consequent relative level of income replacement. For example, the low ceiling in New South
Wales ($375 plus allowances a week) means that in practice many injured workers would be
receiving lower compensation in that State than in Victoria (where the ceiling is $1250 a week).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 193
TABLE 5.2 COMPARISON OF AUSTRALIAN WEEKLY BENEFITS SCHEMES
Stakeholder views
5.58 The VTHC submits that
. . . there should be an increase in the level of entitlements for weekly payments to 100% of
PIAWE for the first 12 months following injury.
31
5.59 VECCI states that the current weekly benefits scheme strikes an appropriate balance and should
not be altered.
32
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 194
31 VTHC, Submission, 2 May 2008, p 25.
32 VECCI, Submission, April 2008, p 43.
Weeks Vic NSW Qld WA SA Tas ACT NT Comcare
0-13 95%
Up to $1250
100% if
worker
employed
under an
award
80% of AWE
if not
Up to $1594
85% 100%
Up to $1904
100%
Up to
$2159
100% 100%
Up to
150% of
average
weekly
earnings
100% 100%
14-26 75%
Up to $1250
100% if
worker
employed
under an
award
80% of AWE
if not
Up to $1594
85% 85% if
worker
employed
under an
award
85% of AWE
if not
Up to $1904
90%
Up to
$1943
85% 65%
Up to
150% of
average
weekly
earnings
100% 100%
27-51 75%
Up to $1250
90% AWE
up to $375
plus
allowances
for
dependants
75% 85% if
worker
employed
under an
award
85% of
AWE if not
Up to $1904
80%
Up to
$1727
85% 65%
Up to
150% of
average
weekly
earnings
75%
Up to
$1558
100%
Up to
45 weeks
75%
46 weeks
onwards
Up to
$1685
52-104 75%
Up to $1250
90% AWE
up to $375
plus
allowances
for
dependants
75% 85% if
worker
employed
under an
award
85% of
AWE if not
Up to $1904
80%
Up to
$1727
85%
52-78
weeks
80%
79-104
weeks
65%
Up to
150% of
average
weekly
earnings
75%
Up to
$1558
75%
Up to
$1685
104+ 75%
Up to $1250
90% AWE up
to $375 plus
allowances
for
dependants
75% 85%
Up to $1904
80%
Up to
$1727
80% 65%
Up to
150% of
average
weekly
earnings
75%
Up to
$1558
75%
Up to
$1685
Endpoint 130 weeks,
unless
exceptions
apply in
which case
benefits may
continue to
retirement.
Benefits may
continue to
retirement
under certain
conditions
$227,565
maximum
cap or 5
years
$168,499
maximum
cap
130 weeks
unless
exceptions
apply in
which case
benefits
may
continue to
retirement
9 years Retirement Retirement Retirement
5.60 Ai Group has stated that it
. . . believes that the current weekly payment structure is mostly appropriate. However, there is
some concern that the payment levels early in the claim do not provide sufficient incentive for
injured workers to return to work.
33
5.61 The SIAV agrees that
. . . the present entitlements to weekly benefits under the AC Act provide the right balance
between compensating workers adequately for injuries suffered during the course of their
employment and also providing an incentive for workers to attempt to return to work and
rehabilitate . . . Increases in the medium term are not supported.
34
5.62 The AEU submits that
The vulnerability of household budgets to any unpredicted change in income or expenditure is
reported daily in the news. It is extremely difficult for injured workers and their families to stay
focused on the recovery and rehabilitation process, which is needed for a successful return to
work, when they are suffering financial disadvantage, through no fault of their own at the
same time. For workers suffering from stress-related injury this added burden can seriously
impede and sometimes reverse their recovery.
35
5.63 The VIEU submits that
. . . the reduction in anticipated income resulting from the current benefit reductions presents
unjustifiable hardship and disadvantage to workers injured at work.
36
5.64 The VFF submits
The current weekly payment entitlements should not change as the way the scheme operates
seems to be structured sufficiently [and] any change would lead to significant cost increases.
37
Improve the level of income replacement after the first 13 weeks
5.65 The 2007 review of the South Australian workers compensation system recommended that
weekly payments should be paid at the rate of 100% of the workers PIAWE for 13 weeks from
the commencement of the claim.
38
5.66 The South Australian review noted that most injuries heal within 13 weeks; and that providing
100% of PIAWE for the first 13 weeks would mean that most workers would not suffer financial
disruption that could interfere with or otherwise jeopardise their medical and vocational
rehabilitation and return to work after injury or illness.
39
Some employers in South Australia
favoured this approach. Those employers were concerned that an immediate step-down would
antagonise workers and complicate both the employment relationship and efforts at
rehabilitation and return to work.
40
5.67 Providing benefits at 100% of PIAWE for the first 13 weeks of incapacity is consistent with the
best practice principles recommended by the HWCA to the Labour Ministers Council in 1997
(see paragraph 5.8).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 195
33 Ai Group, Submission, May 2008, p 43.
34 SIAV, Submission, May 2008, p 12.
35 AEU, Submission, 2 May 2008, p 45.
36 VIEU, Submission, 2 May 2008, p 2.
37 VFF, Submission, 2 May 2008, p 12.
38 Review of the South Australian Workers Compensation System Report, Bracton Consulting Services
Pty Ltd and PricewaterhouseCoopers, December 2007, pp 99100.
39 Review of the South Australian Workers Compensation System Report, Bracton Consulting Services
Pty Ltd and PricewaterhouseCoopers, December 2007, p 99.
40 Review of the South Australian Workers Compensation System Report, Bracton Consulting Services
Pty Ltd and PricewaterhouseCoopers, December 2007, pp 99100.
5.68 The HWCA concluded that the payment of full wage replacement for the first 13 weeks of
incapacity accorded with a number of recognised scheme design principles. In their 1996
Interim Report, the HWCA had observed:
41
The continuation of earnings without interruption avoids the injustice of a worker being
financially penalised as a result of an occupational injury or illness and avoids anxiety over an
ability to meet personal commitments which may otherwise deleteriously affect rehabilitation
and return-to-work initiatives. Continuation of payments at this level avoids the need to change
payroll system arrangements and also provides the correct economic message to employers
as to the cost of occupational injury and illness. Since the overwhelming majority of workers in
receipt of workers compensation benefits are back at work well within this period, this level
of payment does not present problems in relation to dependency issues. It also avoids
pressures for such injuries to be funded through sick pay arrangements.
5.69 The 2007 South Australian review went on to recommend the introduction of a step-down
following 13 weeks to 80% of the workers PIAWE for the following reasons:
This was the level that already existed in the South Australian scheme for longer term claims
(that is, claims where benefits were being paid after one year).
This level maintains the return to work incentive without going beyond what has been
referred to as the invisible affordability threshold. The 2004 Rutherford Review of Workers
Compensation in Tasmania concluded:
. . . by and large, it is possible for workers and their families to adjust to a reduction in income
of around 1520 per cent through curtailing discretionary expenditure. However, when there is
a significantly larger decrease in income, this is no longer the case. In particular, there is a risk
that a significant proportion of the relatively small percentage of workers who end up exposed
to the second step-down are facing the prospect of selling the family home.
42
5.70 Adjusting the Victorian scheme to pay workers 100% of PIAWE for the first 13 weeks and 80%
for the remainder of the period of 130 weeks would improve wage replacement rates for those
with pre-injury gross earnings of $500 and $1000 per week by 5% (up from 77% to 82%); but
rates for workers with pre-injury gross earnings of $2000 per week would not improve because
of the statutory maximum on weekly benefits (currently $1250 a week). The projected annual
cost of altering the Victorian scheme in this way would be in the range of $25 to $115 million,
depending on the impact on continuance rates.
43
5.71 After reviewing the evidence and considering the views of stakeholders, I am convinced that the
first step down should remain at 95% of PIAWE. Workers who are unable to work because of
incapacity can achieve at least marginal savings in expenditure. In addition, any increase in
weekly benefits in the initial period of incapacity is likely to be made at the cost of extending
other benefits for incapacitated workers (such as, for example, payment of superannuation
contributions, or increased benefits for longer-term incapacitated workers).
5.72 I recommend an increase in the second step-down from 75% to 80% of PIAWE. The new step-
down rate would also apply to workers who continued to be eligible for weekly benefits after
130 weeks.
5.73 Adjusting the Victorian scheme in this way would improve wage replacement rates over 130
weeks for those with pre-injury gross earnings of $500 and $1000 per week by about 4.5%
(up from 77% to 81.5%) whereas rates for workers with pre-injury gross earnings of $2000 per
week would remain the same, again because of the statutory cap on weekly benefits (currently
$1250 a week).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 196
41 Promoting Excellence: National Consistency in Australian Workers Compensation, Interim Report to
Labour Ministers Council, May 1996, pp 9495.
42 Quoted in the Review of the South Australian Workers Compensation System Report, Bracton
Consulting Services Pty Ltd and PricewaterhouseCoopers, December 2007, pp 99100.
43 Source: advice from the Reviews independent actuaries.
5.74 Making that adjustment would represent an immediate modest increase in weekly benefits for
lower and middle income earners pending the comprehensive review of PIAWE, as
recommended in paragraph 5.50 above.
5.75 I consider that the modest increase is warranted, given that the current step-down results in a
25% decrease in injured workers income after 13 weeks.
5.76 For some workers, the decrease may be greater than 25% because of the calculation of PIAWE.
For example, workers whose fringe benefits are not included in the PIAWE calculation and
workers who cannot access overtime or shift allowances after 26 weeks would suffer a
reduction in earnings of more than 25%.
5.77 My proposal will lead to an increase in income for injured workers who are not eligible for
make-up pay. For workers who are eligible for make-up pay, my proposal will lead to an increase
in income after 39 weeks when make-up pay ceases under the majority of awards.
44
For those
workers, in the period on weekly payments between week 14 and week 39, my proposal will
reduce the make-up pay payable by employers. That is, where make-up pay applies, my
proposal will mean that the scheme will bear costs currently borne by employers.
5.78 Although I appreciate that any improvement in the level of weekly benefits may have an adverse
impact on return to work incentives, I do not think that my proposal will act as a disincentive.
The recommended increase will occur only after the first 13 weeks and a payment of 80% of
PIAWE effect is unlikely to be seen by injured workers as more attractive than employment and
a full wage.
5.79 The Reviews actuaries have estimated that the increase to 80% of PIAWE after the first
13 weeks on benefits will cost approximately $25 million annually, assuming there is no change
in continuance rates. That appears to be a reasonable assumption, because it seems unlikely
that workers motivation to return to work would be significantly affected by increasing weekly
compensation from 75% to 80%, especially in the context of make-up pay provisions in awards.
5.80 However, if the change were to affect workers motivation to return to work to the extent that
continuance rates deteriorated, the cost of my proposal would increase to $37 million annually
(if continuance rates up to 130 weeks deteriorated), or $99 million annually (if continuance rates
after 130 weeks also deteriorated).
5.81 In summary, I consider that an increase in the step-down for the second entitlement period
from 75% to 80% the first increase in five years would deliver a modest increase in benefits
to injured workers while maintaining the financial viability of the scheme.
Continue to limit entitlements to 130 weeks
5.82 Entitlement to weekly benefits ends after 130 weeks of incapacity, except in certain
circumstances.
45
5.83 The second entitlement period was extended from 104 weeks to 130 weeks in June 2006 as
part of a package of improved benefits for injured workers.
46
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 197
44 According to the research undertaken for the Review: Workplace Research Centre, Accident
Compensation and Make-Up pay in Awards covering Victorian employees, June 2008, discussed
in the context of superannuation contributions in paragraph 5.166 below.
45 AC Act, s 93CC, 93CD, 93E and 93EA.
46 For claims made on or after 1 January 2005.
5.84 Other jurisdictions apply different monetary or time caps on the payment of weekly benefits.
For instance, Western Australia terminates benefits after a worker has received $159,091,
regardless of the workers age or level of injury. Although Victoria generally terminates
entitlement to benefits at 130 weeks, if a worker is incapacitated for work on an ongoing basis
the worker may receive benefits after that period until retirement. New South Wales continues
benefits for workers with partial incapacity at 104 weeks only under specific conditions.
47
5.85 The VTHC,
48
the ALA
49
and the AWU
50
submit that the 130-week limit should be extended. The
VTHC submits that the second entitlement period should be extended to 260 weeks (five years),
consistent with the 1997 HWCA report (referred to in paragraph 5.8 above).
51
The ALA submits
that the second entitlement period should be extended to at least three years.
52
5.86 The AWU submits that entitlements should be ongoing while incapacity continues to affect
an injured worker, and argue that weekly payments should be paid until
the claim is settled at common law;
the worker is no longer incapacitated; or
the worker turns 65.
53
5.87 Although I appreciate that partially incapacitated workers are placed in a difficult situation
after 130 weeks, the provision of weekly benefits under the scheme must balance competing
interests, including encouraging return to work and maintaining the financial viability of the
scheme.
5.88 I do not consider that an extension of the second entitlement period is warranted at this time.
Weekly benefits were extended from 104 weeks to 130 weeks only two years ago. Victorias
130-week limit on payments is more generous than the limit in some other jurisdictions, and
provides for payments after 130 weeks in certain circumstances (see paragraph 5.90 below).
The cost of extending weekly benefits to 156 weeks (three years) is estimated to be in the
range of $20 to $25 million a year, depending on continuance rates, and the cost of extending
weekly benefits to five years would cost some $90 to $120 million a year.
54
Extending
payments to three years or longer would place significant cost pressures on the scheme,
and could deprive the scheme of funds to implement other higher priority reforms that
I have proposed, notably
increasing the step-down after 13 weeks from 75% to 80% (see paragraphs 5.725.81
above);
clarifying entitlements for permanently partially incapacitated workers who have returned to
work to the full extent of their capacity after 130 weeks (see paragraphs 5.905.96 below);
providing weekly benefits for medical procedures after 130 weeks (see paragraphs
5.1105.116 below); and
providing superannuation contributions for long-term injured workers (see paragraphs
5.1665.193 below).
5.89 I consider those measures are a higher priority because, at the same cost, they will have
a positive (or at worst neutral) impact on return to work incentives, whereas substantially
increasing entitlement periods may have the opposite effect.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 198
47 Workers Compensation Act 1987 (NSW), s 52A.
48 VTHC, Submission, 2 May 2008, pp 24-25.
49 ALA, Submission, 8 February 2008, p 10.
50 AWU, Submission, 21 January 2008, p 2.
51 VTHC, Submission, 2 May 2008, p 25.
52 ALA, Submission, 8 February 2008, p 10.
53 AWU, Submission, 21 January 2008, p 2.
54 Source: advice from the Reviews independent actuaries.
WEEKLY BENEFITS AFTER 130 WEEKS FOR PARTIALLY INCAPACITATED WORKERS
5.90 Under the AC Act, entitlements to weekly benefits cease after 130 weeks unless
the worker has no capacity for work and that incapacity is likely to continue indefinitely (in
which case the worker continues to be entitled to weekly benefits at second entitlement
period rates);
55
or
the worker has a partial capacity for work and
has returned to work for not less than 15 hours per week and is receiving earnings of at
least $146 a week; and
- because of the injury, is likely to be indefinitely incapable of undertaking further or additional
employment that would increase the workers weekly earnings;
56
(in which case the worker continues to be entitled to weekly benefits at second entitlement
period rates, reduced by 75% of the workers current weekly earnings).
57
5.91 The ongoing entitlement for workers with a partial incapacity recognises that some injured
workers, even after treatment and rehabilitation, may have a residual level of incapacity that
prevents them returning to pre-injury employment but they may be able to engage in
employment to some extent and should be encouraged to do so.
5.92 The design of the entitlement also reflects the notion that, although employers should
compensate workers ongoing losses as a result of injury or illness, the obligation to
compensate should be limited to losses arising from the injury/illness and should not extend to
losses arising from a workers inability to secure employment to the extent of the workers
capacity for work.
5.93 In 2007, only 208
58
partially incapacitated workers accessed weekly benefits after 130 weeks.
Given that 34,289
59
workers received weekly payments in 2007, this is not a significant number.
5.94 The process for approving benefits for workers with a partial capacity who have returned to
work after 130 weeks is as follows
the worker applies for the benefit and provides relevant information to the agent;
the agent must accept or reject the workers application within 90 days; and
if the agent fails to make a determination, then the matter must be referred to a Medical
Panel.
5.95 In practice, agents refer most applications for partial capacity benefits to a Medical Panel.
5.96 The Claims Manual
60
instructs claims agents to review the eligibility of workers who receive
partial capacity benefits at six-monthly intervals.
Stakeholder views
5.97 The VTHC submits that workers who have returned to work for at least 10 hours a week should
be entitled to access this benefit.
61
5.98 The ACCS has sought clarification of the entitlement when a worker has a period of incapacity
or a brief change in the hours that he or she works.
62
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 199
55 AC Act, s 93CC.
56 AC Act, s 93CD(3).
57 AC Act, s 93CD(5).
58 Source: VWA.
59 Source: VWA.
60 Claims Manual 9.4.4.4 Ongoing management of s 93CD claims.
61 VTHC, Submission, 2 May 2008, p 30.
62 ACCS, Submission, 6 February 2008, p 2.
5.99 The ALA suggests that there is potential for unfairness where a worker has qualified for the
partial incapacity benefit and
The problem arises in circumstances where a worker has already qualified for the entitlement
and the employer subsequently reduces the workers number of hours or otherwise withdraws
or terminates the offer of employment. These actions of the employer result in the termination
of the benefits leading to an unjust outcome for the injured worker.
63
5.100 To address that situation, the ALA submits that section 93CD
. . . be amended to include a penalty for employers seeking to abuse the section and a
provision that once a worker qualifies for a benefit pursuant to the section their entitlement
remains notwithstanding a reduction in hours [or] termination of employment.
64
5.101 The LIV submits that the VWA should make determinations in response to applications for
continuing weekly payments within 28 days.
65
Clarify the operation of section 93CD
5.102 The AC Act and the Claims Manual are silent on several important aspects relating to the
administration of weekly benefits for partially incapacitated workers after 130 weeks. It is
unclear whether:
a worker can apply for this benefit at any time after returning to work (there is no time limit
imposed by the AC Act);
an employer can withdraw an offer of suitable employment, effectively removing the workers
entitlement; and
fluctuations in the workers capacity or the availability of work disentitle a worker from
receiving top-up payments; for instance, if a worker is temporarily unable to work to the
required threshold of 15 hours in any given week, it is unclear whether the workers payments
cease and whether any cessation will be permanent or temporary.
5.103 To address the above issues, I recommend that the AC Act should be amended to
clarify that benefits under section 93CD can be accessed at any time that the worker returns
to work;
there is no compelling reason to treat workers who have returned to work to the extent
of their capacity after the expiry of the 130 weeks less favourably than those who have
returned to work before that time;
ensure that, where a worker is receiving the benefit and the workers suitable employment
is withdrawn, the worker is given 13 weeks notice of termination of the benefit;
a notice period of 13 weeks would assist workers to find alternative employment or
organise other forms of income support; and 13 weeks is consistent with the notice period
for the termination of benefits at the expiry of the second entitlement period;
66
and
clarify that temporary fluctuations in capacity or the availability of work do not impact on
the workers entitlement;
however, the VWA should consider directing claims agents to review the payment of the
benefit on a more regular basis for instance, every three months (rather than every six
months) to assist in determining whether fluctuations are temporary or are in fact more
permanent changes that impact on the workers entitlement.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 200
63 ALA, Submission, 8 February 2008, p 11.
64 ALA, Submission, 8 February 2008, p 11.
65 LIV, Submission, 8 February 2008, p 3.
66 AC Act, s 114(13)(c).
5.104 The VWA currently has 90 days to decide whether to accept or reject an injured workers
application for the benefit.
67
This is considerably longer than the 28-day time limit that is
prescribed for the VWA to decide a workers initial claim for weekly payments.
68
I recommend
that the time limit should be reduced from 90 days to 28 days.
5.105 It has been argued that 90 days is required to access information about the workers claim,
especially where a worker has not been receiving benefits for some time and there may be
limited up-to-date medical information about the worker. However, this situation does not differ
from the situation where initial liability must be determined and the claims agent must access
information, arrange a medico-legal examination if required, and make a determination within
28 days.
5.106 Where a worker returns to work with partial capacity at the end of the second entitlement
period, agents should obtain a medical examination addressing the issue or work capacity,
so that updated medical material is at hand.
5.107 Applications should be accepted or rejected within 28 days. Disputes relating to section 93CD
should follow the same procedure as other statutory benefit disputes, which is lodgement with
the ACCS. Where the dispute is purely on a medical question, the ACCS would refer the dispute
to a Medical Panel.
5.108 I consider that the changes I have recommended to section 93CD can deliver significant
benefits to one of the most disadvantaged groups of injured workers in the scheme, namely
workers whose injury impacts on their ability to work long-term but who have a partial capacity
to work, and therefore are not eligible for ongoing weekly benefits after 130 weeks. For those
workers, the section 93CD entitlement is a lifeline. It provides an opportunity to return to their
pre-injury income levels, if they can secure employment that utilises their current, albeit limited,
work capacity.
5.109 Currently, only 208 workers are accessing that opportunity. The relatively small number of
workers may be due, in part, to the reduced employment opportunities for workers with
impairments and disabilities. It may also reflect a lack of awareness of the entitlement. Given
that the section 93CD entitlement creates a positive incentive to return to work, any lack of
awareness should be addressed by the VWA and its agents.
WEEKLY BENEFITS FOR WORKERS WHO UNDERGO MEDICAL PROCEDURES
AFTER 130 WEEKS
5.110 A worker who has ceased to receive weekly benefits at the end of the second entitlement
period (130 weeks) may not receive subsequent weekly benefits, even if the worker is required
to cease work while recovering from surgical treatment for a work-related injury.
5.111 Recent amendments to the AC Act allow workers aged 65 and over to receive weekly payments
for a maximum period of 13 weeks in limited circumstances, including where they have become
incapacitated for work as a consequence of surgical treatment for a work-related injury.
69
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 5 BETTER INCOME REPLACEMENT
PAGE 201
67 AC Act, s 93CD(4)(a).
68 AC Act, s 109(1).
69 AC Act, s 93EA. Benefits are calculated at the rate specified in s 93CB(2)(a) or (b). The worker must
have continued to work past retirement age, have lodged a claim in the previous 10 years, received
weekly benefits in the period 10 years before turning 65 and be incapacitated for work due to
treatment received after retirement age as an inpatient at hospital for that injury.
5.112 Both the VTHC
70
and ALA
71
submit that weekly benefit payments should be extended to
workers who require surgical treatment after 130 weeks. To guard against the provision being
used to extend the period in which workers receive weekly benefits, the VTHC has suggested
that the following criteria should apply
there should be a three-month buffer period after 130 weeks in which the worker may not
apply for the extended weekly payments;
the weekly payments would apply only in respect of prescribed surgical procedures;
payments should be made from the date of admission to hospital; and
the period during which payments could be made would be determined by reference to the
surgical procedure to be undertaken.
72
5.113 Employer groups are generally supportive of the proposal; however they urge caution to ensure
that it is not abused.
5.114 In my opinion, workers who have returned to work should be supported through temporary
periods of incapacity when they require medical treatment, even where that treatment is
required outside the existing entitlement period.
5.115 I generally agree with the conditions proposed by the VTHC. However, given that workers will
have different levels of injury and may have different rates of recovery, overly prescriptive
provisions relating to timeframes may not be appropriate (other than requiring the passage of
13 weeks between expiry of the 130th week on benefits and the medical procedure). I consider
that claims agents should have the discretion to determine whether the period of weekly
benefits during recovery is reasonable in the circumstances.
5.116 The Reviews independent actuaries estimate that the cost of providing this benefit would be
between $2 and $5 million annually.
PAYMENTS PENDING RECEIPT OF FUNDS FROM COMMON LAW SETTLEMENTS
5.117 When a common law claim is settled between a worker and the VWA, the usual practice is for
an agreement to be executed by the parties, and for the VWA to pay the settlement amount to
the workers solicitors within 28 days.
5.118 If the worker has been in receipt of weekly benefits, the benefits will cease at the date of
settlement, if the settlement encompasses loss of earnings. Thus, in the 28 days between
settlement and payment, workers can suffer temporary financial hardship.
5.119 I agree with the LIV that the AC Act should be amended to allow for some ongoing weekly
payments between the date of settlement and the date when a worker receives the settlement
payment.
73
Those weekly payments should be offset against the ultimate settlement figure. For
instance, if a worker receives $1000 in weekly benefits from the date of settlement to the date
of payment, that amount would be deducted from the workers overall settlement amount. As a
result, this proposal would be cost neutral.
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70 VTHC, Submission, 2 May 2008, p 32.
71 ALA, Submission, 8 February 2008, p 12.
72 VTHC, Submission, 25 January 2008, p 5.
73 LIV, Submission, 8 February 2008, p 2.
THE RELATIONSHIP BETWEEN ANNUAL AND LONG SERVICE LEAVE AND
WEEKLY BENEFITS
5.120 The AC Act does not directly address the question whether weekly payments are payable in
addition to annual leave and long service leave. Instead, this issue has been considered and
largely settled by judicial decisions.
5.121 Payments for annual leave or long service leave, received by an injured worker during the
workers incapacity, are not regarded as current weekly earnings and therefore do not preclude
the worker from receiving weekly compensation payments at the same time.
74
5.122 Allowing workers to receive weekly compensation payments and annual and long service leave
payments at the same time reflects the notion that annual leave and long service leave are
payments based on an accrued right, rather than a wage.
5.123 On the other hand, sick leave payments are not regarded as based on an accrued right, but as
only arising in the event of a workers injury or illness. Accordingly, a worker is not entitled to
receive sick leave payments at the same time as weekly compensation.
75
5.124 The issue of leave is dealt with in various ways in Australian workers compensation schemes.
In Tasmania, workers who choose to take annual leave or long service leave during a period of
incapacity cannot receive weekly payments for compensation at the same time.
76
On the other
hand, in South Australia
77
and New South Wales
78
, a payment for annual leave or long service
leave, to which a worker is entitled in respect of a period when the worker is incapacitated,
does not affect a workers entitlement to weekly payments.
5.125 The Commonwealth Government recently released National Employment Standards (the NES)
which it intends to implement by 1 January 2010. The NES includes a provision restricting
workers from taking annual leave where they are in receipt of workers compensation, unless
the relevant workers compensation legislation allows for the taking of leave.
79
Stakeholder views
5.126 The Compensation Law Bar Association submits that
There is considerable uncertainty surrounding benefits paid by employers in such
circumstances including annual leave, sick leave, ex gratia payments and disability insurance.
80
5.127 JobWatch submits that
. . . the common law position as to annual leave and long service leave should be codified in
the AC Act so as to make it clear to employers and workers that injured workers can access
these entitlements without losing their weekly WorkCover payments.
81
5.128 Ai Group submits that the case,
82
which examined the issue whether annual leave or long
service leave preclude the receipt of weekly payments of compensation (see paragraph 5.121
above) is not recent law and is not relevant to the current working environment.
83
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74 Nicolson v The Victorian Railway Commission 3 WCBD 77.
75 Workplace Relations Act 1996 (Cth), s 248(1).
76 Workers Rehabilitation and Compensation Act 1988 (Tas), s 84(2). However, an employer cannot require
a worker to take annual recreational leave or long service leave that falls due during a period of
incapacity for which compensation is payable: s 84(3); and a worker may elect to take that leave after
her or his return to work or after the termination of the right to compensation if the worker does not
return to work: s 84(1).
77 Workers Rehabilitation and Compensation Act 1986 (SA), s 40(1).
78 Workers Compensation Act 1987 (NSW), s 49.
79 Australian Government, The National Employment Standards, June 2008, s 8, p 8.
80 Compensation Law Bar Association, Submission, 2 May 2008, p 11.
81 JobWatch, Submission, 16 May 2008, p 10.
82 Nicolson v The Victorian Railway Commission 3 WCBD 77.
83 Ai Group, Submission, May 2008, p 43.
Allow annual/long service leave to be taken concurrently with weekly benefits
5.129 Annual and long service leave are an accrued benefit similar to an asset. A worker should
be able to access the entitlement, accrued before being injured, without affecting his or her
entitlement to weekly payments. Step-downs and upper limits on the level of weekly benefits
mean that many injured workers receive less income after their injuries than before, causing
varying degrees of financial hardship. Access to previously accrued entitlements may assist
workers in this situation.
5.130 I therefore recommend that the AC Act should clarify that annual and long service leave can
be taken in addition to weekly benefits.
ACCRUAL OF LEAVE WHILE IN RECEIPT OF WEEKLY BENEFITS
5.131 The Long Service Leave Act 1992 (Vic)
84
provides that workers continue to accrue long service
leave for the first 48 weeks of weekly benefits.
5.132 In Victoria, any entitlement to accrue annual leave while in receipt of benefits only arises where
specifically provided for under an industrial award or agreement.
5.133 With the exception of the South Australia and the Commonwealth schemes, accident
compensation legislation in all other jurisdictions is silent on the accrual of annual leave while
a worker is in receipt of weekly payments.
In South Australia, workers receiving weekly payments continue to accrue annual leave.
85
However, if the worker receives weekly payments in respect of total incapacity over a period
of 52 weeks, the employers liability to grant annual leave is deemed to have been satisfied.
86
Under the Commonwealth scheme, workers continue to accrue sick leave and recreation
leave entitlements for the first 45 weeks while they are absent from work and entitled to
weekly payments of compensation (referred to in the legislation as compensation leave),
87
and continue to accrue long service leave entitlements during the whole period of their
compensation leave.
88
5.134 Current Federal industrial relations legislation does not prohibit accrual of entitlements while
a worker is receiving workers compensation benefits, nor does it create an entitlement.
89
The
NES
90
(which, as noted in paragraph 5.125 above, are to be implemented by 1 January 2010)
provide that a worker should not accrue annual leave while in receipt of a workers
compensation benefit, unless the relevant workers compensation legislation allows for the
accrual of leave.
Stakeholder views
5.135 MGA
91
and the AHEIA
92
have submitted that the AC Act should be amended to provide clarity
on this issue.
5.136 Ai Group submits that, if workers continued to accrue annual leave, they could effectively
receive 56 weeks worth of pay in one year, which would act as a disincentive to engage in any
rehabilitation or take up employment opportunities.
93
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84 Long Service Leave Act 1992 (Vic), s 63(2).
85 Workers Rehabilitation and Compensation Act 1986 (SA), s 40(2).
86 Workers Rehabilitation and Compensation Act 1986 (SA), s 40(3).
87 Safety, Rehabilitation and Compensation Act 1998 (Cth), s 116(a).
88 Safety, Rehabilitation and Compensation Act 1998 (Cth), s 116(b).
89 Workplace Relations Act 1996 (Cth), s 237.
90 Australian Government, The National Employment Standards, June 2008, s 8, p 8.
91 MGA, Submission, 2 May 2008, p 7.
92 AHEIA, Submission, 2 May 2008, p 5.
93 Ai Group, Submission, May 2008, p 44.
Maintain the status quo
5.137 I do not recommend any amendment to allow accrual of entitlements while a worker is
receiving weekly benefits. The accrual of leave is essentially an industrial issue and has
long been treated as such in Victoria.
5.138 When the NES become effective in 2010, there will be a presumption that workers will not
accrue annual leave while in receipt of workers compensation benefits. Although it would be
possible for the AC Act to legislate to the contrary, there are no compelling policy reasons to
do so.
5.139 I agree with Ai Groups observation that, if workers are paid weekly benefits and permitted to
accrue annual leave at the same time, workers could effectively be paid for 56 weeks a year
while not working.
NOTIONAL EARNINGS
5.140 Under the AC Act, the term notional earnings means the current weekly earnings of a worker,
or the weekly earnings that the VWA or a self-insurer determines that the worker could earn,
whichever is the greater.
94
5.141 Where a worker has a partial capacity for work, the workers weekly benefits may be reduced
by her or his notional earnings.
95
5.142 If a worker has in fact returned to work and is earning income, a consequent reduction in
weekly benefits is understandable and appropriate.
5.143 However, under the notional earnings provisions,
96
hypothetical (that is, notional) earnings may
also be used as a basis for reducing or terminating a workers weekly benefit payments. The
provisions effectively allow the VWAs agents to determine the level of weekly earnings that a
worker could receive in employment, even when the worker has not returned to work.
5.144 The AC Act prevents such hypothetical earnings being applied to reduce or terminate weekly
benefits during the first and second entitlement periods in two situations:
where the employer has failed to provide suitable employment and the worker is complying
with the workers return to work obligations under the AC Act; or
where the worker is participating in an occupational rehabilitation service or return to work
plan.
97
5.145 The notional earnings provisions were intended to motivate workers who have a capacity for
work to return to a more active lifestyle.
98
They were also designed to be a measure of last
resort and to be used sparingly.
99
Data indicates that notional earnings were applied to less
than 1% of workers in 2007,
100
suggesting that the provisions are only used in exceptional
circumstances.
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94 AC Act, s 5(1).
95 AC Act, ss 93CA(2)(b) and 93CB(2)(b).
96 AC Act, ss 93CA(2)(b) and 93CB(2)(b).
97 AC Act, s 93DA.
98 Victoria, Legislative Council, Debates, 10 December 1996, p 1249.
99 Victoria, Legislative Council, Debates, 10 December 1996, p 1256.
100 Source: VWA.
5.146 The VWA instructs its agents through the Claims Manual to apply the notional earnings
provisions in the following situations:
101
where the worker does not accept an offer of suitable employment for reasons not related
to the workers capacity for work;
where the worker ceases suitable employment for reasons not related to the workers
capacity for work; or
where the worker has returned to work in suitable employment and that employment has
been terminated for reasons not related to the workers capacity for work.
5.147 The appendix to the Claims Manual also suggests that it might be appropriate to apply notional
earnings to reduce or stop weekly benefits in the following situations:
where the worker is undertaking suitable employment and subsequently decides to move
to another State for personal reasons;
where a suitable employment offer has been made to the worker and the worker refuses
the offer on the ground that she is pregnant; and
where the worker is undertaking suitable employment and the employer terminates the
employment for serious misconduct in accordance with the applicable industrial
agreement.
102
Stakeholder views
5.148 The VTHC endorses the removal of notional earnings from the AC Act.
103
5.149 The AMIEU provided the following example of the operation or application of notional earnings
in its submission:
A worker was injured; his claim was accepted, after 6 weeks he returned to work in suitable
employment. He continued on suitable alternative duties for more than 3 years. Then he was
dismissed. There was no warning given, verbally or written, the worker was not allowed to
have the Union present in the meeting. It was impossible to take the issue to the IRC as harsh,
unfair and unjust because it was a workplace where there are fewer than 100 employees.
The claims agent applied Notional Earnings. After 3 months in which the worker had no wages
the claims agent withdrew the notice.
104
5.150 Employer groups, including Ai Group
105
and VECCI,
106
maintain that notional earnings should be
retained to reduce payments to workers in the following situations:
where the worker moves interstate and removes herself or himself from suitable employment
opportunities;
where the worker resigns from employment;
where the workers employment is terminated due to misconduct or disciplinary reasons;
where the worker becomes redundant; and
where the employer has no suitable duties and the worker has unreasonably not sought,
obtained or accepted suitable employment.
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101 Claims Manual 9.1.3.3: Notional Earnings. The notional earnings provision is not to be invoked unless
reviewed and approved by a Senior Legal Manager.
102 Claims Manual 9.1.3.3: Notional Earnings.
103 VTHC, Submission, 25 January 2008, p 4.
104 AMIEU, Submission, 2 May 2008, p 17.
105 Ai Group, Submission, May 2008, p 49.
106 VECCI, Submission, April 2008, p 51.
Remove the second limb of the notional earnings provision
5.151 I consider that, in the interests of transparency, a worker should only have weekly benefits
reduced or terminated where the AC Act makes specific provision for the reduction or
termination.
5.152 I am concerned that the notional earnings provisions give agents a broad discretion to reduce
weekly payments, and that the provisions could be used capriciously or unpredictably in
situations that fall outside the current termination provisions.
5.153 If it is thought necessary to deal with difficult claims management situations that fall outside
the current termination provisions, the AC Act should identify the types of situations that would
warrant termination, suspension or reduction of payments, and make specific provision for
dealing with those situations.
5.154 I am not convinced that the circumstances in which weekly benefits should be terminated,
suspended or reduced need to be expanded. However, I am concerned that the AC Act does
not provide a workable framework for the VWAs agents to encourage workers to return to
work. Where an agent considers that a worker is not complying with her or his return to work
obligations, the agent has limited options either to terminate the workers benefits or to apply
notional earnings (where permitted) to reduce or stop payments.
Enhance the ability of agents to encourage return to work and rehabilitation through the weekly
benefits system
5.155 A workers entitlement to weekly payments may be terminated, suspended or reduced pursuant
to various provisions in the AC Act. In addition, a workers entitlement to payments may cease
as a result of the passage of time or recovery of the workers work capacity.
5.156 A worker no longer has an entitlement where:
the worker reaches the age of 65 and has been receiving payments for 130 weeks;
107
or
the worker has returned to work full time within the first or second entitlement periods;
108
or
the worker ceases to reside in Australia and cannot provide evidence that he or she has no
current work capacity and is likely to continue to have no current work capacity indefinitely;
109
or
the worker is temporarily absent from Australia for a period of longer than 28 days;
110
or
the worker is imprisoned;
111
or
the second entitlement period has ended and the worker has a current work capacity
112
(that does not fit within s 93CD: see paragraph 5.102 above).
5.157 A workers entitlement will be terminated before the entitlement ceases (as outlined in
paragraph 5.156 above) where the worker has not made reasonable efforts to return to work
in particular, where:
the worker has not made every reasonable effort to participate in an occupational
rehabilitation service or a return to work plan;
113
or
the worker has not made every reasonable effort to return to work in suitable employment;
114
or
the worker has not participated in assessments of the workers capacity, rehabilitation
progress and future employment prospects when requested to do so.
115
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107 AC Act, s 93F, read with ss 93E and 93EA.
108 AC Act, s 93CA (2) or 93CB (2).
109 AC Act, ss 97(2) and (2AA).
110 AC Act s 97(2A).
111 AC Act, s 97(7).
112 AC Act, s 93CC(1).
113 AC Act, s 93CA(3)(a)(i) and (4); s 93CB(3)(a)(i) and (4); s 93CB(3)(b)(i), (3)(c)(i) and (4).
114 AC Act, s 93CA(3)(a)(ii) and (4); s 93CB(3)(a)(ii) and (4), and s 93CB(3)(b)(ii), (3)(b)(iii), (3)(c)(ii), (3)(c)(iii)
and (4).
115 AC Act, s 93CA(3)(a)(iii) and (4); s 93CB(3)(a)(iii) and (4); s 93CB(3)(b)(iv) and (3)(c)(iv).
5.158 A workers entitlement to weekly payments will be suspended where the worker unreasonably
refuses to submit to or unreasonably obstructs a medical examination or a Medical Panel.
Payments are suspended until the worker does submit to an examination, and the missed
payments are forfeited.
116
5.159 Consistent with the approach taken in New South Wales
117
and Queensland,
118
agents should
be able to adopt a staged approach to motivating a worker to comply with return to work and
rehabilitation obligations. Accordingly, I propose the following hierarchy of sanctions depending
on the seriousness of the non-compliance (in descending order):
immediate termination without notice;
notice of intention to cease or reduce payments unless the worker rectifies non-compliance
within a certain period, followed by suspension of benefits for 28 days, after which benefits
would be terminated if the worker has not rectified non-compliance; and
notice of intention to cease or reduce payments unless the worker rectifies compliance within
a certain period, followed by suspension of benefits until the worker rectifies
non-compliance.
5.160 Where an agent suspends benefits, I propose that the suspension period should count towards
the time counted for entitlement periods, as currently applies. If a worker wishes to dispute a
suspension, the worker may use the applicable dispute resolution process. Payments will
remain suspended while that process is under way, but will not be terminated while the matter
is under consideration. If the suspension is set aside, payments for the suspended period will
be restored.
5.161 I consider that immediate termination of benefits without notice should apply where a worker
has failed to notify the VWA or self-insurer that the worker has returned to work while receiving
benefits.
5.162 I consider that notice of intention to cease or reduce payments, followed by suspension of
benefits for 28 days, and ultimately termination if the worker has not rectified non-compliance,
should apply where:
the worker has not made every reasonable effort to participate in an occupational
rehabilitation service or a return to work plan;
the worker has not made every reasonable effort to return to work in suitable employment;
the worker has not participated in assessments of the workers capacity, rehabilitation
progress and future employment prospects when requested to do so;
a worker with partial capacity has not made every reasonable effort to return to suitable
employment with the workers place of employment or another place of employment; or
a worker has failed to attend an interview to discuss employment opportunities.
5.163 Benefits should be suspended until the worker complies with the relevant obligation in the
following circumstances:
where a worker has failed to attend or unreasonably obstructed a medical examination;
119
or
where a worker has refused to comply with or hindered a Medical Panel examination.
120
5.164 I consider the reforms outlined in paragraphs 5.1595.163 above will provide appropriate
consequences for non-compliance with worker obligations, but will give workers adequate
opportunity to address non-compliance where it is fair to afford such an opportunity.
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116 AC Act, s 65(5), 67(4) and (5); s 112.
117 Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 57.
118 Workers Compensation and Rehabilitation Act 2003 (Qld), s 232(2).
119 AC Act, s 112(2).
120 AC Act, s 67(4) and (5).
5.165 If the recommended changes are implemented, the current criminal offences relating to
workers failing to:
attend an interview to discuss employment opportunities (sections 162(2) and 242(8) of the
AC Act); and
notify the VWA or a self-insurer of their return to work whilst in receipt of benefits (sections
123(2) and (3) and 242(5) of the AC Act);
will be unnecessary and, in my view, should be repealed.
SUPERANNUATION
5.166 Consistent with the approach taken by all other Australian schemes, superannuation
contributions lost because of incapacity caused by work-related injury or illness are not
compensated under the AC Act.
5.167 Further, the national superannuation guarantee scheme does not require employers to make
superannuation contributions during periods of incapacity caused by work-related injury or
illness.
121
This is because superannuation contributions are calculated on the basis of ordinary
time earnings, and workers compensation payments are not classified as ordinary time
earnings.
5.168 Some workers continue to receive superannuation contributions during periods of incapacity
because the make-up pay provisions in their industrial awards or agreements require employers
to continue to make superannuation contributions for a specified period.
5.169 Research commissioned by the Review shows that, of 48 awards (with Victorian coverage)
surveyed, 27 contained an obligation for employers to continue superannuation contributions
for a period (generally the same period for which workers are entitled to receive accident
make-up pay). The survey found that the maximum length of the superannuation entitlement
was 52 weeks, with most awards allowing 39 weeks.
122
5.170 The omission from other awards of any reference to superannuation contributions as part of
accident make-up pay does not mean that those contributions are not paid. Employer groups
suggest that many employers continue to pay superannuation contributions for a period after
weekly benefits commence, regardless of whether this is required under industrial awards or
agreements.
5.171 The question whether (and if so how) lost superannuation caused by work-related incapacity
should be addressed has been debated for more than a decade without resolution.
5.172 Most jurisdictions (including Victoria) recently moved to ensure that superannuation was not
included in the calculation of a workers PIAWE for the purpose of calculating weekly benefits,
following a contrary decision by the Northern Territory Court of Appeals in relation to the
Northern Territory scheme.
123
5.173 In its 1994 report on Workers Compensation in Australia, the Industry Commission expressed
concern that, when superannuation contributions are not made while a worker is on
compensation:
the worker will be disadvantaged on retirement relative to others;
the employer has less incentive to prevent work-related injury or illness; and
the costs of supporting injured workers in retirement will be shifted to the community
(through the social security system) or to the worker.
124
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121 Australian Taxation Office, Superannuation Guarantee Ruling 94/5.
122 Workplace Research Centre, Accident Compensation and Make-Up pay in Awards covering
Victorian employees, June 2008, p 7.
123 Hastings Deering (Australia) Ltd v Smith [2004] NTCA 13. For Victoria, see AC Act, s 5A(1A), added by
s 24(1) of the Transport Accident and Accident Compensation Acts Amendment Act 2007.
124 Workers Compensation in Australia, Industry Commission Report No 36, 4 February 1994,
pp 117118.
5.174 In 1997, the HWCA recommended to the Labour Ministers Council that employers should be
required to maintain statutory superannuation contributions on behalf of injured workers who
have not returned to work for the period that employers are required to hold a job open.
125
The
Productivity Commission observed in 2003 that the inclusion of superannuation contributions in
compensation could provide for some of the needs of injured workers in retirement and that, in
assessing the adequacy of compensation arrangements, consideration should be given to
future income needs.
126
5.175 If a worker does not have adequate superannuation in retirement, the worker may need to rely
on the age pension under the Social Security Act 1991 (Cth), which is currently $547 a fortnight
for singles and $457 a fortnight each for members of a couple.
127
Stakeholder views
5.176 The ALA submits that
Injured workers should be entitled to superannuation payments in addition to weekly
payments benefits.
128
5.177 The AWU submits that
The insurer should have an obligation to continue the statutory rate of Superannuation
contributions (9% of PIAWE) directly to the nominated Super fund, adjusted by CPI.
129
5.178 The AEU submits that ongoing contributions should be made to a complying fund, with the
contributions based on normal weekly earnings.
130
5.179 VECCI does not believe that workers should receive two superannuation contributions and have
submitted that they
. . . oppose any inclusion of superannuation contributions in either PIAWE or as an additional
weekly payment over and above the current compensation rates.
131
5.180 MGA submits that a requirement to continue paying superannuation would impose a significant
administrative and financial burden on employers.
132
Compensate lost superannuation for the long-term injured
5.181 It is my view that the workers compensation scheme should provide superannuation
contributions for long-term injured workers, to address the disadvantage that could be suffered
by those workers in retirement.
5.182 Long-term injured workers are disadvantaged in retirement because injury has not only reduced
their income during their working life, but injury has also removed the superannuation
contributions that their employers would have otherwise have been required to make. Many
injured workers may be forced to rely on the age pension, which provides a subsistence level
of income support.
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125 HWCA, Promoting Excellence: National Consistency in Australian Workers Compensation, Final
Report to Labour Ministers Council, May 1997, p 24.
126 National Workers Compensation and Occupational Health and Safety Frameworks, Productivity
Commission Inquiry Report, 6 March 2004, p 262.
127 Centrelink Retirement payment rates, 20 March to 30 June 2008.
128 ALA, Submission, 8 February 2008, p 12.
129 AWU, Submission, 31 January 2008, p 2.
130 AEU, Submission, 2 May 2008, p 5.
131 VECCI, Submission, April 2008, p 47.
132 MGA, Submission, May 2008, p 8.
5.183 The provision of superannuation for long-term injured workers would be an increase in benefits
targeted at the most disadvantaged in the scheme workers off work for long periods. At the
same time, because it is a benefit that workers receive in retirement, it should not negatively
affect workers incentives to return to work.
5.184 I recommend that the VWA make superannuation contributions for injured workers who
continue to receive weekly compensation after 52 weeks of payments. Superannuation is
accrued over a working lifetime, so that the loss of superannuation through injury affects
long-term injured workers more than those who are injured for a limited time. Short periods of
non-accrual of superannuation (for example, through changing jobs or taking maternity leave)
are relatively common. However longer periods of non-accrual can have a material impact on
superannuation savings. In addition, the provision of superannuation by employers through
make-up pay provisions does not extend beyond 52 weeks (see paragraph 5.169 above),
avoiding the risk of the double payment of superannuation by employers and the VWA.
5.185 I considered the alternative of limiting the provision of superannuation to workers in receipt of
benefits for 130 weeks. However, that approach would leave workers without superannuation
contributions for two-and-a-half years significantly reducing retirement savings.
5.186 I recommend that superannuation contributions be based on the superannuation guarantee rate
(currently 9%), applied to the workers benefit, for the period while workers remain entitled to
weekly benefits. Contributions should be set at the guarantee rate, because that will reflect the
community standard from time to time: the level of contributions would increase if the
guarantee rate increased.
5.187 The cost of paying an additional 9% of weekly benefits into a superannuation fund for workers
who continue to receive payments after 52 weeks is estimated to be $24 million a year.
133
That
cost compares with $38 million a year if contributions were made from the date of injury, and
$19 million a year if contributions were made after 130 weeks of benefits.
134
5.188 I recommend that the VWA pay contributions directly into each workers superannuation fund,
rather than requiring employers to pay superannuation into workers funds and the VWA
reimbursing employers.
5.189 That approach will remove the potential for any further administrative burden on employers in
addition to the existing requirement to pay wages to the worker. That approach would also
overcome the impediment posed by some industrial awards and agreements which prohibit
employers from making superannuation contributions where workers are on accident leave.
There is no statutory bar to the VWA making superannuation contributions on workers behalf.
5.190 I note that direct payment is a departure from the usual methods for paying weekly benefits
(by way of reimbursement to the employer). However superannuation can be an invisible form
of income one that workers do not see being paid and may not monitor. Direct payments by
the VWA will ensure that workers receive the contribution.
5.191 I have considered whether the VWA should establish a special superannuation fund for injured
workers with special rules preventing portability and requiring preservation of benefits, or pay
superannuation into each workers complying superannuation fund, so that injured workers have
the same rights to choice and competition between superannuation funds as all other workers.
5.192 Given the Federal Governments rules for complying superannuation funds, giving workers
a choice of fund would mean that injured workers could access their VWA provided
superannuation before retirement because most complying funds allow members access
to their superannuation if they are temporarily or permanently incapacitated.
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133 Source: advice from the Reviews independent actuaries.
134 Source: advice from the Reviews independent actuaries.
5.193 However, the generous taxation treatment of savings through superannuation is likely to
encourage most injured workers to preserve their superannuation savings, and therefore the
objective of the proposed reform to provide retirement income for long-term injured workers
would be realised.
SECTION 96
5.194 Under section 96 of the AC Act a worker is not entitled to receive weekly benefits in
conjunction with certain other income benefits.
5.195 Section 96 applies to:
any disability, retirement or superannuation pension;
any superannuation or retirement benefit lump sum amount; or
any redundancy or severance payment;
that relates to the cessation of the employment in which the injury arose.
5.196 If workers receive any of the above payments, they will either have their weekly payments
reduced, or be precluded from receiving weekly benefits for a specified period.
135
There are
certain exceptions to that proposition, such as where a worker draws down a lump sum from
their superannuation to use for an approved capital expenditure.
136
5.197 Under section 96A of the AC Act, a worker claiming weekly payments must notify the workers
employer, who in turn must notify the VWA, when the worker receives one of the payments
referred to in section 96. Failure to notify the VWA is an offence and results in a penalty of 10
penalty units.
137
An employer will attract the same penalty for failing to notify the VWA when
a worker becomes entitled to one of the specified payments.
138
The level of compliance with
section 96A is not known.
5.198 In 2007, section 96 was invoked to reduce payments to 233 workers,
139
155 of whom received
a severance or redundancy payment and 88 of whom received a benefit from a superannuation
fund. Two of the workers received both types of payment.
Stakeholder views
5.199 The VTHC submits that the offset [for a disability payment from a superannuation fund] should
only occur [to] the extent that is necessary to reduce the payment to the extent of the
claimants actual (not defined) pre-injury earnings.
140
The VTHC also submits that no account
should be taken of lump-sum superannuation payments, because those payments are no
different in principle to other assets that are unrelated to the injury, such as an investment
property.
141
5.200 The ALA submits that section 96 should be removed because it is harsh and unfair.
142
Victoria
Police submits that the section requires clarification because it is difficult for employers and
workers to interpret.
143
5.201 The ACCS has requested clarification on the question whether a worker is required to submit
WorkCover medical certificates . . . during the suspension or non-entitlement period, because
the existence of such a requirement is unclear.
144
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135 AC Act, s 96(2). Again, the payment must relate to the employment out of which or in the course
of which the work-related injury arose.
136 AC Act, s 96(4).
137 AC Act, s 96A(1) ,(2), (3) and (7).
138 AC Act, s 96A(4), (5) and (7).
139 Source: VWA.
140 VTHC, Submission, 25 January 2008, p 5.
141 VTHC, Submission, 25 January 2008, p 5.
142 ALA, Submission, 8 February 2008, p 12.
143 Victoria Police, Submission, 12 February 2008, p 4.
144 ACCS, Submission, 6 February 2008, p 2.
5.202 Freehills submits that section 96 should be broadened in its scope to include all payments
made to or for the benefit of the worker that are referable to a loss of income that might
otherwise be earned. Freehills submits that
The section should be amended to make it clear that it is a disentitlement, not merely a
suspension of entitlement . . . This could be achieved by a catch all section (similar to Qld)
which allows an insurer to take into account any other form of benefit, income or insurance,
when deciding whether compensation is payable or what amount is payable.
145
5.203 The Compensation Law Bar Association is of the view that section 96 operates unfairly for
workers who are pursuing their benefits through litigation.
146
5.204 Ms Anthea MacTiernan, a member of the Victorian Bar, provides an example of the way in
which section 96 can work in the case of a worker who suffers an injury and lodges a claim for
compensation which is denied. The worker proceeds to litigation, however in the meantime the
worker has no income and therefore must draw down funds from her or his superannuation.
Even if the litigation is ultimately successful, the worker will be precluded from weekly
payments for a period through the application of section 96 because the worker has accessed
the workers superannuation fund. However, if the worker had accessed other assets, such as
shares, there would be no impact.
147
Modernise section 96
5.205 Section 96 was introduced in 1992 to prevent double-dipping, that is, workers being
compensated for the same injury from multiple sources, and receiving more from those sources
than they would have from employment.
5.206 Weekly benefits do not fully compensate injured workers for lost income. It seems reasonable
that workers should be able to access income from other sources to make up the shortfall. It
also seems reasonable that, where workers are in a dire financial situation, they should be able
to access their own assets without affecting their weekly benefits.
5.207 However, I consider there is a sound policy basis for adjusting a workers entitlement to weekly
benefits where the worker receives income or another benefit as a result of injury and the
benefit places the worker in a better position than before the injury.
5.208 Workers can generally access the following sorts of benefits from their superannuation funds:
benefits from an extra cover disability pension for which a worker voluntarily pays
premiums, and for which the worker qualifies in the event of disability;
a pension drawn from the workers own superannuation contributions, which the trustee of
the superannuation scheme allows the worker to access before retirement because of the
workers incapacity for work; or
a lump sum drawn down from the workers own superannuation contributions, which the
trustee allows the worker to access before retirement because of the workers incapacity
for work.
5.209 At present, all of the benefits identified in paragraph 5.208 above are captured by section 96
if the benefits are related to the cessation or termination of the workers employment with
the employer with whom the worker was injured.
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PAGE 213
145 Freehills, Submission, 11 February 2008, p 11.
146 Compensation Law Bar Association, Submission, 2 May 2008, p 10.
147 Anthea MacTiernan, Submission, 2 May 2008, p 4.
5.210 That operation of section 96 seems inappropriate in two ways:
It is too broad because it punishes workers who access their assets workers who have
access to only one form of asset (the accrued superannuation contributions from their injury
employer) are penalised, whereas workers who have access to other assets or sources of
income are not.
It is too narrow because it fails to capture workers who access disability pensions that are
unrelated to their injury employment.
5.211 I consider that section 96 should be narrowed to exclude a workers receipt of the workers
superannuation funds in the form of either a lump sum or a pension.
5.212 However, section 96 should have a broader impact on disability pensions. Where a workplace
injury creates an entitlement in a worker to a disability pension from an income insurance policy
or insured component of a superannuation fund, the workers weekly benefits should be
reduced once the workers combined income from workers compensation and disability
pensions exceeded the workers pre-injury earnings. That impact should apply to all disability
pensions whatever their source, and not just those that relate to the cessation of the injury
employment.
5.213 Section 96 also currently applies to workers who receive a severance, termination or
redundancy payment. Those payments are received for a cessation of employment, not as
compensation for a workplace injury, and it therefore does not seem appropriate that they
should impact on weekly benefits.
5.214 In addition, there are aspects of section 96 that are no longer relevant, such as the reference to
eligible termination payments. As a result of legislative amendment in 2007,
148
all references
to eligible termination payments were removed from the Income Tax Assessment Act 1936 (Cth)
and the Income Tax Assessment Act 1997 (Cth), and they no longer exist. The reference to
annuities is also outmoded.
5.215 I am also concerned at the method for ensuring compliance with section 96. It is appropriate
that workers have an obligation to report access to benefits, and be penalised for not doing so.
However, workers may not be aware of the obligation and the penalty may not be adequate to
ensure that workers comply with their reporting obligation. In order to increase compliance, the
VWA should explore the scope for sharing information with superannuation funds and private
insurers.
5.216 In summary, I propose that section 96 be amended to reflect the following:
workers may access additional insured benefits for loss of earnings or disability up to 100%
of their pre-injury actual earnings;
if workers access additional insured benefits for loss of earnings or disability beyond 100%
of their pre-injury actual earnings, the VWA may offset the excess against the workers weekly
benefits;
the scope of section 96 should be broadened to include all disability pensions, including
pensions paid out of income protection insurance, irrespective of whether they are related
to the injury employment;
offsets are not to apply where a worker accesses the workers superannuation fund in the
form of a pension or a lump sum payment; and
offsets are not to apply where a worker receives a redundancy, severance or termination
package.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 214
148 Superannuation Legislation Amendment (Simplification) Act 2007 (Cth).
5.217 I consider that the reform of section 96 will benefit injured workers while also protecting the
financial viability of the scheme. It will allow workers to access assets without penalty, and
to access other sources of disability insurance, as long as these do not exceed a workers
pre-injury earnings. At the same time, my recommendations will protect the financial viability of
the scheme by ensuring that all sources of insurance-based disability payments are considered
in the calculation of weekly benefits. My recommendations will also bring the workers
compensation scheme up to date with superannuation reforms ensuring that injured workers
can participate equally in the new opportunities being provided by those reforms.
THE METHOD OF CALCULATING ENTITLEMENT PERIODS
5.218 The current weekly benefits scheme is based on entitlement periods.
5.219 The first entitlement period is an aggregate period (whether consecutive or not) not exceeding
13 weeks, in respect of which a weekly payment has been paid or is payable to the worker.
149
5.220 The second entitlement period is an aggregate period (whether consecutive or not) of 130
weeks (including the first entitlement period), in respect of which a weekly payment has been
paid or is payable to the worker.
150
5.221 For the purposes of calculating entitlement periods, the AC Act does not distinguish between
weekly payments paid or payable in the case of total incapacity and those paid or payable in the
case of partial incapacity.
5.222 The absence of distinction makes sense, given that income replacement is paid on a weekly
basis and it is only the amount of benefit payable that differs depending on the extent of the
workers incapacity.
5.223 The AC Act does not define what constitutes a week; nor is that term defined in the
Interpretation of Legislation Act 1984. The Oxford English Dictionary defines a week as the
period of seven days reckoned usually from midnight on Saturday; and the Macquarie
Dictionary defines a week as a period of seven successive days, commonly understood as
beginning . . . with Sunday . . ..
5.224 The VWA Claims Manual currently instructs claims agents to calculate entitlement periods as
follows:
151
A week count as opposed to a day count is required when calculating a workers entitlement
to weekly payments. For the purposes of counting weeks, a week is deemed to be the
period Sunday to Saturday.
Each week in which weekly payments are paid or payable, whether consecutive or not,
should be counted as one week for the purpose of calculating 13 weeks, 26 weeks, 104
weeks and 130 weeks.
Example: A worker ceases work on a Thursday and remains incapacitated throughout the next
week, and returns to full pre-injury duties the following Tuesday.
Week 1 Thursday and Friday
Week 2 Monday to Friday
Week 3 Monday
For the purposes of calculating the entitlement period, the worker has received 3 weeks of
weekly benefits.
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149 AC Act, s 93CA(1).
150 AC Act, s 93CB(1).
151 Claims Manual 9.4.1: Counting weekly payments.
5.225 If days of incapacity are counted, unintended consequences may follow, as demonstrated by
the following example:
Prior to their injury, two workers performed duties for 25 hours a week, five hours a day.
Following their injury, both workers can only work 20 hours a week at the same hourly rate as
before the injury. Worker A works 20 hours over five days. Worker B works 20 hours over four
days and does not work one particular day each week.
5.226 In the case of worker A, the second entitlement period would expire after 130 weeks. In the
case of worker B, if calculated by reference to days of incapacity, the second entitlement period
would not expire until 650 weeks had elapsed.
5.227 As demonstrated in the example, if entitlement periods were calculated by reference to days
rather than weeks of incapacity, workers could be entitled to 650 individual days of payments.
It would also mean that, in the example referred to in the Claims Manual (see paragraph 5.225
above), the worker would only have accessed eight days rather than three weeks of payments.
Stakeholder views
5.228 The VTHC
152
and the AWU
153
consider that individual days of incapacity rather than weeks of
payments should be counted. The AWU submits that the current method is particularly unfair on
injured workers who have a series of brief absences early in their claim.
154
The VTHC submits
that
Under the VWAs present policy . . . a worker who is incapacitated for one day of work per
week over a two year period will be deemed to have accessed 104 weeks worth of weekly
payments, despite only receiving payments effectively for a fraction of this period.
Such a method unfairly discriminates against those workers who have a partial incapacity for
work only.
155
5.229 The RCSA
. . . opposes [VTHCs] approach on the grounds that it unfairly penalises the employer in terms
of calculation of SCEs and premium increase, potentially militates against a return to work
strategy and impacts financially upon the WorkCover regime as a whole.
156
Maintain the status quo
5.230 Although the drafting of the legislation is far from clear, the current scheme is based on
calculating entitlement periods by reference to weeks for which weekly payments have been
paid or are payable, regardless of the extent of the workers incapacity during a particular week.
5.231 Because calculation by days of incapacity rather than weeks of payments would have the effect
of extending entitlement to weekly payments over a longer period (in some cases over a
significantly longer period), that form of calculation may discourage return to work.
5.232 I therefore consider that the current method of calculating entitlement periods should be
maintained.
5.233 A worker with a partial incapacity is entitled to ongoing weekly payments after 130 weeks
where the worker has returned to work to some extent,
157
which lessens any potential
disadvantage associated with the current approach to calculating weeks of entitlement.
5.234 Making provision for the payment of weekly payments to workers who require surgery
after 130 weeks
158
should also lessen any potential disadvantage.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 216
152 VTHC, Submission, 2 May 2008, p 30.
153 AWU, Submission, 21 January 2008, p 2.
154 AWU, Submission, 21 January 2008, p 2.
155 VTHC, Submission, 2 May 2008, p 30.
156 RCSA, Submission, 2 May 2008, p 9.
157 AC Act, s 93CD. See paragraphs 5.905.109 above.
158 See paragraphs 5.1105.116 above.
REDEMPTION OF WEEKLY BENEFITS
5.235 A redemption of weekly benefits involves the payment of a lump sum to settle all future weekly
benefit entitlements. The AC Act provides limited scope for the redemption of weekly benefits
through a process described as voluntary settlements.
159
The limited scope for redemption is
said to be consistent with the long-term pension-based nature of the scheme.
5.236 There are concerns that redemption of weekly benefits can encourage behaviour contrary to the
objectives of the scheme, including a failure to engage in rehabilitation or return to work and an
exaggeration of incapacity. A lump sum may also be dissipated, causing the worker to resort to
social security payments for income support.
5.237 Despite those concerns, redemptions can be an expedient way to finalise claims enabling
workers to move on with their lives following injury.
5.238 Access to redemptions in Victoria has varied over time. Voluntary settlements are currently only
available to:
160
workers injured between 12 November 1997 and 19 October 1999 (who do not have access
to common law), who have no current work capacity, which is likely to continue indefinitely,
and have an impairment of 30% or more;
workers injured before 1 December 1992, who were in receipt of weekly benefits as at
3 September 2001 and who submitted an expression of interest for a settlement; and
workers previously covered by older provisions.
5.239 In the last year, five
161
workers accessed a voluntary settlement under the Victorian scheme.
5.240 There is some attraction in the argument that facilitating access to a voluntary settlement would
reduce the schemes long-term liabilities and thus improve its financial position. However, that
consideration must be balanced against the overarching objective of encouraging return to work
by all injured workers who are able to do so, and providing income support for workers whose
injury prevents them from working. Expanding access to lump sum payments would undermine
that objective.
5.241 For these reasons I recommend that access to voluntary settlements not be broadened.
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159 AC Act, Part IV, Division 3A.
160 AC Act, ss 115119.
161 Source: VWA.
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TREATMENT
EXPENSES
Timeframes for determining liability
Notice of termination of claim
Reasonable costs
Prior approval of expenses
Fee setting
Gap payments
Duration of benefits
Coordinated care programs
Ordinary daily living costs
Regulation of medical and
like providers
6.1. An injured worker is entitled to compensation for the reasonable costs of medical services, and
other services, such as physiotherapy, occupational rehabilitation, and personal services, such
as attendant care, where those services are received because of the injury. The services are
generally known as medical and like services.
6.2. In this chapter, I:
examine the claims process and, in particular, the processes for determining liability for the
cost of medical and like services and termination of a claim for medical and like services;
discuss issues associated with limits on the extent and duration of medical and like services,
including the determination of the reasonable costs of services, the prior approval of
services (that is, determining whether a cost is reasonable before the service is provided),
the setting of fees for services and gap payments;
examine coordinated care programs and contributions for ordinary daily living costs for certain
injured workers; and
consider regulatory issues related to providers of medical and like services.
The current scheme
6.3. In addition to other compensation such as impairment benefits and weekly benefits, injured
workers are entitled to the reasonable costs of medical and like services incurred as a result
of a work-related injury.
6.4. As the Productivity Commissions 2004 Inquiry into the national workers compensation and
occupational health and safety framework identified, where injury prevention fails, the
associated human and economic costs must be minimised through injury management.
1
6.5. The AC Act provides that, if a worker suffers a compensable injury, the VWA (or a self-insurer,
or an employer in respect of the employers excess) is liable to pay as compensation the
reasonable costs of any medical and like services received because of the injury.
2
The
compensation payable includes the reasonable costs of:
road accident rescue services;
medical services, including certain allied health services (for example, physiotherapy) and
other approved health services on the request of a medical practitioner;
hospital services;
nursing services;
personal and household services (for example, attendant care and transportation costs);
occupational rehabilitation services (for example, rehabilitation and workplace assessments,
preparation of return to work plans and modifications to workstations to facilitate return to
work);
ambulance services;
family counselling services,
3
if the injury is severe or the worker has died; and
burial or cremation services, where death results from the injury.
6.6. In addition, the AC Act was recently amended
4
to provide that, where a worker, as a result of
his or her injury, reasonably requires a car or a home to be modified, the VWA is liable to pay
the reasonable costs of modifying the car or home; or
if the car is not capable of being modified, a reasonable amount by way of contribution to the
purchase cost of a suitably modified car selected by the VWA; or
if the home is not capable of being reasonably modified, a reasonable amount by way of
contribution to the purchase of a semi-detached portable unit or to the costs of relocating the
worker to another home that is suitable for the worker or that is capable of being reasonably
modified.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 220
1 Productivity Commission, National Workers Compensation and Occupational Health and Safety
Frameworks (Inquiry Report No 27), 16 March 2004, p 189.
2 AC Act, s 99(1).
3 AC Act, s 99(aa): up to a prescribed (indexed) limit, currently $5,160.
4 AC Act, s 99(5A)-(5H) inserted by State Taxation and Accident Compensation Amendment Act 2007,
Part 4.
6.7. Injured workers have the right to receive medical and like services from a provider of the
workers choice: although an employer, the VWA or a self-insurer can offer or provide a health
service for the workers use, the choice of provider is ultimately a matter for the worker.
5
6.8. Compensation for the reasonable costs of medical and like services ceases 52 weeks after the
entitlement arises,
6
or 52 weeks after the worker stops receiving weekly benefits,
7
unless:
(a) the worker has returned to work but:
(i) could not remain at work if a [medical or like] service was not provided; or
(ii) surgery is required for the worker; or
(iii) the worker has a serious injury . . . ; or
(b) the worker requires modification of a prosthesis; or
(c) the [medical or like] service is essential to ensuring that the workers health or ability to
undertake the necessary activities of daily living does not significantly deteriorate.
8
6.9. Approximately 35% of claims under the AC Act are claims for medical and like benefits only
and approximately 25,000 workers receive some form of medical and like service each year.
9
6.10. $1.427 billion in scheme liabilities
10
is associated with the payment of medical and like
expenses, as follows:
$219 million in hospitalisation costs;
$483 million in paramedical services (such as physiotherapy and psychology);
$112 million in medical reports;
$297 million in medical practitioner fees associated with the treatment of injured workers;
$270 million in personal and household services (such as home help and attendant care); and
$46 million in occupational rehabilitation.
11
6.11. The VWAs experience has been that, by themselves, tighter controls and amendments to the
fee schedules have not provided an adequate means of limiting expenditure growth. Rather,
influencing the use of medical and like services through promoting evidence-based practice
and peer reviews, in conjunction with fee schedule changes, has been more effective.
6.12. The essential principles underlying the provision of medical and like services have previously
been explored in national forums. For example, the HWCAs Promoting Excellence report
in 1997 sets out the following principles for the provision of medical services in workers
compensation schemes:
12
providing access to needed care which is of high quality;
providing care at a reasonable cost; and
providing treatment which is focused on return to work.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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5 AC Act, s 99(3). The provision of occupational rehabilitation services is an exception to this principle:
ss 99(3A)-(3D) of the AC Act provide that a worker has a choice from (at least) three approved
providers nominated by the VWA, employer or self-insurer.
6 AC Act, s 99(12).
7 AC Act, s 99(11).
8 AC Act, s 99(14).
9 Source: advice from the Reviews independent actuaries.
10 The term scheme liabilities refers to the present capital cost, as estimated by actuaries, of meeting
all claims (in this case, for medical and like benefits) as those claims are made and fall due.
11 Source: VWA.
12 Heads of Workers Compensation Authorities, Promoting Excellence: National consistency in Australian
workers compensation, Final Report to the Labour Ministers Council, May 1997, p 29.
Stakeholder views
6.13. The VTHC contends that decisions about liability should be made more speedily, so that the
injured workers chances of rehabilitation can be optimised. The VTHC submits that the fact that
there are no legislated timeframes for determination of medical and like claims
. . . can result in inordinate delays to requests for reasonable and necessary medical treatment
for injured workers.
These delays can jeopardise a workers recovery from injury and significantly delay
rehabilitation and return to work processes. This is not in the interests of the injured worker,
the employer or the scheme . ..
13
6.14. However, the Chiropractic and Osteopathic College of Australasia counsels caution in amending
the AC Act to introduce legislated timeframes for the determination of medical and like claims,
including notice periods for termination, because many workers receive care for injuries that
can be complex and do not fit an algorithm or formulae of care.
14
6.15. Some stakeholders have expressed the view that there should be no time limit on the duration
of compensation for medical and like services, and that benefits for which those services
should be paid for as long as the treatment is reasonably required by an injured worker.
6.16. In particular, AMIEU submits:
The AC Act is social legislation to ensure that injured workers are assisted with rehabilitation.
. . .
The only grounds for decisions, about medical and like expenses is whether the
treatment/facilities are appropriate for the injury and their reasonableness.
15
6.17. VECCI considers that duration should not be the only basis on which medical and like services
are terminated and submits that
. . . the Act be amended to allow termination or refusal of medical and like payments on the
grounds that no measurable improvement is resulting from the treatment. Further grounds
would be that there is no medical evidence that the treatment or service has any likelihood
of producing a medical improvement.
16
6.18. The fee schedule for medical and like services has been raised as a concern. The APA submits
that the rationale for the scheduled fee offered by the VWA is unexplained, in view of the
independently established market rate, and supports a transparent process for determining
reasonable costs.
17
6.19. The AMA has a similar view that
. . . no robust and transparent process currently exists for the setting of the level of such
rebates. . . . the level of rebate is unacceptably low, and that low rebates have the effect
of providing inferior health outcomes for workers.
18
6.20. Ai Group has highlighted the critical role of health providers in the scheme and suggests
Making higher payments to treating practitioners who participate in specific training aimed
at increasing their knowledge and skills in relation to work-related injury schemes; and/or
Making payments to doctors for participating in conference calls, meetings or on-site visits
which are aimed at facilitating a more effective return to work.
19
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 222
13 VTHC, Submission, 2 May 2008, p 33.
14 Chiropractic and Osteopathic College of Australasia, Submission, 2 May 2008, p 1.
15 AMEIU, Submission, 2 May 2008, p 18.
16 VECCI, Submission, April 2008, p 54.
17 APA, Submission 2 May 2008, p 3.
18 AMA, Submission, 8 February 2008, p 2.
19 Ai Group, Submission, 2 May 2008, p 55.
6.21. Opportunities for greater alignment with other schemes have been identified by stakeholders.
Both the VBIRA
20
and the Compensation Law Bar Association
21
have noted that, as a matter
of equity, there should be parity between the TAC and Workcover schemes.
6.22. The regulation of health providers has raised significant comment. The VACC,
22
VECCI
23
and
NewCare
24
have expressed the view that additional regulatory powers should be available to
ensure that health service providers deliver the appropriate quality and level of service.
TIMEFRAMES FOR DETERMINING LIABILITY
6.23. The AC Act requires that a claim for compensation for medical and like services be lodged
within six months after the date of the relevant service.
25
The provision appears to be designed
to encourage workers to submit invoices for medical and like services relatively promptly.
6.24. The AC Act prescribes no time within which the VWA and its claims agents must make a
decision on liability on a claim for medical and like services. Current VWA policy requires those
decisions to be made within 60 days.
26
The policy is not binding on self-insurers.
6.25. Of the 8000 or so claims for medical and like services submitted each year, liability is accepted
in 73% of cases within the 60-day time limit currently prescribed under VWA policy.
27
Stakeholder views
6.26. There is broad support for the introduction of legislated timeframes for determining claims for
medical and like services.
6.27. The VTHC submits that
There are currently no legislated time frames for determinations of issues in relation to medical
and like claims. It is our experience that this can result in inordinate delays to requests for
reasonable and necessary medical treatment for injured workers.
. . .
. . . we believe that a timeframe should be introduced of 28 days for determining medical and
like claims. This would be consistent with the time frames presently contained in the AC Act in
relation to claims for weekly payments.
28
6.28. The VTHC,
29
the AMIEU
30
and the Compensation Law Bar Association
31
recommend that claims
for medical and like services be determined within 28 days, rather than the 60 days stipulated in
current VWA policy.
6.29. The SIAV does not oppose a requirement that liability be determined within 60 days.
32
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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20 VBIRA, Submission, 2 May 2008, p 2.
21 Compensation Law Bar Association, Submission, 2 May 2008, p 16.
22 VACC, Submission, 2 May 2008, p 11.
23 VECCI, Submission, 2 May 2008, p 56.
24 NewCare Group, Submission, 2 May 2008, p 4.
25 AC Act, s 103(7)(d).
26 VWA, Claims Manual, paragraph 1.6.2, http://www.worksafe.vic.gov.au/wps/wcm/connect/WorkSafe/
Home/Injury+and+Claims/Online+Claims+Manual/.
27 Source: VWA.
28 VTHC, Submission, 2 May 2008, p 33.
29 VTHC, Submission, 2 May 2008, p 33.
30 AMIEU, Submission, 2 May 2008, p 17.
31 Compensation Law Bar Association, Submission, 2 May 2008, p 16.
32 SIAV, Submission, May 2008, p 17.
6.30. VECCI supports legislated timeframes for determination of medical and like claims, but submits
that the time period should commence from the date when all requested materials are
provided.
33
6.31. I believe that the AC Act should stipulate the time within which liability in response to claims for
medical and like services must be determined in cases where provisional liability
34
is not
applied.
6.32. The prospects for an injured worker returning to work are improved if any necessary treatment
is commenced without delay; and, for treatment to commence, there needs to be certainty
about liability for the cost of treatment.
6.33. Apart from giving certainty to all parties, a legislated timeline will ensure that the same time
limits apply to the claims of all injured workers, whether they are covered by the scheme or
by self-insurers.
6.34. On average, claims for weekly benefits are determined within 14 days and claims for medical
and like expenses are determined within 26 days.
35
6.35. It may be that claims for medical and like expenses are more complex than claims for weekly
benefits; or it may be that the time currently available (60 days) encourages a longer
determination period.
6.36. I am not convinced that the majority of claims for medical and like services are more complex
than claims for weekly benefits.
6.37. Consequently, I recommend that the time for deciding claims for medical and like services
should be fixed in line with the time for determining weekly benefits claims (28 days).
NOTICE OF TERMINATION OF CLAIM
6.38. The AC Act does not prescribe the procedure to be followed for terminating entitlement to
compensation for medical and like services, including the period of notice that must be given
to the worker before terminating entitlement. This is consistent with other Australian schemes.
6.39. However, current VWA policy requires that 28 days notice must be given.
36
6.40. Section 114 of the AC Act prescribes a notice period for the termination, or alteration, of weekly
benefits. That period is 14 days or 28 days, depending on the length of time for which the
worker has received weekly payments,
37
or 13 weeks if the termination is solely on the grounds
of the expiry of the second entitlement period (at 130 weeks).
38
In some instances, no notice is
required.
39
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33 VECCI, Submission, 2 May 2008, p 53.
34 See chapter 3 Ensuring timely access to benefits and support, paragraphs 3.128-3.150.
35 Source: VWA.
36 VWA, Claims Manual, section 10.6.1 Termination of Medical and Like Services,
http://www1.worksafe.vic.gov.au/vwa/claimsmanual/default.htm.
37 14 days notice is required where the worker has received weekly payments for between 12 weeks
and one year: AC Act, s 114(13)(a). 28 days notice is required where the worker has received
payments for more than one year: AC Act, s 114(13)(b).
38 AC Act, s 114(13)(c). This applies to claims lodged after 1 January 2005.
39 No notice is required where the worker has returned to work, has received less than 12 weeks of
weekly benefits, or is no longer entitled to receive payments pursuant to the AC Act: ss 93E, 93EA,
93F, 96, 97(2) or 97(7). No notice is required where the worker has obtained payments fraudulently:
AC Act, s 114(6).
6.41. Statistics available from the VWA indicate that, in 2007, 8563 disputes were lodged in relation
to medical and like claims and expenses. The median length of time between the ACCS
receiving a request for conciliation and the outcome of the conciliation process is 53 days;
40
the
time taken is the same for disputes over medical and like compensation claims, and disputes
over payment of medical and like expenses.
Stakeholder views
6.42. The VTHC submits that a termination period of at least 28 days should be stipulated in the AC
Act, with the reasons for termination provided in writing.
41
VECCI submits that the notice period
should be 13 weeks, for consistency with the notice of termination of weekly benefits at the
expiry of 130 weeks.
42
6.43. The VTHC raises a concern that, for some workers, the cessation of treatment pending review
of a termination decision at the ACCS disrupts necessary treatment and may result in
regression in the workers condition.
43
6.44. Prescribing the procedure to be followed in terminating a claim for medical and like expenses
would ensure a common experience for workers and providers, whether the employer is
insured or a self-insurer. In my view, 28 days notice would provide sufficient time in most cases
for workers to consider their options, including any rights to seek review of the termination
decision.
REASONABLE COSTS
6.45. Under the AC Act, compensation for medical and like services is limited to the payment of
reasonable costs. Most other Australian jurisdictions use a similar concept of reasonableness
as the basis for defining the extent of entitlement to medical and like expenses. However, the
total amount paid that can be paid, or the total period for which expenses can be paid, differs
between jurisdictions.
6.46. In determining what costs are reasonable, the AC Act
44
obliges the VWA to consider the
following:
an amount that is determined by the VWA as reasonable in relation to the service;
an amount that does not exceed the amount (if any) specified in, or an amount determined in
accordance with a method specified in, an Order of the Governor in Council published in the
Government Gazette;
45
and
an amount that is determined by the VWA as reasonable having regard to:
the service actually provided;
its necessity; and
any guidelines issued by the VWA in respect of that service.
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40 Source: VWA.
41 VTHC, Submission, 2 May 2008, p 33.
42 VECCI, Submission, 2 May 2008, p 53.
43 VTHC, Submission, 8 February 2008, p 2.
44 AC Act, s 99(2).
45 That maximum amount, in the case of a service, must not be less than the amount of the fee specified
in a table within the meaning of the Health Insurance Act 1973 (Cth) applicable in respect of a service
of that kind provided in Victoria.
6.47. The VWA, at least in recent times, has not used the power in section 99(2)(b) to gazette fees.
Instead, the VWA indicates that it will pay the reasonable costs of some medical and like
services up to the maximum amount detailed in various fee schedules available on the VWAs
website.
46
The schedules published by the VWA list maximum fees for most medical and like
services (such as physiotherapy) that can be paid under the AC Act.
6.48. In addition, the VWA has policies (available on the VWAs website) to indicate how it will apply
the AC Act when making decisions on whether to pay the costs of certain services such as
home exercise equipment or elective surgery. The policies are said to have been developed in
line with the AC Act on the basis of the best available clinical evidence and recognised clinical
practice.
47
6.49. The reasonableness of medical and like services has been tested in the courts a number of
times, with the result that:
the costs of medical treatment are not reasonable if there is no prospect of the treatment
being successful in curing or alleviating the state of the injury;
48
and
in determining whether medical or like costs are reasonable under section 99(1), the VWA
must have regard to whether both the cost of the service and the service itself are
reasonable.
49
6.50. In Russell v TAC,
50
Harper J refused to interfere with VCATs finding that the costs of continuing
treatment by an osteopath and a psychologist should not be regarded as reasonable, within the
meaning of s 60 of the TA Act (which is comparable to s 99 of the AC Act). Harper J observed:
51
In assessing what expenditure is reasonable, one must . . . consider the necessity of the
service upon which the expenditure is proposed to be effected. In this context the word
necessity is, I think, of some importance. That word is somewhat flexible in its scope. It does
not, as I apprehend it, include only services which are vital for the continued reasonable
existence of the victim as a functioning member of the community. What is necessary would
include treatment that is of a much lower urgency than that. On the other hand, when one
reaches the other point of the scale, one must presumably exclude as not being necessary
treatment which is of merely temporary palliative effect, especially where that effect is not
measurable.
6.51. The largest proportion of referrals to conciliation relates to medical and like services. In
2006/2007, for instance, 37.5% of all referrals to the ACCS related to disputes about medical
and like expenses.
52
Although the high proportion may reflect the high number of decisions
made about medical and like expenses, it appears that most of the disputes relate to denial
of specific medical and like expenses.
6.52. Greater clarity about the amount that is determined by the VWA as reasonable should help
to reduce the number of disputes. It appears to me that the required clarity could be achieved
through the making of guidelines, as is already contemplated by the AC Act,
53
and that no
legislative change is required.
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46 For example, the fee schedule that applies to physiotherapy services is available in Information for
Physiotherapists at http://www.workcover.vic.gov.au/wps/wcm/resources/file/eb05634ef778f5e/
information_physiotherapist.pdf
47 WorkSafe Victoria, Reasonable Medical and Like Services, viewed 10 July 2008.
48 Matthews v Campbell & Sons (1955) 3 WCBD (Vic) 112; Brous v Port Phillip Mills (1968) 4 WCBD (Vic).
49 Re VWA (Vulcan Australia Ltd) and Joyce (1993) 6 VAR 81 at 89. (VCAT was considering the
predecessor to s 99(2)(c) of the AC Act.)
50 [2004] VSC 442.
51 [2004] VSC 442 at [10].
52 ACCS, Annual Report 2006/2007, p 3.
53 AC Act, s 99(2)(c)(iii).
6.53. The VWA currently provides a range of policies designed for healthcare providers, agents and
workers about the provision of the medical and like services that the VWA reimburses.
However, the policies are available to injured workers through various sources, including the
VWAs website and its Claims Manual, and the information provided in each source differs and
is difficult to navigate.
6.54. Providing consistent information (in the form of guidelines) on the determination of reasonable
costs, being information that is easily available to each party, would provide greater clarity and
could reduce disputes.
6.55. In drafting guidelines, I recommend that the VWA take into account the judicial observations
on the provisions (and their TA Act equivalent), such as the observations in Russell, quoted in
paragraph 6.50 above.
PRIOR APPROVAL OF EXPENSES
6.56. Except in limited circumstances,
54
there is no requirement for prior approval of medical and like
expenses. However, in practice, service providers and workers often request prior approval in
order to avoid a dispute as to whether a service and the associated fees are not reasonable
and therefore compensable after the service has been delivered.
6.57. The VWAs online policy recommends that injured workers or service providers seek prior
written approval for the payment of certain procedures or services such as hearing aids, home
exercise equipment or implantable pain therapies.
55
6.58. The Claims Manual instructs the VWAs claims agents to handle requests for prior approval as
follows:
if there is enough information on file to determine liability:
the decision must be made as soon as possible; and
the agent must inform the worker and service provider of the decision, in writing.
if there is not enough information on file:
the agent must inform the worker and service provider, within 14 days of receiving the
request, that the decision on liability is pending; and
the agent must inform the worker and service provider of the decision in writing, within
28 days of receiving the request.
6.59. Specific provision is made for the prior approval of elective surgery. The VWAs online policy
indicates that a request for prior approval of elective surgery will be acknowledged within five
days, and a decision made within 10 days of receiving all required information.
6.60. Any delays in responding to requests for prior approval will lead to delays in providing the service.
Delays can affect a workers recovery, given that the provision of medical and rehabilitation
services as soon as possible after injury is strongly correlated with early return to work.
6.61. The New Zealand accident compensation scheme generally requires prior approval of
expenditure, except in certain cases (such as where the treatment is acute or of a type
specified in regulations).
56
No timeframes for decision making are prescribed. Rather, the
NZ Act relies on a general provision that requires the NZACC to make every decision on a
claim on reasonable grounds, and in a timely manner.
57
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54 AC Act, ss 99(2B) and (2D) stipulate that prior approval is required where services are provided or
carried out outside Australia. This process is subject to some qualification prior approval is not
required where the service had to be provided immediately and it was not reasonably practicable
to obtain approval beforehand. Section 99(2C) specifies that for the purposes of providing that prior
approval, the VWA must have regard to the matters normally required when considering whether
a cost is reasonable that is, the matters specified in ss 99 (2)(c) and (12)-(14).
55 WorkSafe Victoria, Reasonable Medical and Like Services, viewed 10 July 2008.
56 Injury Prevention, Rehabilitation, and Compensation Act 2001 (NZ), schedule 1, part 1, cl 4.
57 Injury Prevention, Rehabilitation, and Compensation Act 2001 (NZ), s 54.
Stakeholder views
6.62. Some stakeholders support the requirement of prior approval for medical and like services.
Ai Group considers it important that the AC Act or another legislative instrument address the
process for prior approval.
58
CFA also recommends a prior approval process.
59
The APA
supports a prior approval process, provided that the mechanisms for establishing the criteria
do not usurp proper clinical decision making practices.
60
6.63. However, others such as VECCI and the SIAV oppose such a provision. VECCI considers that
the problem is administrative rather than legislative. It considers that the AC Act is not an
impediment to quick approvals.
61
6.64. The SIAV submits that the current VWA policy requirement that decisions on prior approval
be made within a reasonable period should be maintained.
62
6.65. The VTHC submits that treating practitioners should determine what treatment and services
are required for an injured worker, therefore approval of the VWA is not necessary.
63
6.66. The VWA policies on prior approval appear inconsistent; there should be clarity about which
services require prior approval, and which do not; and the VWA should be clear and
accountable in responding to requests for prior approval.
6.67. On the basis of my consultation with stakeholders, I believe that some services would benefit
from prior approval, in particular those services and procedures set out in the VWAs online
policies. Prior approval would assist in the consistent management of service provision.
However, I believe that prior approval is not necessary for the large majority of medical and like
services (for example, physiotherapy).
6.68. As medical technology continues to develop, I expect that the VWA will increasingly be called
on to consider whether the cost of additional medical and like services can be considered a
reasonable cost.
6.69. I anticipate that the VWA may need specialist advice before it can determine whether the cost
of a new service is a reasonable cost. The process by which decisions about those services are
made should be clear and transparent.
6.70. One option would be for the AC Act to authorise the making of regulations that prescribe the
services that require prior approval, creating consistency and certainty for providers about
particular services. However, this approach would be relatively inflexible, as new services which
are considered to need prior approval would require amendments to the regulations.
6.71. A discretionary power permitting the VWA to require that approval be sought prior to the
provision of services determined by the VWA could provide equal certainty for stakeholders and
would enable the VWA to respond to changing technologies more rapidly.
6.72. Such a power could be accompanied by a requirement to publish guidelines detailing the
current services for which prior approval is required together with the decision-making process
to be followed. (Section 99(2)(c)(iii) currently provides for the issuing of guidelines on the
reasonable cost of services.)
6.73. The approach outlined in paragraphs 6.71 and 6.72 above would allow the list of services to
be changed from time to time to reflect changes in treatment practice, while ensuring the
necessary transparency and accountability.
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58 Ai Group, Submission, 1 May 2008, p 53.
59 CFA, Submission, 2 May 2008, p 3.
60 APA, Submission, 2 May 2008, p 3.
61 VECCI, Submission, 2 May 2008, p 55.
62 SIAV, Submission, 2 May 2008, p 18.
63 VTHC, Submission, 2 May 2008, p 34.
6.74. To support administrative alignment between the VWA and TAC, I recommend that the TAC
be consulted on the services for which prior approval is to be required.
FEE SETTING
6.75. On the issue of the setting of fees for medical and like services, the HWCA 1997 report
Promoting Excellence recommended that jurisdictions:
enact legislative provisions giving the power to establish service and fee schedules;
set limits on the fees for traditional items which are equivalent to that which a private
patient would pay for the same service item; and
incorporate a supplementary service list for non-traditional services useful for workers
compensation purposes which attract an appropriate hourly fee.
64
6.76. The AC Acts provisions are broadly in line with those recommendations.
6.77. In 1990, a Compensable Patients Fees Review Committee chaired by Dr Ian Siggins was
established in response to continuing disputes over fees between the then WorkCare and
medical groups, including the AMA.
65
6.78. Following the Review Committees report, the Government agreed to pay medical fees from
1 January 1991 based on the then Commonwealth Medical Benefits Schedule (the MBS), with
a loading of 24%49%.
66
6.79. The loadings were included for two reasons: first, the treatment of workers compensation
cases imposed additional costs on providers; and, secondly, the MBS permitted balance
billing.
67
(Balance billing refers to the practice where the patient pays the difference between
the scheduled fee and the fee charged by the doctor.)
6.80. The VWA-approved medical items are normally indexed annually, although they are not subject
to indexation under the AC Act.
68
The indexation methodology is identical to that used by the
TAC.
6.81. I understand there have been no independent reviews of the schedule of fees since 1990.
The fees for medical and like services that are not covered in the MBS, such as fees for
physiotherapy services, are also normally indexed. There have been variations to the schedule
of fees for some allied health provider groups over time, but no wholesale independent review
has been conducted.
6.82. No Australian workers compensation scheme provides for independent fee setting. In most
jurisdictions, fees are set in consultation with professional bodies by the scheme administrator
(Victoria, New South Wales and the Commonwealth), or through principal legislation
(Queensland) or subordinate legislation (South Australia and Western Australia). Fee schedules
vary across jurisdictions.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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64 HWCA, Promoting Excellence: National consistency in Australian workers compensation, Final Report
to the Labour Ministers Council, May 1997, pp 2930.
65 W E Upjohn Institute for Employment Research, Victorian Workers Compensation System: Review and
analysis, 29 August 1997, p 526.
66 W E Upjohn Institute for Employment Research, Victorian Workers Compensation System: Review and
analysis, 29 August 1997, p 526.
67 W E Upjohn Institute for Employment Research, Victorian Workers Compensation System: Review and
analysis, 29 August 1997, p 526.
68 Section 100(2B)(d) of the AC Act provides that any amount of dollars referred to in s 99 is subject to
the indexation formulae prescribed in s 100(2A). The VWAs schedule of recommended fees does not
answer that description: it does not contain any amount of dollars referred to in . . . section 99.
6.83. The second reading speech on the amendments that introduced section 99(2)(b) into the
AC Act, authorising the gazettal of medical and like fees, stated:
69
[T]he bill provides that any . . . maximum level cannot be less than any fee for the relevant kind
of service specified in a table within the meaning of the Commonwealth Health Insurance Act
1973. This will permit the reasonable costs for these services to be limited to an insurable
amount that reflects market realities while encouraging competition among providers in the
provision of medical and like services.
Stakeholder views
6.84. A number of submissions received by the Review relate the VWAs setting of fees for medical
and like services.
6.85. The APA submits that the rationale for the scheduled fee offered by the VWA is unexplained, in
view of the independently established market rate. The APA supports a transparent process for
determining reasonable costs.
70
6.86. The APA also submits
There must be a transparent process for determining reasonable costs. This issue has been a
longstanding source of frustration, friction and disillusionment between WorkSafe and peak
bodies representing highly qualified professionals.
71
6.87. The AMA submits that there is
. . . no robust and transparent process currently exists for the setting of the level of such
rebates.
72
6.88. The AMA also suggests that an independent body should determine rebate levels for medical
and like expenses and in its 2005 Victorian survey:
. . . only 8% of respondents indicated that the current VWA rebates to workers adequately
recognise the additional time and effort required to treat such patients. 73% of respondents
indicated that higher rebates to workers were more appropriate. 76% of respondents
highlighted that the current rate of rebate increase is not keeping pace with practice overhead
costs.
73
6.89. The AMA expresses its concern that
. . . should rebates continue to be paid at current rates, a diminishing number of doctors will
be prepared to treat injured workers.
74
6.90. Similarly, a submission from Dr Anthony Buzzard noted that there is evidence that an increasing
number of doctors are declining to treat WorkCover patients
. . . because of the considerable workload involved and because of the relatively poor
remuneration.
75
6.91. The Melbourne Audiology Centre
76
raises concerns about the cost of supplying hearing aids.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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69 Victoria Legislative Assembly Debates, 14 November 1996, p 1228: Accident Compensation
(Further Amendment) Bill, second reading.
70 APA, Submission, 2 May 2008, p 3.
71 APA, Submission, 2 May 2008, p 3.
72 AMA, Submission, 8 February 2008, p 2.
73 AMA, Submission, 8 February 2008, p 2.
74 AMA, Submission, 8 February 2008, p 3.
75 Anthony Buzzard, Submission, 8 January 2008, p 2.
76 Melbourne Audiology Centre, Submission, 2 May 2008, p 1.
6.92. Other stakeholders
77
submit that the reimbursement rate for travel at 28 cents per kilometre
78
is too low and should be adjusted to reflect changing costs.
6.93. I consider that an independent review, covering both medical and non-medical fees payable
under section 99 of the AC Act, should be conducted as soon as possible. It should provide
an opportunity for input from bodies representing providers of medical and like services.
6.94. Consistent with my recommendations in Chapter 4 Supporting workers to get back to work
after injury,
79
the independent review should also consider how to provide appropriate financial
incentives for service providers to treat injured workers in a timely and appropriate manner and
support return to work, in order to improve rehabilitation and return to work outcomes. It should
consider market rates for services, and the impact of its recommendations on the financial
viability of the scheme.
6.95. In relation to travel reimbursements, the VWA conducts an annual review of the rate of
reimbursement. The VWA engaged NRMA in 2006 to review the impact of petrol prices
to determine whether the reimbursement rate was reasonable. The rate is currently under
review again.
GAP PAYMENTS
6.96. In some instances, a healthcare provider requires an injured worker to pay the gap between
the cost of the healthcare providers services and the VWAs payment in accordance with its fee
schedule.
6.97. The VWAs current position is that, if a provider wishes to charge more than the scheduled rate,
the provider should advise workers that the VWA will not reimburse workers for the additional
cost. The VWAs guide for healthcare providers states:
Whilst you are entitled to charge any amount for your service, the Agent will only pay the
reasonable cost as specified in the WorkSafe fee schedule. You should advise the injured
worker that any additional costs cannot be reimbursed by the Agent.
80
6.98. No information is available about the prevalence of gap charges.
6.99. A requirement by a provider that a worker pay the gap component of a fee would form part
of the contract for service between the worker and provider if the provider had disclosed that
gap component before the worker agreed to receive the service; and, if there had been that
disclosure, the provider would be able to recover the gap from the worker.
6.100. New Zealands ACC has attempted to deal with the prevalence of gaps in the cost of the
service provided. As part of the ACCs endorsed provider network, accredited physiotherapy
clinics provide services subject to the terms of their contract with the ACC. The effect is that
the ACC pays the clinics an increased fee, but in return the clinics cannot charge claimants a
gap fee (subject to some exceptions).
Stakeholder views
6.101. The VTHC submits that, where a worker is subject to a gap charge, the VWA should reimburse
the worker for the additional cost.
81
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77 Robert Kernohan, Submission, 26 April 2008; Injured Nurses Support Group, Submission, 30 April 2008.
78 WorkSafe 2006, Travel Reimbursement Rate for injured workers, viewed 27 June 2008,
http://www.worksafe.vic.gov.au/wps/wcm/resources/file/ebc8b9435b34347/travel_rates.pdf
79 See Chapter 4 Supporting workers to get back to work after injury, paragraphs 4.387-4.391.
80 WorkSafe Victoria, 1 July 2007, Introducing WorkSafe: A guide for allied healthcare professionals, p 7;
www.worksafe.vic.gov.au/wps/wcm/resources/file/eb7222406767914/Introducing%20WorkSafe%20A
%20guide%20for%20allied%20healthcare%20professionals.pdf.
81 VTHC, Submission, 2 May 2008, p 47.
6.102. Although one of the objectives of the medical and like payments regime is to ensure that
workers are not left without necessary medical care for a compensable injury, I accept that it is
appropriate for the VWA to maintain control over what it considers to be a reasonable cost, as
otherwise liabilities could be significantly affected.
6.103. There may be other measures that the VWA could explore to reduce the incidence of gap
charges, including developing contracts with providers or groups of providers with particular
expertise in compensable medical or health services in areas where gap charges are prevalent.
Under such arrangements, the VWA could agree to pay higher than usual rates reflecting the
specialised nature of the services and participating providers would be prohibited from charging
gap fees.
6.104. That kind of measure would have the advantages of creating incentives for practitioners to
specialise in compensable health services and reducing the extent to which workers are out
of pocket for services.
6.105. I understand that the VWA is considering moving towards such an arrangement through its
network provider initiative.
DURATION OF BENEFITS
6.106. A workers entitlement to receive compensation for the reasonable costs of medical and like
services is limited to a prescribed period of time, unless particular circumstances apply.
6.107. The AC Act limits a workers entitlement to medical and like benefits to the period of 52 weeks
after the worker has ceased receiving weekly benefits,
82
or to the period of 52 weeks after the
entitlement arose (if no weekly benefits were claimed).
83
6.108. Amendments in 1994
84
introduced a number of exemptions, so that the entitlement to medical
and like benefits does not cease where:
the worker has returned to work but:
could not remain at work if a medical or like service was not provided; or
requires surgery; or
has a serious injury within the meaning of section 93B(5) of the AC Act; or
the worker requires modification of a prosthesis; or
the medical or like service is essential to ensure that the workers health or ability
to undertake the necessary activities of daily living does not significantly deteriorate.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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82 AC Act, s 99(11).
83 AC Act, s 99(12).
84 AC Act, s 99(14).
6.109. As indicated in paragraph 6.45 above, while most other jurisdictions use a similar concept of
reasonableness as the basis for controlling entitlement, the amount paid or the total period for
which expenses can be paid can differ between jurisdictions. The Comcare, Seacare, South
Australia, Queensland, Northern Territory and Australian Capital Territory schemes do not set
a limit on the duration or amount of compensation paid for medical and like services. In
jurisdictions where a limit does apply, the limit is either imposed on the amount (as in New
South Wales
85
and Western Australia)
86
or duration (as in Victoria and Tasmania)
87
.
Stakeholder views
6.110. The VTHC
88
and the AMIEU submit that it is inappropriate to limit an entitlement to reasonable
medical and like expenses on any grounds other than the reasonableness of the treatment
provided.
6.111. VECCI submits that
Some medical services have a history of no significant outcomes. Some services continue
because the worker has become dependent on them despite no beneficial outcomes.
89
6.112. VECCI recommends
. . . the Act be amended to allow termination or refusal of medical and like payments on the
grounds that no measurable improvement is resulting from the treatment. Further grounds
would be that there is no medical evidence that the treatment or service has any likelihood
of producing a medical improvement.
VECCI recommends that provision to deny payment for services extend to rehabilitation
providers who achieve negative results or who appear to be providing services not focused
on return to work.
90
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85 In New South Wales, the total amount payable for medical and like expenses is limited to $7500
initially (under provisional liability). In New South Wales, there are also prescribed monetary limits for
various medical and other services. For example, for medical and like treatment the limit is $50,000;
for hospital treatment the amount is limited to $50,000; for ambulance the amount is limited to
$10,000 and for occupational rehabilitation the amount is limited to $2391.10 (indexed and increased
each 6 months). There is recourse to extension of these limits. In relation to medical or related
treatment, hospital treatment and ambulance services, where matters are before the Workers
Compensation Commission, the Commission may direct that higher amounts be paid. The New South
Wales WorkCover Authority may approve individual requests to exceed the various maxima as an
alternative to a direction by the Workers Compensation Commission, and may also approve an
extension to the limits upon occupational rehabilitation service costs.
86 In Western Australia, medical and like expenses are limited to 30% of a prescribed amount ($50,550)
and $11,795 for vocational rehabilitation expenses. A general extension to the limits to medical and
hospital services may be ordered by an arbitrator where a workers social and financial circumstances
justify it and there is also a further, more significant extension to more seriously injured workers in
stipulated circumstances. An additional $50,000, or up to $250,000 for seriously injured workers, can
be approved.
87 Section 75(2) of the Workers Rehabilitation and Compensation Act 1988 (Tas) provides that the
employers liability to make payments for medical and other services expires 10 years after the date
on which the claim for compensation was given to the employer. The recent review of the Tasmanian
scheme recommended that a discretion be vested in the Workers Rehabilitation and Compensation
Tribunal to extend payments beyond 10 years for persons with a WPI of 15% or greater in cases of
demonstrated need: A Clayton, Review of the Tasmanian Workers Compensation System: Report,
September 2007, p 97.
88 VTHC, Submission, 2 May 2008, p 34.
89 VECCI, Submission, April 2008, p 53.
90 VECCI, Submission, April 2008, p 54.
6.113. I believe that the current approach linking the duration of compensation for medical and like
services to return to work (that is, to weekly benefits) is fair, because it ensures that the
limitation operates on the basis of need, not cost. There is a case for no formal limit to the
duration of the compensation (making it only subject to the concept of reasonableness, as is
the case in the Commonwealth scheme). However, as noted by both of the recent reviews of
the Tasmanian
91
and South Australian schemes,
92
such an approach is would create a
significant potential for uncontrolled liabilities, and I cannot recommend it.
6.114. The exceptions identified in the AC Act
93
recognise that some workers require ongoing medical
and like services. I consider that the exceptions adequately support those workers.
COORDINATED CARE PROGRAMS
6.115. Section 99AAA of the AC Act allows the VWA (or a self-insurer) to require an injured worker to
submit a written proposal for a coordinated care program (CCP) for the purpose of coordinating
and managing the provision of compensable medical and like services to the worker.
6.116. Once approved, the CCP will govern the provision of medical and like services under section 99
of the AC Act.
94
6.117. When section 99AAA was introduced in 1996, the responsible Minister said that it was intended
that workers could be required to submit coordinated care programs where:
95
the worker has not recovered sufficiently to return to work within the normal recovery period
and the current treatment is considered inappropriate or ineffective;
there are additional treatment complications caused by non-compensable factors, such as
drug addiction, mental disorders or acquired brain impairment;
treatment has involved an excessive number of services by one or more practitioners; and
there is evidence of doctor shopping.
6.118. The AC Act requires the CCP proposal to be drafted by a doctor nominated by the worker (or
failing that, one appointed by the VWA). The proposal must outline the medical and like services
required by the worker because of the injury.
96
The proposal must specify any details that the
VWA requests, including the type, frequency or extent of the services, and the providers who
are to provide the services.
97
6.119. The VWA can generally only approve or refuse to approve a CCP.
98
An approved CCP can only
be altered if the VWA is satisfied that alteration is necessary to improve the care and
treatment of the injured worker.
99
Similarly, an approved CCP can only be cancelled if the VWA
is satisfied that services are no longer required.
100
It follows that the threshold for terminating
medical and like services being provided under a CCP is much higher than the threshold
applicable under section 99(11)(14) discussed in paragraphs 6.1076.108 above.
6.120. It follows that, once a CCP is approved, the VWA (or a self-insurer) is not liable to pay any
compensation for medical and like services unless the service is provided in accordance with
the CCP.
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91 A Clayton, Review of the Tasmanian Workers Compensation System: Report, September 2007, p 95.
92 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System: Report, December 2007, p 117.
93 AC Act, s 99(14).
94 AC Act, s 99AAA(10).
95 Accident Compensation (Further Amendment) Bill 1996, second reading: Victoria, Legislative
Assembly, Debates, 14 November 1996, p 1227.
96 AC Act, s 99AAA(2)(a), (b).
97 AC Act, s 99AAA(2)(c), (d).
98 AC Act, s 99AAA(7). A proposal for a CCP can only be refused on the recommendation of another
medical practitioner, after consulting with the practitioner who prepared the plan for the worker.
99 AC Act, s 99AAA(11)(a).
100 AC Act, s 99AAA(11)(b).
6.121. When introduced, the CCP process was to be trialled for two years, followed by an evaluation
of its effectiveness. A sunset clause, which would have ended the operation of section
99AAA, was removed in 1998, because the evaluation had not been conducted. A number of
evaluations were later conducted to examine the effectiveness of the CCP pilot.
6.122. An independent evaluation by the University of Melbourne in June 2000 found that coordinated
care programs appeared to generate positive outcomes for most workers involved. It also found
that, across the stakeholders, there was near unanimous in-principle support for the CCP
provision, but that every stakeholder raised some problems.
6.123. In 2001, the Victorian Auditor-General considered whether the VWA had adequately managed
the CCP, and made the following findings:
[T]he Authority has failed to adequately oversee the management by agents of injured workers
placed on the co-ordinated care program. Information relating to the operation of, and
outcomes achieved by, the co-ordinated care program is not compiled, nor is the Authority
able to ensure that those workers who would benefit from a co-ordinated care program are
actually receiving such care. Concerted attention to this high cost area of claims management
is likely to yield improved rehabilitation for workers.
101
6.124. The VWAs response to the Auditor-Generals report reflected the difficulties faced by the VWA
in managing CCPs:
The Authority also notes that since the co-ordinated care evaluation was released, it has
become evident that efforts to implement co-ordinated care within the health sector more
broadly has in many case [sic] proved to be much more difficult to implement than anticipated.
This broader experience has also raised doubts about the extent to which this tool is one that
should be widely used, rather than offered to a narrow set of claimants as it is currently. Audit
has observed that only a small proportion of long-term claimants are on co-ordinated care
programs, but the Authority is not aware of evidence that significant numbers of claimants
who would currently benefit from the co-ordinated care program are unable to access it.
102
6.125. At the time of the Auditor-Generals report, only 70 injured workers were managed on a CCP.
103
6.126. Following the release of the Auditor-Generals report, the VWA changed its focus on the
management of the kind of claims originally intended to be dealt with through the CCP process.
6.127. In 2002 Multi Disciplinary Teams (MDTs) were introduced within claims agents, and claims
were segmented into appropriate streams, which offered more specialised involvement
depending on the nature of the claim.
6.128. The introduction of MDTs within agents was intended to replace the CCP program through the
introduction of case management and specialist input from a range of disciplines.
6.129. However, both section 99 and section 99AAA continue to govern the operation of medical and
like expenses. The parallel operation of those provisions means that some workers, particularly
the more seriously injured, are being managed inconsistently.
6.130. The recent introduction of the Community Integration Program (the CIP) has transferred the
management of many seriously injured workers to the TAC, and has introduced external case
management
104
for those seriously injured workers who are still managed by the VWA. There
are approximately 1015 CCP claims being managed by the TAC under the CIP model.
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101 Auditor-General Victoria, November 2001, Management of Claims by the Victorian WorkCover
Authority, http://archive.audit.vic.gov.au/reports_par/agp75cv.html.
102 Auditor-General Victoria, November 2001, Management of Claims by the Victorian WorkCover
Authority, paragraph 5.10; http://archive.audit.vic.gov.au/reports_par/agp75cv.html.
103 As at October 2001.
6.131. The transfer of the management of seriously injured workers to the TAC and the introduction of
external case management for seriously injured workers who are still managed by the VWAs
agents has further refined the management of complex claims, without the need to use a CCP.
Stakeholder views
6.132. Most stakeholder submissions referred to the lack of clarity and to complexities in the
administration of CCPs under the AC Act.
6.133. Submissions from the Compensation Law Bar Association
105
and Ms Anthea MacTiernan note
that the provision seems to have been under utilised and, where utilised, has not been properly
implemented.
6.134. VECCI notes that the CPPs were established for good reasons. VECCI broadly supports their
removal if the situations for which CCPs were intended are being adequately addressed through
other means; but they should be retained if that is not the case.
106
6.135. The VTHC and the AMIEU support removal of section 99AAA from the AC Act.
107
6.136. The ARPA submits that, in view of the minimal usage of CCPs and the TACs management of
the more severe and profound work-related injuries, section 99AAA is no longer required.
108
6.137. Other groups suggest that CCPs may maximise positive outcomes. The VBIRA notes:
Focussed and deliverable care plans for brain injured workers result in better outcomes.
The shift of support co-ordination to TAC, and concomitant in-house case management there
should assist for long term disabled workers. This system is still in its infancy and it is to
be noted that case management is not being provided independently.
109
6.138. The VBIRA advocates the provision of both CCPs and case management services to brain
injured workers in the early stages of recovery, to maximise positive outcomes.
6.139. Ai Group acknowledges that, while there is only a limited need to apply CCPs, it is prudent
to keep them in the AC Act.
110
6.140. The original intention of section 99AAA has not been reflected in its subsequent application and
in the ongoing administration of the relevant claims. The question is whether, if the provision
were retained, it would be used for its intended purpose or whether it has become redundant.
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104 The VWA describes external case management as a collaborative process which may include an
assessment, planning, facilitation and advocacy for options and services to meet an individuals health
needs through communication and the utilisation of available resources to promote quality cost-
effective outcomes. See VWA, External Case Management Policy,
http://www.worksafe.vic.gov.au/wps/wcm/connect/WorkSafe/Home/Health+Care+Providers/Personal+
and+Household+Services/External+Case+Management+Policy/
105 Compensation Law Bar Association, Submission, 2 May 2008, p 16; Ms Anthea MacTiernan,
Submission, p 10.
106 VECCI, Submission, 2 May 2008, p 58.
107 VTHC, Submission, 2 May 2008, p 35; AMIEU, Submission, 2 May 2008, p 18.
108 ARPA, Submission, 25 April 2008, p 6.
109 VBIRA, Submission, 2 May 2008, p 2.
110 Ai Group, Submission, May 2008, p 57.
6.141. While significant success factors have been noted by stakeholders, those factors seem to be
associated with the positive outcomes achieved mainly as a consequence of the focus on case
management and specialist input, rather than because of the success of the few CCPs that
have been initiated.
6.142. The evidence suggests to me that a specialised consolidated case management approach is
preferable for the management of complex claims. Further, the evidence suggests that complex
claims are better managed with a dedicated and focussed internal team or through specialised
case management.
6.143. The AC Act supports the provision of case management services, and there is no apparent need
for additional legislative levers to give effect to that approach.
6.144. I believe that, with appropriate claims oversight and sound application of the concept of
reasonable costs, section 99AAA is not necessary. It appears to me to be redundant, and I
recommend its repeal.
6.145. The Reviews independent actuaries estimate that the removal of this provision will not
materially affect the schemes outstanding claims liabilities.
111
ORDINARY DAILY LIVING COSTS
6.146. The AC Act limits the VWAs liability for the payment of ordinary living costs, such as
accommodation, food, personal items and utilities for an injured worker residing in supported
care (for example, a nursing home).
112
6.147. The limitation applies to claims for compensation made after 3 December 2003, and does not
apply during the first 18 months after the worker is first discharged from hospital following a
work-related injury. Comparable provisions are found in the transport accident legislation.
113
6.148. The number of injured workers residing in supported accommodation because of work-related
injuries is small (approximately 30).
6.149. The TA Act was amended in 2007 to authorise the Governor in Council, by Order published in
the Government Gazette, to fix limits for the contributions to be made by a person towards the
cost of supported accommodation.
114
The current TAC approach is that an injured person can
be required to contribute to those costs, and there is a power to fix the limits of those
contributions. The TAC has not yet gazetted limits for the contributions.
6.150. Given that the AC Act effects a significant exclusion of liability,
115
it is desirable to provide
workers with some certainty about what contribution may be sought.
Stakeholder views
6.151. A number of stakeholders, including VECCI and Ai Group, support providing certainty for this
group of injured workers.
6.152. The VTHC submits that workers requiring supported care should not be made to contribute to
the cost of that care.
116
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111 Source: advice from the Reviews independent actuaries.
112 AC Act, s 99(15)(18).
113 TA Act, s 60(7)(11).
114 TA Act, s 60(11A).
115 AC Act, s 99(15).
116 VTHC, Submission, 2 May 2008, p 35.
6.153. I understand that contributions from injured workers in supported care towards their living costs
are intended to cover the costs that they would have incurred anyway had they not been
injured. In principle this seems fair to me.
6.154. However, this group of workers is entitled to certainty about the extent of the contribution
required; and I recommend that the AC Act be amended to provide this certainty.
6.155. In line with the TAC amendments, I consider it appropriate to amend the AC to authorise the
Governor in Council, by Order published in the Government Gazette, to fix limits for the
contributions to be made by a person towards the cost of supported accommodation.
6.156. The Reviews independent actuaries estimate that the impact on the schemes outstanding
claims liabilities will be small, with a potential saving of around $2 million.
117
REGULATION OF MEDICAL AND LIKE PROVIDERS
6.157. Certain healthcare providers can treat injured workers and be paid for the provision of a
medical service,
118
provided that those professionals are registered under the Health
Professions Registration Act 2005.
119
As long as they remain registered, those professionals can
continue to be paid for providing services to injured workers under the WorkCover scheme.
6.158. In addition to those registered healthcare providers, the VWA can also approve providers of
other health services (as long as those other health services are provided at the request of a
medical practitioner).
120
Such services include, for example, remedial massage and
acupuncture.
6.159. If the VWA is concerned about the adequacy, appropriateness or frequency of services provided
to an injured worker by any service provider,
121
and there is a professional body regulating the
conduct of persons in the providers trade or profession, the VWA may in its discretion:
122
refer the providers conduct to that professional body for review
123
; and
suspend payments to the provider.
124
6.160. If the professional body considers that the provider has not acted properly, the VWA can direct
that payments for services provided during the period of suspension be forfeited.
125
6.161. However, the suspension of payments only starts when the VWA refers the providers conduct
to the relevant professional body and only continues until the providers conduct has been
reviewed, or the expiry of 6 months whichever occurs first.
126
6.162. Similar provisions are found in section 131A of the TA Act.
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117 Source: advice from the Reviews independent actuaries
118 Defined in s 5(1) of the AC Act.
119 Those healthcare professionals are medical practitioners, physiotherapists, chiropractors, osteopaths,
psychologists, podiatrists and pharmacists: see the definitions of those terms in s 5(1) of the AC Act.
Apart from psychology, any attendance, examination or treatment of any kind by those providers is
defined as a medical service.
120 Paragraph (d) of the definition of medical service in s 5(1) of the AC Act.
121 This can include healthcare professionals.
122 AC Act, s 249B(2).
123 AC Act, s 249B(2)(a).
124 AC Act, s 249B(2)(b).
125 AC Act, s 249B(2)(c).
126 AC Act, s 249B(4).
6.163. A different process applies if there is no professional body regulating the conduct of persons in
the providers trade or profession. In that case, the VWA can review the providers conduct and
determine whether the provider has acted properly.
127
6.164. The section 249B process is designed to operate as a final option in support other strategies
that deal with instances of inappropriate provider servicing behaviour, such as peer reviews.
6.165. In relation to the regulation of healthcare providers, the HWCAs 1997 report Promoting
Excellence recommended that each jurisdiction enact provisions giving administrators power
(after appropriate counselling) to remove from the scheme a provider with aberrant performance
patterns which continue after review.
128
6.166. Although the AC Act currently contains provisions that enable the VWA to refer providers for
review by their professional bodies, it does not permit the VWA to remove a registered
healthcare provider from practising within the scheme.
6.167. In the past, the VWA has suspended payments to specific providers in relation to specific
claims, and has referred healthcare providers to relevant professional bodies (including the
statutory registration boards). For example, the VWA referred a small number of
physiotherapists to the Physiotherapy Registration Board of Victoria when there was concern
about over-servicing of some injured workers. Despite adverse findings, the physiotherapists
registration, and therefore their ability to continue to practise within the scheme, remained
unaffected.
6.168. The VWA is aware of medical practitioners who are prevented from participating in the
Medicare scheme by Medicare Australia (formerly the Health Insurance Commission), but
whose Victorian registration, and ability to continue to practise within the scheme, remain
unaffected.
6.169. An analysis of other jurisdictions reveals some differences in approach. For example, Medicare
Australia has one of the most rigorous outlier management programs, supported by the most
prescriptive legislation. The Health Insurance Act 1973 (Cth), which governs the administration
of Medicare, defines inappropriate practice,
129
and details a process for peer review of
healthcare providers (particularly medical practitioners) leading to a range of sanctions, from
reprimand to suspension from the Medicare scheme.
130
That Act provides that a medical
practitioner is deemed to have practised inappropriately if the provider has rendered more than
a certain number of services over a set period of time during a 12 month period.
131
Stakeholder views
6.170. VECCI refers to a number of relevant examples, including that of -
A doctor who was banned from operating at a regional public hospital for incompetence was
able to perform carpal tunnel operations for WorkCover at a private hospital.
132
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127 AC Act, s 249B(3): If there is no professional body regulating the conduct of persons in the trade or
profession of the person who has provided the services, the VWA may:
warn the person that the Authority is concerned about the conduct and if it continues the Authority
will, by further notice, suspend payment of costs by self-insurers and the Authority for the services
provided by that person;
if the conduct continues, suspend payment of costs for services provided by that person; and
if the Authority considers that the person has not acted properly, by notice to that person, direct that
payments for services provided during the period of suspension will be forfeited.
128 HWCA, Promoting Excellence: National consistency in Australian workers compensation, Final Report
to the Labour Ministers Council, May 1997, p 30.
129 Defined in s 82 of the Health Insurance Act 1973 (Cth) as conduct that a committee formed from the
practitioners peers could reasonably find is unacceptable to the general body of practitioners.
130 Health Insurance Act 1973 (Cth), s 106U(1).
131 Regulation 7 of the Health Insurance (Professional Services Review) Regulations 1999.
132 VECCI, Submission, April 2008, p 56.
6.171. VECCI supports an amendment to the Act which gives the Authority additional protective
powers, but warns that any decisions should be subject to peer review and a broader process
of review.
133
6.172. Similarly, the VACC recommends an amendment to the AC Act to prescribe clearly the approval,
and revocation of approval, of prescribed health providers. The VACC submits
. . . the AC Act should provide additional penalties following any adverse finding against any
medical provider by the relevant health professional body. Furthermore, the sanction should be
extended to provide the VWA or relevant health professional body with the power to suspend
or revoke a healthcare professionals registration to act as a medical provider for injured
workers.
134
6.173. NewCare supports a structured and defined approach to approving and sanctioning healthcare
providers.
135
6.174. The AMIEU notes that the professional registration bodies already provide a gate keeping
mechanism, and submits that it is not appropriate for the VWA to usurp that role.
136
6.175. The APA considers that
. . . the relevant registration body should be the decision maker regarding appropriate sanctions
against a treating practitioner. As part of this role, it may be appropriate for the relevant
registration body to impose payment suspension sanctions, where recommended by WorkSafe.
Where, however, no independent registration authority has been established under legislation,
WorkSafe should be responsible for determining sanctions against a treating practitioner.
137
6.176. In my view, the current approach does not provide an adequate supervisory regime for
reviewing the servicing behaviour of healthcare and other service providers and dealing
with inappropriate behaviour, including over-servicing, inadequate care and dishonesty.
6.177. The current scheme relies heavily on professional bodies to determine whether service
providers should be able to continue being paid for treating injured workers.
6.178. I note that, when the VWA referred several physiotherapists to the Physiotherapy Registration
Board (see paragraph 6.167 above), between 18 and 24 months elapsed between making the
referral and any formal outcome.
6.179. It is clear to me that delays of that magnitude limit the effectiveness of the power available to
the VWA under section 249B to suspend and/or forfeit payment of costs for services provided
by healthcare and other service providers. Delays of that nature diminish the protective value
of the section 249B process where the VWA has concerns about the adequacy, appropriateness
or frequency of services provided to an injured worker by a provider. Any real protective value
is undermined because the possibility of suspension or forfeiture of payments is limited by the
efficiency, resources and priorities of an external body.
6.180. The registration boards (and other professional bodies) have a role in protecting the public and
providing a reassurance that registered health professionals are well qualified. In the event of
poor performance or unprofessional conduct, registration boards are responsible for
investigating the performance or conduct of practitioners, imposing sanctions and assisting
practitioners to retrain or address any difficulties affecting their ability to practise.
138
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133 VECCI, Submission, April 2008, p 56.
134 VACC, Submission, 1 May 2008, p 11.
135 NewCare, Submission, 1 May 2008, p 4.
136 AMIEU, Submission, 2 May 2008, p 18.
137 APA, Submission, 2 May 2008, p 4.
138 Department of Human Services, October 2003, Regulation of the Health Professions in Victoria:
A discussion paper, p 9, viewed 3 June 2008.
6.181. Thus, the main functions of the relevant professional body include protecting the public from
harm. However, the VWA has much broader concerns to consider. The impacts of too frequent,
inappropriate or inadequate treatment on the scheme can be significant due to the impacts that
growth in paramedical costs can have on scheme viability, notwithstanding the intangible
impacts on the health of injured workers.
6.182. One option might be to restrict payment of compensation for healthcare services to those
healthcare professionals who have been approved by the VWA for participation in the scheme;
and provide the VWA with the power to revoke approvals in certain circumstances
independently of any review and discipline by professional bodies.
6.183. That option would effectively require the VWA to assume the role of a quasi-professional body,
assessing the clinical competence and performance of healthcare providers. It might be argued
that the VWA has the capacity to perform that function, because the VWA currently approves
independent medical examiners under section 112(5) of the AC Act. However, there would be
considerable administrative difficulties and costs associated with establishing a comprehensive
approval system.
6.184. In my opinion, where there are clear concerns about the behaviour of a healthcare service
provider, the professional bodies are best suited to reviewing that behaviour.
6.185. I therefore recommend the maintenance of the referral process to professional bodies.
However, the sanctions available to the VWA should be strengthened, so that the VWA can
retain some control over payments to those providers who depart from appropriate standards of
behaviour. In particular, the VWA should have the power to suspend future payments to service
providers who are found to have engaged in unprofessional conduct by their professional body
or to have engaged in inappropriate practice by Medicare Australia. This would provide the VWA
with improved regulatory and protective powers.
6.186. Of course, before any such action was taken to suspend service providers from participation in
the scheme, the provider would need to be given a reasonable opportunity to present a case
against suspension and providers should have the right to seek a review by VCAT of a decision
to suspend payments.
6.187. The VWA must also provide healthcare practitioners with clear expectations about the standard
of their services, and the action that the VWA will take against inappropriate practice. In my
view, providing those clear expectations is essential to ensure transparency and discourage
inappropriate practices. It may also be appropriate for the VWA to provide health practitioners
with regular feedback about their performance in comparison to their peers.
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LUMP SUM BENEFITS
FOR SIGNIFICANTLY
INJURED WORKERS
The adequacy of current
impairment benefits
Hearing loss injuries
Gradual process injuries
Multiple injuries
Two separate systems
Delays in lodging claims
Delays in processing claims
Impairment benefit assessment
process
Overview
7.1. Lump sum benefits are designed to provide no fault, efficient and fair compensation for workers
who sustain permanent significant impairments, including a measure of compensation for the
pain and suffering associated with impairment. Lump sum benefits provide much needed
1
funds following a work-related injury without requiring the worker to pursue costly and lengthy
common law proceedings.
7.2. Victorian workers have had access to no-fault lump sum benefits for work-related permanent
injuries or disabilities since 1914.
2
7.3. Today, statutory lump sum benefits make up approximately $667 million dollars in scheme
liabilities.
3
Impairment benefits alone comprise around 8% of scheme liabilities.
4
7.4. The way in which lump sum benefits are determined has undergone substantial change
over time.
7.5. The version of the table of maims
5
introduced in 1985 aimed to compensate workers for the
degree of industrial loss
6
and the consequential pain and suffering sustained as a result of a
permanent disability.
7.6. The table of maims was based on earlier workers compensation legislation,
7
and continued the
tradition of not providing compensation for internal injuries (such as respiratory dysfunction).
7.7. In 1997, there was a major shift in the type of injuries that were compensable, the entitlements
payable and the way in which claims were processed. The change was a result of the
Governments decision to abolish a workers right to pursue common law damages. A major
aspect of the change was the introduction of impairment benefit payments for injuries
sustained on or after 12 November 1997.
7.8. Even though the right to pursue common law damages has since been reinstated (with effect
from 20 October 1999), lump sum benefits continue to ensure that an injured worker is
provided with fast access to compensation regardless of whether the employer was negligent.
7.9. In this chapter, I:
examine whether impairment benefits adequately compensate particular injuries, such as
spinal injuries;
discuss how impairment benefits should be calculated and administered for hearing loss
injuries;
address lump sum compensation for gradual process injuries;
discuss the issues associated with multiple injuries and impairment benefits;
examine some of the differences between the maims payments and impairment benefits
schemes and whether the two schemes could be harmonised or combined into one system;
propose solutions to the current delays in lodging lump sum benefit claims and address
delays in processing these kinds of claims; and
consider restrictions on second and subsequent maims payment claims.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 7 LUMP SUM BENEFITS FOR SIGNIFICANTLY INJURED WORKERS
PAGE 244
1 Victoria, Legislative Assembly, Debates, 1 June 2006, p1542.
2 Workers Compensation Act 1914.
3 Source: advice from the Reviews independent actuaries.
4 The term scheme liabilities refers to the present capital cost, as estimated by actuaries,
of meeting all claims (in this case, for impairment benefits) as those claims are made and fall due.
5 AC Act, s 98.
6 Aspland v ACC (1988) Vic ACR 402; Fry v Jenkins [1955] VLR 184.
7 WC Act, s 11.
The current scheme
7.10. Lump sum benefits are paid in addition to weekly benefits and medical and like benefits.
However, lump sum benefits can affect an award of common law damages. For example, when
common law damages are awarded for pain and suffering, any impairment benefit paid to the
worker for the same injury is deducted from the damages award.
8
7.11. There are two separate schemes for lump sum benefits: impairment benefits and maims
payments. The date of injury will determine which type of lump sum benefit an injured worker
may be eligible for.
for injuries sustained between 1 September 1985 and 11 November 1997, compensation is
payable according to the table of maims (maims payments);
9
and
for injuries sustained on or after 12 November 1997, compensation is payable according to
the impairment benefit scheme, based on the workers WPI (impairment benefits).
10
7.12. There are also different application and dispute resolution processes for each type of lump sum
benefit.
7.13. In order to receive a maims payment, the injured workers level of permanent impairment must
be assessed using the concept of loss of use. AMA-2 is used in this assessment where
relevant (for back, neck and pelvic injuries sustained after 1 December 1992).
11
The medical
examiner makes a judgement on the WPI of the injured body part and expresses this as a
percentage. The percentage is then used to calculate the amount of compensation payable by
reference to a scale of payments set out in section 98(1) of the AC Act.
12
7.14. Access to impairment benefits is assessed using AMA-4
13
or other relevant guidelines required
by the AC Act.
14
7.15. An injured worker will only receive an impairment benefit if the workers impairment
assessment exceeds a 10% WPI threshold for physical injuries
15
or a 30% WPI threshold for
psychiatric injuries
16
that do not arise as a consequence of, or are not secondary to, a physical
injury.
17
7.16. Impairment benefits were introduced in 1997 to replace maims payments and an injured
workers right to sue at common law (which was abolished at that time). When the right to sue
at common law was reinstated (in limited terms) from 20 October 1999, impairment benefits
were maintained.
7.17. The maintenance of lump sum impairment benefits after the reintroduction of common law
rights ensures that a worker can receive a lump sum benefit for his or her permanent injury as
soon as is practicable, regardless of whether the workers employer was negligent.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 245
8 AC Act, s 134AB(25)(b).
9 AC Act, ss 98, 98A.
10 AC Act, s 98C.
11 AC Act, ss 98(1)(e) and 255(2).
12 For injuries sustained between 1 July 1997 and 11 November 1997. For injuries sustained before 1 July
1997, the maximum amount differs depending on the date of injury, because benefit levels are
indexed. For example, for injuries sustained between 1 July 1996 and 30 June 1997 the maximum
amount is $102,460.
13 AC Act, s 91(1)(a)(i).
14 Psychiatric impairment is assessed in accordance with the Guides to the Evaluation of Psychiatric
Impairment for Clinicians. Industrial asthma is assessed in accordance with Impairment Assessment in
Workers with Occupational Asthma. Occupational infectious diseases may be assessed in accordance
with Clinical Guidelines to the Rating of Impairments arising from Infectious Occupational Diseases.
15 AC Act, s 98C(2)(a).
16 AC Act, s 98C(3)(a).
17 AC Act, s 91(2).
7.18. Table 7.1 compares the maims payments and impairment benefits schemes.
TABLE 7.1: COMPARISON OF MAIMS PAYMENTS AND IMPAIRMENT BENEFITS
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PAGE 246
18 AC Act, ss 91, 91(4)(b), 91(6), 91(6A) and 91(6B). Hearing loss injuries are assessed in accordance with
the Improved Procedure for Determination of Percentage Loss of Hearing (1988 Edition or a later
prescribed edition) published by the National Acoustic Laboratory. Psychiatric injuries are assessed in
accordance with The Guide to the Evaluation of Psychiatric Impairment for Clinicians. Infectious
occupational diseases are assessed in accordance with the Clinical Guidelines to the Rating of
Impairments arising from Infectious Occupational Diseases. Occupational asthma injuries are assessed
in accordance with the Impairment Assessment in Workers with Occupational Asthma.
19 Where a work related injury has occurred before 1 December 1992, compensation may be available
for a loss of mental powers.
20 AC Act, s 98E. A typical example of a total loss injury is amputation of a finger or fingers.
Maims payments Impairment benefits
Injury dates 1 September 1985 to 11 November 1997. 12 November 1997 onwards.
How a claim is made? A Claim for Compensation for Permanent
Disability form is submitted either to the
employer (if the employer is still operating)
or to the VWA.
When seeking additional compensation for pain
and suffering, the worker must also provide an
affidavit and material supporting the claim.
A Workers Claim for Impairment Benefits form
is submitted, with any additional supporting
medical evidence, to either the employer
(if still in operation) or the VWA.
How soon after the
injury can a claim be
made?
No specified timeframes. 12 months post the injury date, or when the
injury has stabilised (if before 12 months).
Who considers the
claim?
A VWA approved legal representative, known as
a Panel firm.
A VWA authorised agent.
What initial timeframes
apply to process the
claim?
The Panel firm has 90 days to determine liability
and the offer of compensation that is to be
made to the worker (if any).
The authorised agent has 120 days to determine
liability and the compensation amount (if any).
How are the claimed
injuries assessed and
determined?
Injuries are assessed by a qualified medical
practitioner in accordance with:
AMA-2; or
The table of maims.
Injuries are assessed by an accredited medical
practitioner in accordance with:
AMA-4; or
any other method prescribed by the AC Act.
18
What injuries are
compensable?
Physical injury (including hearing loss).
Psychiatric or internal injuries like gastrointestinal
or respiratory dysfunction are not
compensable.
19
Physical injury (including hearing loss and
internal injuries)
Psychiatric injury.
What is the minimum
threshold to receive an
entitlement?
>0% for physical injury (excluding hearing loss);
and
7% for hearing loss injuries
10% whole person impairment for physical
injuries; and
30% whole person impairment for psychiatric
injuries.
How is the entitlement
calculated?
The entitlement is calculated by multiplying the
amount of compensation payable as at the date
of the injury by the percentage set out opposite
the injury in the table under the AC Act. This
amount is then multiplied by the percentage loss
of the relevant injury suffered by the worker.
The amount of compensation for impairment
benefits is calculated by applying the assessed
percentage of impairment to a mathematical
formula set out in the AC Act.
What is the maximum
amount payable
For injuries which occur on 1 July 1997 to
11 November 1997: $104,990 (indexed annually)
For injuries which occur on or after 1 July 2008
to 30 June 2009: $396,690 (indexed annually)
What additional
payments are awarded?
In some circumstances there may be an
additional entitlement awarded for pain and
suffering.
The maximum amount awarded for pain and
suffering for injuries between 1 July 1997 to
11 November 1997: $56,400
Where there is a total loss or total loss of use
of type injury, compensation may be payable for
that injury.
20
7.19. Table 7.2 sets out the scale of payments under the current impairment benefit regime.
TABLE 7.2: SCALE OF IMPAIRMENT BENEFITS
Other jurisdictions
7.20. All other Australian jurisdictions provide some form of lump sum benefits for significantly
injured workers, although the threshold tests and methods of assessment differ considerably.
7.21. Table 7.3 compares the lump sum benefits paid under each of the Australian schemes,
excluding payments made for total loss injuries, and demonstrates that Victoria remains one of
the more generous schemes.
TABLE 7.3: OVERVIEW OF ACCESS TO IMPAIRMENT BENEFITS IN OTHER AUSTRALIAN
JURISDICTIONS
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Level of impairment Physical entitlement Psychiatric entitlement
0% 9% WPI (non spinal, UEX or LEX) $Nil $Nil
5% 9% WPI (for spinal, UEX or LEX injuries only) $10,250 min (5% WPI)
$17,234 max (9% WPI)
$Nil
10% 30% WPI $16,250 min (10% WPI)
$66,120 max (30% WPI)
$13,230 min and max (30%)
31% 70% WPI $70,200 min (31% WPI)
$230,880 max (70% WPI)
$17,540 min (31%WPI)
$231,400 max (70% WPI)
71% 80% WPI $247,930 min (71% WPI)
$396,700 max (80% WPI)
$247,930 min (71% WPI)
$396,700 max (80% WPI)
81%+ $396,690 min & max $396,690 min & max
Jurisdiction Assessment method Threshold Maximum award
Tasmania AMA-4 and Tasmanian Workers
Compensation Guidelines for the
Assessment of Permanent Impairment.
>0% WPI; or
10% WPI for psychological
injury
>5% binaural hearing
impairment
$208,370.61
Comcare Guide to the assessment of the Degree of
Permanent Impairment (2nd Edition)
based on AMA-5.
10% WPI; or
5% WPI hearing loss
$150,396.21
NSW WorkCover Guides for the Evaluation of
Permanent Impairment, based on AMA-5.
1% WPI; or
15% WPI for psychiatric
impairment; or
6% binaural loss of hearing
$231,000 for back injuries, or
$220,000 for (multiple) other
injuries
Vic AMA-4 or any other prescribed method. 10% WPI for physical injuries;
30% WPI psychiatric injuries.
$396,690
QLD AMA-4. >0% WPI $218,400
WA WorkCover WA Guides for Evaluation of
Permanent Impairment and AMA-5.
>0% WPI $168,499
SA Table of maims, or AMA (3rd Edition). 5% for hearing loss $230,982
NT AMA-4. 5% WPI $220,147.20
ACT AMA-5 and the New South Wales
WorkCover Guides for the Evaluation of
Permanent Impairment (1st Edition).
>0% WPI $178,354.27
Stakeholder views
7.22. I have received many submissions on the thresholds that an injured worker must meet before
lump sum benefits are payable, with particular criticism directed at the thresholds for
psychiatric injuries compared to those for physical injuries.
7.23. The VTHC submits that the current 30% WPI threshold for psychiatric injuries is the toughest in
Australia, discriminatory in nature and does not reflect modern attitudes to mental illness.
21
7.24. The VTHC also submits that the modification of an assessment score which applies to
musculoskeletal injuries should extend to all other physical assessments under AMA-4.
22
7.25. Echoing those concerns, the ALA submits that
. . . the TAC scheme does not make a distinction between thresholds for psychiatric and
physical injuries . . . and there are no sound public policy reasons for the Workcover system
to continue to perpetuate this discriminatory approach.
23
7.26. The ALA also argues for parity in the amounts payable for psychiatric injuries with the amounts
payable for physical injuries.
24
7.27. On the other hand, VECCI submits that
. . . psychiatric injuries cannot be treated in the same way as physical injuries.
VECCI also oppose reducing the 30% threshold for psychiatric injuries based on the inexact
nature of assessment and the potential threat to scheme viability.
25
7.28. I have also received many submissions arguing that the level of compensation for serious spinal
injuries is inadequate.
7.29. I have been urged to remove the requirement that a worker satisfy the threshold for
compensation for each distinct episode causing injury, so as to make the AC Act consistent
with the TA Act. The SIAV opposes such a change, submitting that
. . . the entitlement threshold must be satisfied for every injury as it clearly encourages workers
to report injuries and make claims in a timely manner rather than waiting for the accumulation
of various injuries to reach an applicable threshold.
. . .
The TAC model offered in support of the accumulation model is not comparable. The TAC as
a monopoly insurer has only one interest to defend rather than the risks of many different
employers.
26
7.30. I have received comments on lump sum compensation for gradual onset and hearing loss
injuries. Those comments have particularly focused on the complications involved in
determining the date of injury for the purposes of compensating those kinds of injury, and
on the manner in which the costs of those injuries are apportioned between employers.
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21 VTHC, Submission, 2 May 2008, p 37.
22 VTHC, Submission, 25 January 2008, p 5.
23 ALA, Submission, 2 May 2008, p 5.
24 ALA, Submission, 2 May 2008, p 6.
25 VECCI, Submission, April 2008, p 61.
7.31. It has also been suggested that the amount of lump sum compensation payable should be
calculated at the time when the claim for compensation is determined, rather than at the date
of injury. A member of the Victorian Bar, Ms Anthea MacTiernan, submits that
The current system of compensating injured workers on the date of their injury is unduly harsh,
as the scale as at the date of injury might be significantly less than the scale as at the date of
settlement.
27
7.32. The current use of AMA-4 in assessing levels of impairment has been questioned on the basis
of consistency and adequacy. In particular, the Compensation Law Bar Association submits that
AMA-4
. . . is not an appropriate vehicle for assessing permanent impairment. . . .[it] tends to under-
assess the impairment because it pays no heed to the industrial loss of use of and nor does
it take into consideration pain . . .
28
7.33. Overall, I have been struck by the consistent view that the current lump sum benefits are
inadequate. For example, in its submission the Compensation Law Bar Association contends
that the current lump sum benefits are
. . . inadequate and uncompensatory [sic], thereby prompting (indeed, impliedly forcing)
aggrieved and under compensated workers to seek redress by way of common law
damages.
29
THE ADEQUACY OF CURRENT IMPAIRMENT BENEFITS
7.34. To qualify for an impairment benefit, a worker must have a whole-person physical impairment of
not less than 10%,
30
or a whole-person psychiatric impairment of not less than 30%.
31
7.35. Compensation for a secondary psychiatric injury (that is, a psychiatric injury that is a
consequence of a physical injury) is excluded.
32
For example, a workers depression that is a
consequence of the workers inability to undertake daily activities, caused by the effects of a
physical injury, would be classed as a secondary psychiatric injury, and would not be assessed.
7.36. Different levels of payment apply to psychiatric impairments. For example, if a worker suffers
a physical injury on or after 1 July 2008 and is assessed as having a 30% WPI, the worker is
entitled to an impairment benefit of $66,120. In contrast, if a worker suffers a psychiatric injury
on or after 1 July 2008 and is assessed as having a 30% WPI, the worker is only entitled to an
impairment benefit of $13,230.
7.37. Changes made in 2003 expanded the availability and the levels of impairment benefits for
workers with musculoskeletal injuries. The 2003 changes:
provided workers with musculoskeletal injuries assessed with a WPI of between 5% and 9%
with an entitlement to impairment benefits; the entitlement was achieved by modifying the
workers WPI (as assessed under Chapter 3 of AMA-4) to a figure equal to or exceeding the
10% WPI threshold; and
provided workers with musculoskeletal injuries assessed with a WPI of between 10 and 29%
with increased impairment benefits; again the entitlement achieved by modifying the workers
WPI (as assessed under Chapter 3 of AMA-4) to a slightly higher WPI.
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26 SIAV, Submission, May 2008, p 19-20.
27 Anthea MacTiernan, Submission, p 11.
28 Compensation Law Bar Association, Submission, 2 May 2008, p 17.
29 Compensation Law Bar Association, Submission, 2 May 2008, p 17.
30 AC Act, s 98C(2)(a).
31 AC Act, s 98C(3)(a).
32 AC Act, s 91(2).
7.38. When introducing the 2003 changes, the responsible Minister indicated that the changes were
made to provide impairment benefits to workers thought to be harshly excluded when
impairment benefits were introduced in 1997.
33
7.39. Amendments were also made to the AC Act
34
in 2007, confirming that spinal impairment
assessments are to be based on the extent of loss of function in the spine after any spinal
surgery.
7.40. Impairment benefits are indexed annually.
35
However, the amount awarded to a worker will
depend on the date when the work-related injury was sustained. For example, a worker who
sustained an injury in 2000 and lodged an impairment benefit claim in 2007 will receive an
entitlement calculated as at the date of injury in 2000, regardless of any increase in, or
indexation of, the benefit between 2000 and 2007.
Stakeholder views
7.41. The VTHC submits that:
the threshold for access to impairment benefits should be lowered to a consistent threshold
of 5% WPI for both physical and psychiatric impairment;
the exclusion of secondary psychiatric injuries should be removed;
the current level of compensation for spinal injuries is extremely inadequate (the VTHC
contends that workers with soft tissue injuries often receive the same amount of
compensation as those forced to undergo spinal surgery); and
workers with serious spinal injuries have been disadvantaged by the 2007 amendments.
36
7.42. The ALA supports the removal of the exclusion of secondary psychiatric injuries and calls for an
increase in payments for psychiatric impairments to the same level as payments for equivalent
physical impairments.
37
7.43. The Compensation Law Bar Association submits that:
the level of compensation provided by impairment benefits is inadequate;
38
impairment benefits should be paid at the rate amount applicable at the date of the resolving
[the] claim, rather than the date on which the injury was suffered;
39
and
the AC Act should discard as a yardstick the obsolete 4
th
Edition of the AMA guides, and
move to the up to date current edition, if it is an appropriate vehicle at all.
40
7.44. In relation to the assessment of permanent impairment, the AMIEU submits
The total reliance on the AMA Guides means that the compensation for pain and suffering
is exactly the same no matter the impact of the injury on the worker.
41
7.45. To support its submission, the AMIEU provides the following example
The loss of full use of the dominant hand may not have a serious effect on an intellectual
labourer, however the pain and suffering for a boner or a slaughterer from such an injury
is extremely significant.
42
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PAGE 250
33 Victoria, Legislative Assembly, Debates, 16 October 2003, pp 1154-1158.
34 AC Act, ss 91(1A), 91(1B).
35 AC Act, s 100(2B).
36 VTHC, Submission, 2 May 2008, pp 36-38.
37 ALA, Submission, 2 May 2008, p 6.
38 Compensation Law Bar Association, Submission, 2 May 2008, p 17.
39 Compensation Law Bar Association, Submission, 2 May 2008, p 18.
40 Compensation Law Bar Association, Submission, 2 May 2008, p 17.
41 AMIEU, Submission, 2 May 2008, p 20.
42 AMIEU, Submission, 2 May 2008, p 20.
7.46. The AMIEU also submits that
. . . further work needs to be carried out on developing an appropriate method of measuring
pain and suffering from disability and impairment.
Until such measures have been developed and agreed on the AMIEU supports the VTHC on
their submission that the threshold for all injuries including psychiatric, should be a consistent
threshold of 5%.
43
7.47. VECCI opposes changes which would treat psychiatric injuries in the same way as physical
injuries, submitting that
Diagnosis is less objective, the permanency of such injuries is difficult to establish and or
defend.
44
7.48. VECCI also supports the retention of the exclusion of secondary psychiatric injuries and a
different threshold for psychiatric impairments.
45
7.49. The ANF and the INSG submit (respectively) that
. . . spinal injury impairment assessment should be conducted in accordance with the workers
pre-surgery status . . .
. . . the assessment of spinal injury for lump sum impairment benefits should reflect impacts on
a worker beyond medically assessed impairment.
46
7.50. The AMA submits that the method used to determine the appropriate WPI for spine injuries
does not adequately deal with post-operative situations.
47
It submits that
There would be a strong argument for a spinal injury expert group (eg the spinal reference
group from the training system) to be contracted to produce a definitive guideline to be
incorporated in the legislation.
48
7.51. The SIAV submits that
. . . deeming musculoskeletal injuries in excess of 5% upwards, unnecessarily complicate the
application of the impairment benefits process. The 10% threshold should be restored for all
injuries with the exception of psychiatric impairments which should be maintained at a level of
30% whole person impairment. Any change in the opposite direction would expose self
insurers significantly, particularly at a time where there is an expected and significant
economic downturn.
49
Increase impairment benefits for very seriously injured workers
7.52. Impairment benefits compensate a worker for permanent impairment of a body part or system,
and for the pain and suffering resulting from the impairment.
7.53. Compensation for pain and suffering is also available (in the form of damages) through common
law actions for workers who have suffered a serious injury.
50
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43 AMIEU, Submission, 2 May 2008, p 20.
44 VECCI, Submission, April 2008, p 61.
45 VECCI, Submission, April 2008, p 61.
46 ANF, Submission, 2 May 2008, p 6; INSG, Submission, 30 April 2008, p 3.
47 Chapter 3 of the AMA-4 refers the examiner to the use of the Diagnosis-Related Estimates Model
(DRE) to determine the level of impairment. The DRE model places workers into specific categories of
impairment dependant upon the verification of the injury or identification of a structural compromise.
48 AMA, Submission, 29 April 2008, p 1.
49 SIAV, Submission, May 2008, p 20.
50 Chapter 8, Access to justice for seriously injured workers: common law discusses who may access
common law damages.
7.54. Under section 134AB(25) of the AC Act, any damages awarded for pain and suffering must be
reduced by the amount of compensation paid by way of impairment benefits. That is, a worker
may receive a lump sum payment under the impairment benefit scheme and also seek common
law damages for pain and suffering. However, the pain and suffering damages will be paid only
to the extent that they exceed the impairment benefit received by the worker, ensuring that the
worker is not compensated twice for the pain and suffering experienced as a result of a work-
related injury.
7.55. The maximum benefit available under the impairment benefit system is more than $85,000
below the maximum damages available for pain and suffering under common law. The
maximum impairment benefit payable is now $396,690 for physical or psychiatric injuries
assessed at 81% WPI or greater;
51
and the maximum amount payable by way of common law
damages for pain and suffering is currently $484,830.
52
7.56. Although impairment benefits are not paid for the principal purpose of compensating a worker
for pain and suffering, there is a substantial degree of overlap between those benefits and
common law damages for pain and suffering, as section 134AB(25) of the AC Act makes clear.
53
The differential between the maximum amount of impairment benefits and the maximum
damages recoverable for pain and suffering provides a substantial incentive for the most
severely injured workers to pursue compensation for pain and suffering through common law
proceedings, incurring the costs and bearing the delays associated with the common law
process in order to secure the maximum compensation.
7.57. The impairment benefits system is a faster and more efficient method of delivering lump sum
compensation (including for pain and suffering). That system should be enhanced to reduce the
need for severely injured workers to pursue further compensation through common law actions.
7.58. Impairment benefit claims typically resolve (on average) 190 days faster than common law
claims. The average time taken to resolve a common law claim, from lodgement of the serious
injury application to the date when damages are determined, is 421 days.
54
The average time
taken to resolve an impairment benefit claim, from lodgement of the application to acceptance
of the determination of the entitlement, is 230 days.
55
7.59. I recommend that the maximum benefit awarded for a permanent injury under the impairment
benefit regime be increased to the equivalent of the maximum common law damages payable
for pain and suffering. The maximum benefit should be indexed annually. I propose that those
workers assessed at 81% WPI or greater be awarded an impairment benefit equal to the
maximum amount of common law damages paid for pain and suffering. I consider that it is
appropriate to increase proportionately the amount paid to workers assessed between 71%
WPI and 80% WPI. Impairment levels of that percentage involve severe injuries, and would
also be likely to be awarded significant common law damages for pain and suffering.
7.60. Increasing the impairment benefit entitlement for significantly injured workers would have a
minimal financial impact. Increasing the entitlement paid for impairments assessed at equal
to or greater than 71% WPI, and providing an increased maximum benefit for those workers
assessed equal to or greater than 81% WPI, is estimated by the Reviews independent
actuaries to cost the scheme approximately $0.6 million a year and add approximately $2 million
to outstanding claims liabilities.
7.61. The proposed scale of benefits is shown in table 7.4 (see paragraph 7.105 below).
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PAGE 252
51 AC Act, ss 98C(2)(f), (3)(e).
52 AC Act, s 135A(7)(b)(ii), adjusted in accordance with the indexation provisions in s 100 of the AC Act.
53 See paragraph 7.54 above.
54 Source: VWA. Common law applications lodged on or after January 2005 through to 14 May 2008.
55 Source: VWA. Claims lodged on or after 18 November 2004 that have resolved as at 30 April 2008.
Consistent thresholds for physical and psychiatric impairments
7.62. As I noted in paragraph 7.34 above, a worker will only receive an impairment benefit if the
worker meets a threshold of 10% WPI for a physical injury or 30% WPI for a psychiatric injury.
7.63. Many stakeholders have submitted that the threshold for physical and psychiatric impairments
should be reduced to 5% WPI, or that the modifier used to assess musculoskeletal injuries
should apply to all physical injuries.
7.64. For the reasons outlined below,
56
I recommend against such a change at this time.
7.65. The Reviews independent actuaries have estimated that reducing the threshold for both
physical and psychiatric impairments to 5% WPI would cost the scheme approximately a
minimum of $125 million annually; and that reducing the threshold for physical impairments
to 5% WPI would cost approximately $30 million to $65 million a year.
57
Payments for serious spinal injuries
7.66. The 2003 amendments to the provisions on WPI of the spine, upper extremity, lower extremity
and the pelvis
58
will cease to operate on 3 December 2008, five years after they commenced,
unless the amendments are extended by legislation.
7.67. As noted in paragraph 7.51 above, the SIAV submits that
. . . the deeming provisions, deeming musculoskeletal in excess of 5% upwards, unnecessarily
complicate the application of the impairment benefits process. The 10% threshold should be
restored for all injuries with the exception of psychiatric impairments.
59
7.68. In line with the recommendations of the Common Law Working Partys 2000 report,
60
the
AC Act was amended in 2003 to provide increased lump sum compensation and to enable
workers with musculoskeletal injuries, excluded by changes to the method of impairment
assessment in 1997, to qualify for statutory non-economic loss benefits.
7.69. The 2003 amendments restored access to lump sum compensation for certain musculoskeletal
injuries and provided compensation for those musculoskeletal injuries thought by the
Government to have been harshly disadvantaged by the introduction of the lump sum benefit
assessment tool, AMA-4, when impairment benefits replaced maims payments.
61
The 2003
amendments also increased the benefits payable for musculoskeletal injuries assessed
between 5% WPI and 29% WPI.
7.70. I therefore recommend that the 2003 amendments remain as a permanent adjustment to
the method of assessing musculoskeletal injuries for the purpose of calculating impairment
benefits.
7.71. There is also scope for further improvement in the level of impairment benefits for
musculoskeletal spinal injuries.
7.72. As noted in paragraph 7.69 above, the 2003 amendments provided compensation for those
musculoskeletal injuries thought by the Government to have been harshly disadvantaged by
the introduction of AMA-4 as the lump sum benefit assessment tool when impairment benefits
replaced maims payments.
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56 See paragraphs 7.66 to 7.105 below.
57 The range considers the impact if impairment benefit psychiatric claim lodgements remained stable
and an estimate if there was an increased number of psychiatric impairment benefit claims lodged.
58 AC Act, s 98C(2A).
59 SIAV, Submission, May 2008, p 20.
60 Victoria, Legislative Assembly, Debates, 16 October 2003, p 1154.
61 Victoria, Legislative Assembly, Debates, 16 October 2003, pp 1154-1158.
7.73. Despite the 2003 amendments, some stakeholders are concerned that the level of
compensation paid for impairment from spinal injuries does not adequately address the severity
of such injuries. In particular, the ANF is concerned that the current assessment process does
not adequately consider the impacts of a spinal injury on a worker beyond the workers
medically assessed impairment.
62
7.74. Medical research confirms that low back injuries cause a great deal of pain and lost activity.
63
Further, prolonged low back pain can lead to a combination of physical, psychological,
occupational and social impairments.
64
7.75. AMA-4 assesses a workers impairment and not the disability
65
arising from a work-related
injury. AMA-4 does not require that the examiner, when assessing a spinal impairment, consider
the impacts on the workers daily life.
7.76. In contrast, AMA-5 requires the examiner to consider the effect of an impairment on an
individuals ability to perform activities of daily living.
66
7.77. WorkCover NSW recently introduced the WorkCover Guides for the Evaluation of Permanent
Impairment (the NSW Guides). The NSW Guides rely heavily on AMA-5 for assessing permanent
impairment, with some modifications. On spinal injuries, the NSW Guides indicate that
practitioners should consider the extent to which impairment affects an individuals ability to
perform activities of daily living. The NSW Guides allow practitioners to recognise these effects
by adjusting an impairment assessment by up to 3%.
67
7.78. In addition, the New South Wales legislation provides for spinal impairments to receive
compensation that is 5% higher than the compensation for other physical injuries assessed at
the same impairment level.
7.79. To address the perceived deficiencies in the assessment of spinal injuries, I have considered
whether Victoria should adopt AMA-5 or any other updated edition of the AMA Guides. For the
reasons outlined below,
68
I recommend against such a change at this time.
7.80. However, I have recommended an inter-scheme review of the method of assessing permanent
impairments.
69
Any review of the method of assessing permanent impairments will include a
review of the current method of assessing permanent spine injuries.
7.81. I believe it would be premature to increase the entitlement amount awarded for spine injuries
permanently before completing the review of the use of the AMA-4. In addition, a permanent
increase in the compensation payable for spine impairments in Victoria would lead to greater
disparity across lump sum benefits paid to injured workers.
7.82. Nevertheless, while waiting on the completion of the review of the use of the AMA-4, I consider
it appropriate to increase, by a specific percentage, the entitlement awarded to an injured
worker with a spinal injury. I envisage an approach similar to the approach adopted under the
New South Wales workers compensation scheme.
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62 ANF, Submission, 2 May 2008, p 6.
63 A Engers, P Jellema, M Wensing, DAWM van der Windt, R Grol, MW van Tulder, Individual patient
education for low back pain, Cochrane Database of Systematic Reviews 2008, Issue 1; Art No:
CD004057.
64 K Karjalainen, A Malmivaara, M van Tulder, R Roine, M Jauhiainen, H Hurri, B Koes, Multidisciplinary
biopsychosocial rehabilitation for subacute low-back pain among working age adults, Cochrane
Database of Systematic Reviews 2000, Issue 3; Art No: CD002193.
65 The AMA-4 describes that disability refers to an activity or task the individual can not accomplish,
American Medical Association Guide to the Evaluation of Permanent Impairment, pp 1-2.
66 AMA-5, p 373.
67 WorkCover Guides for the Evaluation of Permanent Impairment New South Wales Government
Gazette, No 129.
68 See paragraphs 7.114-7.124 below.
69 See paragraph 7.124 below.
7.83. The increase will ensure that all spinal injuries receive an enhanced level of compensation more
commensurate with the severity and complexity of the injury, whilst maintaining the integrity of
the current assessment process based on AMA-4.
7.84. The Reviews independent actuaries estimate that the recommended increase will cost the
scheme around $5 million per year and add approximately $10 million
70
to the schemes
outstanding claims liabilities. Those figures are in addition to the financial impact of maintaining
the legislative amendments introduced in 2003.
7.85. The proposed scale of benefits is shown in Table 7.4 (see paragraph 7.105 below).
No change to thresholds for psychiatric impairments
7.86. Of all claims lodged since the introduction of impairment benefits, only a small proportion relate
solely to a psychiatric impairment, whether secondary or non-secondary.
7.87. Of the approximately 34,000
71
impairment benefit claims lodged since 2000, about 440
72
non-secondary psychiatric claims
73
have achieved a WPI rating of 30% or more.
7.88. The VTHC submits that the threshold for all injuries, including psychiatric, should be a
consistent threshold of 5%, given that
. . . the thresholds for eligibility for psychiatric impairment are the highest of any workers
compensation system in Australia.
. . . under the TAC scheme, no such distinction is drawn between thresholds for psychiatric
and physical injuries when determining entitlements to compensation and there are no sound
public policy reasons for the Workcover system to continue to perpetuate such an outdated
and discriminatory division.
74
7.89. VECCI opposes any reduction of the 30% threshold for psychiatric injuries, due to
. . . the inexact nature of assessment and the potential threat to scheme viability.
75
7.90. Psychiatric impairments resulting from transport accidents are more likely to involve post-
traumatic stress disorder. Psychiatric disorders resulting from day-to-day work activities are
more likely to develop over a period of time, such as repeated exposure to trauma, or result
from circumstances such as workplace bullying. The costs associated with compensating
psychiatric impairment are more likely to impact on the WorkCover scheme than on the TAC
scheme.
7.91. In January 2007, parts of the Charter of Human Rights and Responsibilities Act 2006 (Vic)
(the Charter) commenced operation in Victoria.
76
The purpose of the Charter is to protect and
promote human rights in Victoria. One of the rights identified by the Charter is the right to
recognition and equality before the law. The different treatment of psychiatric and physical
impairment in relation to impairment benefit claims arguably affects a workers right to equality
before the law.
7.92. Under the AC Act, psychological or psychiatric injuries are treated differently from physical
injuries. As identified in Chapter 2, Workers entitlements to compensation, the nature of
psychiatric claims makes them difficult for all compensation schemes to administer. The
difficulty arises predominantly from the problems involved in diagnosing psychological illnesses,
and the multiplicity of factors that can contribute to those conditions.
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70 Source: advice from the Reviews independent actuaries. Based on a 10% increase.
71 Source: VWA.
72 Source: VWA.
73 Assessed in accordance with either the Clinical Guidelines to the Rating of Psychiatric Impairment
(CGRPI) or the Guides to the Evaluation of Psychiatric Impairment for Clinicians (GEPIC).
74 VTHC, Submission, 2 May 2008, p 37.
75 VECCI, Submission, April 2008, p 61.
76 The Charter became fully operational on 1 January 2008.
7.93. Psychiatric injuries are rarely caused by a single event they frequently involve additional causal
factors, such as a workers personal life, interpersonal relationships and personality factors.
77
Psychiatric injuries often involve an interaction between work-related and non-work-related
factors, and that interaction can present difficulties for determining whether an injury is
compensable.
78
7.94. The justification for different impairment thresholds for psychiatric and physical impairment lies
in the subjective nature of psychiatric injuries, the difficulty associated with assessing such
injuries, the cost of managing and compensating psychiatric injuries and the impact of that
management and compensation on scheme viability.
7.95. The subjectivity of the assessment of psychiatric impairment could also result in an escalation
of disputes and associated legal costs.
7.96. Since 2000, there have been approximately:
440
79
impairment benefit claims lodged where the primary psychiatric impairment was
greater than or equal to 20% WPI, but less than 30% WPI;
370
80
impairment benefit claims lodged where the primary psychiatric impairment was
greater than or equal to 15% WPI, but less than 20% WPI; and
720
81
impairment claims lodged where the primary psychiatric impairment was greater than
or equal to 10% WPI, but less than 15% WPI.
7.97. The Reviews independent actuaries have estimated the financial impact of reducing the
psychiatric threshold as follows:
If the threshold were reduced to 10% WPI, with the same entitlement amount provided for
psychiatric and physical injuries, it is estimated that the annual cost to the scheme would be
$75 million.
82
If the threshold were reduced to 15% WPI, with the same entitlement provided for psychiatric
and physical injuries, the annual scheme cost is estimated to be approximately $55 million.
83
If the threshold were reduced to 20% WPI, with the same entitlement provided for psychiatric
and physical injuries, the annual scheme cost is estimated to be approximately $40 million.
84
7.98. Reducing the psychiatric impairment threshold below the current 30% WPI threshold would
present a considerable risk to the ongoing viability of the scheme. I believe that the reduction
cannot be justified at this time.
Ensure parity of payments for physical and psychiatric impairments
7.99. In addition to the different methods of assessment and thresholds for psychiatric and physical
impairment claims, lower entitlement amounts are provided for psychiatric impairments
compared with physical impairments.
7.100. For example, if a worker suffers a physical injury on or after 1 July 2008 and is assessed as
having a 30% WPI, the worker is entitled to an impairment benefit of $66,120. But, if a worker
suffers a psychiatric injury on or after 1 July 2008, the worker would only be entitled to an
impairment benefit of $13,230.
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77 Dr R Gutierrez, Injury Management Solutions, Psychological Injury Claims Why do we keep missing
the boat?, presented at the WorkCover WA Injury Management Conference, October 2007.
78 Dr R Gutierrez, Injury Management Solutions, Psychological Injury Claims Why Do We Keep Missing
the Boat?, presented at the WorkCover WA Injury Management Conference, October 2007.
79 Source: VWA.
80 Source: VWA.
81 Source: VWA.
82 Source: advice from the Reviews independent actuaries.
83 Source: advice from the Reviews independent actuaries.
84 Source: advice from the Reviews independent actuaries.
7.101. Under the TAC and WorkCover NSW Schemes, a psychiatric impairment assessed at or above
the applicable threshold will be awarded the same entitlement as physical impairment assessed
at an equal WPI.
85
7.102. As discussed in paragraphs 7.92-7.95 above, there are sound reasons for the continuation of
different thresholds for accessing impairment benefits for psychiatric and physical injuries.
However, lower levels of payment for psychiatric impairment, once the relevant threshold has
been met, are not justifiable and must be remedied.
7.103. I recommend that the impairment benefit awarded for a 30% psychiatric impairment be
increased to the level of impairment benefit awarded for a 30% physical impairment. Similar
adjustments should also be made to the payments for psychiatric impairments assessed
between 31% and 70% WPI to address the inequity.
7.104. The increase is estimated by the Reviews independent actuaries to cost the scheme
approximately $3 million a year.
86
7.105. The proposed scale of benefits is shown in table 7.4 below.
TABLE 7.4: PROPOSED SCALE OF IMPAIRMENT BENEFITS
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85 WorkCover NSW, Workers Compensation Benefits Guide, p 55.
86 Source: advice from the Reviews independent actuaries.
0%9% WPI
(non spinal,
UEX or LEX)
5%9% WPI
(for spinal,
UEX or LEX
injuries only) 10%30% WPI
31% to
70% WPI 71%80% WPI 81% + WPI
Physical injury entitlement
Current
physical
entitlement
Nil $10,250 min
(5% WPI)
$17,234 max
(9% WPI)
$16,250 min
(10% WPI)
$66,120 max
(30% WPI)
$70,200 min
(31% WPI)
$230,880 max
(70% WPI)
$247,930 min
(71% WPI)
$396,700 max
(80% WPI)
$396,690
Proposed
physical
entitlement
No increase No increase No increase No increase $254,400 min
(71% WPI)
$484,830 max
(80% WPI)
$484,830
Spine injury (only) entitlement
Proposed
Spine injury
entitlement
No increase Calculated
entitlement +
10%
Calculated
entitlement +
10%
No increase $254,400 min
(71% WPI)
$484,830 max
(80% WPI)
$484,830
Psychiatric injury entitlement
Current
psychiatric
entitlement
Nil Nil $13,230
(30% WPI)
$17,540 min
(31% WPI)
$231,400 max
(70% WPI)
$247,930 min
(71% WPI)
$396,700 max
(80% WPI)
$396,690
Proposed
psychiatric
entitlement
No increase No increase $66,120 (30%
Psych)
$70,200 min
(31% WPI)
$230,880 max
(70% WPI)
$254,400 min
(71% WPI)
$484,830 max
(80% WPI)
$484,830
No change to the treatment of secondary psychiatric impairments
7.106. Impairment benefits are not payable for psychiatric injuries that are secondary to a physical
injury.
87
The exclusion was initially justified on the basis that impairment benefit payments
contain a component for pain and suffering
88
and, in most circumstances, secondary psychiatric
injury relates to pain and suffering as a consequence of a primary physical injury.
7.107. The AC Act
89
also prevents the psychiatric and physical consequences of an injury being
combined when determining whether a worker suffers from a serious injury and is therefore
entitled to commence common law proceedings. However, once it is determined that a worker
has suffered a serious injury, any damages awarded for pain and suffering do not distinguish
between secondary and non-secondary impairment.
7.108. The entitlement to lump sum compensation for secondary psychiatric injuries was removed
from the AC Act and the TA Act in 1996. The change was made because of the potential for
double assessment of a component of a psychiatric injury. It was thought that, because
impairment benefit payments contain a component for pain and suffering, emotional distress
arising from a work-related injury was already compensated by that benefit.
7.109. The method of assessing psychiatric impairments
90
does not distinguish between secondary
and non-secondary psychiatric impairments. However, the medical practitioner assessing
impairment must determine the level of impairment attributed to the work-related injury and
then reduce that impairment by excluding any psychiatric injury that is secondary to the physical
injury, as well as any injuries that arise from unrelated circumstances.
91
7.110. Removing the exclusion of secondary psychiatric injuries when assessing compensation for
impairment raises two major concerns:
In many circumstances, the scheme could compensate a worker twice for the same injury.
Compensation would be paid for the physical injury (including a component for pain and
suffering) as well as for the secondary psychiatric injury arising as a consequence of the
physical injury.
The schemes liabilities would significantly increase because of the number of workers who
would be able to access a benefit by combining secondary and non-secondary psychiatric
impairment.
7.111. The VWA does not currently collect data about levels of secondary psychiatric impairment.
However, most (if not all) workers who sustain a significant physical injury will have some level
of emotional distress, consequent on suffering the physical injury.
7.112. If secondary psychiatric impairments were to be included in the calculation of entitlement to
impairment benefits, it is estimated by the Reviews independent actuaries that the increased
cost to the scheme would be between $65 million and $150 million a year.
92
7.113. I therefore propose to retain the current exclusion of compensation for secondary psychiatric
impairments.
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PAGE 258
87 AC Act, s 91(2).
88 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1076: Accident Compensation
(Miscellaneous Amendment) Bill 1997.
89 AC Act, s 134AB(38)(h).
90 MWN Epstein, G Mendelson, NHM Strauss, The Guide to the Evaluation of Psychiatric Impairment For
Clinicians, Self-published, Melbourne, Revised December 2005.
91 AC Act, ss 91(2), 91(7).
92 Source: advice from the Reviews independent actuaries. The estimate incorporates the cost if claim
numbers were to remain static ($65 million), and the cost if claim numbers were to increase because
of easier access to benefits ($150 million).
Use of the AMA Guides
7.114. The AMA Guides are used by medical practitioners to evaluate the impairment of any human
organ system
93
and provide a standard framework and method of analysis. The current edition
of the AMA Guides used to assess permanent impairments in accordance with the AC Act, the
TA Act and the Wrongs Act 1958 (the Wrongs Act) is AMA-4.
7.115. The Compensation Law Bar Association has submitted that AMA-4 is not an appropriate vehicle
for assessing permanent impairment and that AMA-4
. . . tends to under-assess the impairment because it pays no heed to the industrial loss of use
of and nor does it take into consideration pain because practitioners are not permitted to
include any impairment under Chapter 15.
94
7.116. The AMIEU submits that further work is required to develop an appropriate method of
measuring the pain and suffering from disability and impairment.
95
7.117. AMA-4 was adopted by the AC Act in 1998
96
for the assessment of permanent injuries that
occurred on or after 12 November 1997. At that time, AMA-4 would have been considered the
most relevant guidelines available for the scientific assessment of permanent impairments.
97
7.118. Since 2000, two further editions of the AMA Guides have been published.
98
To date, the AC Act,
the TA Act and the Wrongs Act have not been updated to a more recent edition of the AMA
Guides.
7.119. The AMA Guides are a complex tool written by and for medical practitioners. They provide an
assessment tool for a multitude of injuries, from spinal impairments through to cardiac
impairments.
7.120. Reviewing AMA-4 and changing its use for the purpose of assessing work-related permanent
injuries may lead to inconsistent assessments of permanent impairments across all current
Victorian compensation schemes.
7.121. Given the complexity of the AMA Guides and the extensive range of permanent injuries
assessed, any change to the method of assessing permanent injuries could affect thousands of
assessments and the entitlements paid.
7.122. Any review of the use of AMA-4 would require the involvement of the administrators of the
TA Act and Wrongs Act and relevant medical specialists.
7.123. For those reasons, I believe that a review of the current method of assessing permanent
impairments is outside the Reviews scope.
7.124. Rather, I propose that the VWA initiate a review of the method of assessing permanent
impairment, with all relevant stakeholders across the Victorian compensation schemes
participating in the review.
Date of injury vs date of finalisation of claim
7.125. Under section 100(2A) and (2B) of the AC Act, impairment benefit entitlements are indexed
annually by reference to any change in the all groups consumer price index (the CPI) over the
preceding financial year.
99
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93 AMA-4, p 1.
94 Compensation Law Bar Association, Submission, 2 May 2008, p 17.
95 AMIEU, Submission, 2 May 2008, p 20.
96 AC Act, s 91(1)(a)(i) and (8).
97 AMA-4 was first published in 1993.
98 AMA-5 and AMA-6.
99 The impairment entitlements are indexed by the CPI.
7.126. The AC Act provides for the calculation of entitlement to impairment benefit as at the date of
the injury,
100
ensuring that all workers injured in a particular financial year and having the same
level of WPI will receive the same amount of compensation, regardless of when their claims are
lodged or determined.
7.127. The Compensation Law Bar Association submits that
The current system of compensating injured workers on the date of their injury is unduly harsh,
as the scale as at the date of injury might be significantly less than the scale as at the date of
settlement.
101
7.128. Because the amount of impairment benefit paid will be fixed as at the time the worker was
injured, the amount paid is likely to be less than amount payable for the same injury at the time
when the benefit is determined (on the reasonable assumption that any movement in the CPI
will be up).
7.129. The TAC scheme, as a matter of practice, calculates lump sum benefits for permanent injuries
as at the date of the determination of those benefits.
7.130. It might be said that calculating lump sum benefits as at the date of injury creates an incentive
for the prompt lodging of claims. However, any measures required to reduce delays in the
lodgement of impairment benefit claims should be addressed directly and not through the
calculation of a workers entitlements.
102
Delays in lodging or determining claims may not be
caused by the worker; and it is not appropriate to require a worker to bear the financial cost of
any such delay in the form of the deflated value of any impairment benefit paid.
7.131. Directing that impairment benefits be calculated as at the date of the relevant determination,
as opposed to the date of the relevant injury, is likely to have a modest impact on the scheme.
The Reviews independent actuaries have estimated that the annual cost to the scheme will be
between $5 million and $15 million.
7.132. I recommend that the time at which impairment benefits are calculated be brought into line
with the current practice of the TAC.
HEARING LOSS INJURIES
7.133. A hearing loss injury can include: binaural hearing loss (both ears), monaural hearing loss (one
ear), industrial deafness (from exposure to industrial noise), noise-induced hearing loss, and a
further noise-induced loss of hearing.
7.134. The AC Act uses many of these descriptors to identify a hearing loss injury.
103
However, there
is no consistency in the description of this type of injury.
7.135. For compensation of hearing loss injuries,
104
the date of injury is deemed to be either:
the last day of the workers employment, out of which or in the course of which the injury
arose, or
the date of the claim (if the worker is still employed in that employment on that date).
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100 AC Act, s 98C(2) and (3).
101 Compensation Law Bar Association, Submission, 2 May, p 18. See also the submission from Anthea
MacTiernan, quoted in paragraph 7.31 above.
102 AC Act, s 98C(2).
103 See AC Act, ss 88, 89. 90, 91.
104 AC Act, s 88(4).
7.136. In addition to the inconsistent description of the injury, there are several sections in the
AC Act
105
that instruct the VWA and self-insurers on how to:
determine the date of injury for a hearing loss injury and further injury hearing loss;
assess permanent impairment from hearing loss injuries (including monaural and binaural
hearing loss and further injury hearing loss claims);
106
and
calculate the entitlement to compensation, if any.
7.137. The current provisions for determining the date of injury and assessing the extent of initial and
further loss of hearing injuries are confusing, and require clarification.
7.138. There is particular confusion about whether a monaural hearing loss injury is a form of industrial
deafness or is encompassed by binaural hearing loss. If a monaural hearing loss injury does not
fall within either of those descriptors, it may be necessary to clarify the method of assessment
that is to be applied for monaural hearing loss injuries. There is also confusion about whether it
matters that a hearing loss injury occurs gradually or is caused by a traumatic event.
7.139. Amendments to the AC Act
107
relating to further loss of hearing injuries were introduced on
18 November 2004. The amendments resulted from the Supreme Court judgment in the matter
of Del Borgo v Victorian WorkCover Authority (Del Borgo),
108
which was affirmed by the Court of
Appeal.
109
7.140. The legislative amendments were designed to ensure that workers were not unfairly
disadvantaged or overcompensated for further hearing loss injury claims as a result of the Del
Borgo case. The amendments introduced new sections and also amended existing sections of
the AC Act.
110
In my view, the amendments further complicated the hearing loss provisions.
7.141. Since 18 November 2004, there have been approximately 1650 hearing loss claims. In addition,
approximately 600 further hearing loss injury claims have been made by workers who had
previously claimed a lump sum benefit for a hearing loss.
111
7.142. I recommend that the AC Act be amended to introduce consistent terminology for hearing loss
claims and injuries and that the provisions relating to hearing loss injuries be simplified and
rationalised.
Hearing loss impairment benefits
7.143. Initial hearing loss injuries and further hearing loss injuries are assessed and compensated
differently under the impairment benefits scheme.
7.144. An initial hearing loss injury is any hearing loss injury that occurs as a result of a work-related
incident or circumstance, where the worker has not previously received lump sum
compensation for a work-related hearing loss injury.
7.145. A further hearing loss injury is any work-related hearing loss injury where the worker has
previously received lump sum compensation for a work-related hearing loss injury (on one
or more occasions) under any compensation scheme in Australia.
112
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105 AC Act, ss 88, 89, 90, 91(3), (3AA), (3A), (4), (5), 98C(3A).
106 NAL Determination of Percentage Loss of Hearing (1988 edition or later prescribed edition), Australian
Government Publishing Service, Canberra, 1988.
107 AC Act, s 89.
108 [2002] VSC 368.
109 [2004] VSCA 108. The Supreme Court found that the VWA was not entitled to deduct the earlier
impairment assessment of an initial hearing loss from the impairment assessment made after a
worker suffered a further hearing loss injury. The VWA was only entitled to deduct the earlier monetary
award given to the worker when calculating the workers entitlement to compensation in relation to
the further hearing loss injury.
110 AC Act, ss 98C(3A), 89.
111 Source: VWA.
112 AC Act, s 89(1).
7.146. As a consequence of the Del Borgo case, the method of determining and calculating the
entitlement to compensation for further injury hearing loss claims was changed. A new
calculation method was introduced to ensure that a worker is only awarded compensation for
the diminution of hearing resulting from the further hearing loss injury.
7.147. Initial hearing loss impairments are assessed and determined as follows:
the injury is assessed by a specialised medical practitioner in accordance with the National
Acoustic Laboratory (NAL) Improved Procedure for Determination of Percentage Loss of
Hearing;
113
the NAL assessment is then converted to a WPI percentage in accordance with section 91 of
the AC Act;
114
the WPI is then used to calculate the entitlement to lump sum compensation in accordance
with section 98C of the AC Act.
7.148. Initial hearing loss injuries are awarded the same level of impairment benefit as all other
physical injuries. For example, if a worker is assessed at 10% WPI for a hearing loss injury, the
worker will be awarded the same impairment benefit as a person assessed at 10% WPI for any
other physical injury ($16,520).
115
7.149. As noted in paragraph 7.143 above, there is a separate and distinct method for determining the
benefit awarded for workers who suffer a further hearing loss injury. Further hearing loss
impairments are assessed and determined as follows:
the authorised agent must determine the initial hearing loss impairment by reference to the
prior NAL assessment (or assessments);
116
where there is no prior NAL assessment, the
authorised agent must determine the initial hearing loss impairment by reference to the
available medical evidence and convert that assessment to an NAL assessment;
117
the further injury is then assessed in accordance with the NAL;
both the initial and the further NAL assessments are then converted to separate WPI
percentages in accordance with section 91 of the AC Act;
118
both WPI percentages are used to determine the difference between the initial and further
hearing loss and to calculate the entitlement to lump sum compensation in accordance with
section 98C(3A) of the AC Act.
7.150. Further injury hearing loss claims are compensated incrementally. For each percentage lost
above the initial hearing loss percentage, a worker will receive a set dollar amount. For example,
for hearing loss injuries that occur on or after 1 July 2008, each percentage point of hearing loss
is worth $2480.
119
7.151. The incremental amount awarded for a percentage point in a hearing loss claim is the same as
the incremental amount awarded for each percentage point for any other physical injury.
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113 AC Act, s 91(4). NAL Determination of Percentage Loss of Hearing (1988 edition or later prescribed
edition), Australian Government Publishing Service, Canberra, 1988.
114 AC Act, s 91(3).
115 WorkSafe on line claims manual, section 12.11.1 Benefits injuries from 1 July 2007.
116 AC Act, s 89(3C)(a).
117 AC Act, s 89(3C)(b).
118 AC Act, ss 91(3), (3A).
119 WorkSafe on line claims manual, section 12.11.1 Benefits injuries from 1 July 2007.
7.152. Holding Redlich submits that current compensation for workers making a second claim for
hearing loss is inadequate and provide the following example to illustrate their concerns
If a person has . . . a 12% loss of hearing caused by noise and has not made a previous claim,
that person would be entitled to $18,400 ($16,000 for the first 10% of hearing loss which is
treated as equating to a 10% Whole Person Impairment. An additional $2,400 is paid for the
remaining 2% loss which is treated as causing an additional 1% impairment, giving a total
impairment of 11%).
Assume however the claimant has already been paid compensation for a 12% loss in the past
and has since suffered a further 12% loss. Under section 97C(3A)(a) . . . that person has a
further Whole Person Impairment of 12 x .278 = 3.336. This figure is treated as a 4% Whole
Person Impairment. The compensation paid to that person is 4 x $2,400 = $9,600, slightly
more than half the amount they would receive for an initial 12% loss. Arguably a second 12%
loss has more serious consequences than an initial 12% loss.
120
7.153. According to Holding Redlich, the amount available to workers who make a second successful
claim for hearing loss should be more than doubled.
121
7.154. The example provided by Holding Redlich is not a true representation of the manner in which
hearing loss entitlements are calculated.
7.155. As noted in paragraph 7.147 above, hearing loss entitlements are calculated by converting the
NAL assessment to a WPI figure in accordance with the AC Act. For example, a worker, whose
hearing loss is assessed at between 13.6% and 17.1% in accordance with the NAL, would have
a WPI of 12%. The following formula is used to convert the NAL assessment to a WPI figure:
10 + [0.278 (NAL 10)]
122
7.156. Once the NAL assessment is converted to a WPI, the entitlement to an impairment benefit is
calculated using one of the formulae in section 98C of the AC Act. In the example provided by
Holding Redlich, the worker is assessed as having a 12% WPI. Therefore, the workers
entitlement to impairment benefit would be calculated according to the following formula:
$16,520 + [(12 10) x $2480] = $21,480.
123
7.157. The formula above is the same as the formula used to calculate the entitlement to impairment
benefit for any other physical injury.
7.158. If the worker sustained a further hearing loss injury and was assessed as having a 24% WPI,
using the conversion formula under the AC Act, the worker would be assessed at between
56.8% and 60.3% in accordance with the NAL guides. The worker would be assumed to have
a 24% WPI which would be derived from the assumption that the worker had an additional
12% WPI and the original injury being confirmed as 12% WPI (12% WPI + 12% WPI).
7.159. The further injury hearing loss entitlement would be calculated as follows:
[(24 12) x $2480 = $29,760.
124
7.160. The method of calculating the entitlement to compensation for initial and further injury hearing
loss claims ensures that hearing loss injuries are calculated using the same formula.
7.161. The AC Act must maintain a consistent lump sum benefit for all physical injuries. Therefore,
I do not believe that any change to the impairment benefit entitlement for hearing loss injuries
is warranted.
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120 Holding Redlich, Submission, 2008, p 1.
121 Holding Redlich, Submission, 2008, p 2.
122 AC Act, s 91(3).
123 AC Act, s 98C(2)(c) for injuries on or after 1 July 2008.
124 AC Act, s 98C(3A)(b) for injuries on or after 1 July 2008.
GRADUAL PROCESS INJURIES
7.162. A worker who suffers an injury that occurs gradually over time (or incrementally) because of the
nature of the workers employment may be entitled to compensation.
125
An injury of this type is
known as a gradual process injury.
7.163. Gradual process and hearing loss injuries usually do not result from a specific event or
circumstance that can be identified as the cause of the injury or illness. Instead, they arise from
the nature of the duties or the environment of the workers employment.
126
It follows that no
identifiable date of injury can be nominated for the purpose of calculating any entitlement to
lump sum compensation, as currently required by section 98C(2) and (3) of the AC Act.
7.164. Where a worker suffers an injury as a result of a discrete incident on a specific date, and also
suffers a gradual process injury as a result of a different event or circumstance, the two injuries
will be assessed separately.
7.165. The AC Act provides that, if a worker presents for an assessment of permanent impairment for
injuries that occurred on different dates, the impairments are to be assessed chronologically by
date of injury.
127
7.166. Nevertheless, it is increasingly common for workers to make a claim for a specific incident and
to include in that claim any injury that occurred throughout the course of employment. That
type of claim needs to be addressed to ensure the consistent and efficient administration of the
scheme and the delivery of appropriate benefits.
7.167. To achieve those objectives, the date on which all gradual process injuries are deemed to have
occurred should be prescribed in the AC Act or in regulations. Given the similarities between
hearing loss and gradual process injuries, the deemed date of injury for all gradual process
injuries should replicate the deemed date for hearing loss injuries.
7.168. I recommend that the AC Act be amended to define the date of injury for gradual process
injuries as:
the last day of the workers employment out of which, or in the course of which, the injury
arose, or
the date of the claim if the worker is still employed in that employment at the date of the
claim.
MULTIPLE INJURIES
7.169. An injured worker will only receive an impairment benefit if the workers impairment
assessment in respect of a particular event or circumstance is at least 10% WPI for physical
injuries or 30% WPI for psychiatric injuries.
128
The minimum thresholds are not applied
cumulatively.
129
7.170. It follows that workers who sustain multiple injuries because of different incidents or
circumstances (unless the incidents or circumstances occurred on the same date) are not
entitled to compensation unless the injuries arising from each incident or circumstance meet
the required threshold.
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125 AC Act, s 82(6).
126 The exception being noise-induced hearing loss resulting from a traumatic event.
127 AC Act, s 91(7)(b).
128 AC Act, s 91(7), 98C(2) and (3).
129 AC Act, s 91(7).
7.171. The AC Act requires that:
multiple injuries which arose out of the same incident or occurred on the same date are to
be assessed together;
130
and
in the case of multiple injuries which occurred on different dates,
131
the impairments are to
be assessed separately in chronological order by date of injury.
7.172. The operation of section 91(7) can be illustrated by considering two different workers with
identical injuries.
Worker A was injured as a result of a single incident; and worker B was injured as a result
of two separate incidents.
Worker A has an impairment assessed at 10% WPI as a result of multiple injuries to different
body parts arising from the one incident.
Worker B has an impairment assessed at 7% WPI to one body part from the first incident
and 3% WPI to another body part from the second incident (under AMA-4, 3% and 7% WPI
would combine to a 10% WPI).
Worker A will be an entitled to an impairment benefit because the minimum threshold for
compensation, in section 98C(2)(a) of the AC Act, has been met.
Worker B will not be entitled to an impairment benefit because neither impairment meets
the minimum threshold in section 98C(2)(a) of the AC Act.
Although the injuries arising from the two incidents would create a combined WPI of 10%,
the two impairment assessments are not combined, because they resulted from two separate
incidents.
7.173. In comparison, the TA Act requires that an injured person have a combined impairment
assessment of 11% overall before taking into account the persons total impairment arising
from separate transport accidents.
132
Once a person has met the threshold of 11% for an initial
impairment benefit claim, an additional 1% permanent impairment from a later injury will entitle
the person to a further lump sum benefit.
133
7.174. Under the TA Act, where a plaintiff obtains common law damages after receiving an impairment
benefit, the impairment benefit amount is deducted from the pain and suffering component of
the common law damages. Where there are multiple injuries from separate incidents, only the
amount of impairment benefit paid for the injury to which the common law damages relate will
be deducted from the damages award.
7.175. I assume that the method adopted by the TAC was introduced because of the inequity of
requiring an injured person to meet a specific threshold for each additional injury caused by any
further transport accident.
7.176. The VTHC contends that
. . . the current system of requiring the threshold to be met for every separate injury leads to
distorted and unfair outcomes for injured workers.
It is very common for workers to suffer a range of injuries during their working lives, the
cumulative effect of which can be very debilitating. By requiring each injury to be addressed
as a separate matter, the reality of the overall limitations of a workers injuries are ignored.
134
7.177. The SIAV argues that
The TAC model offered in support of the accumulation model is not comparable. The TAC as
a monopoly insurer has only one interest to defend rather than the risks of many different
employers.
135
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130 AC Act, s 91(7)(a).
131 AC Act, s 91(7)(b).
132 TA Act, s 48.
133 The further injury hearing loss provisions found in the AC Act mirror this provision in the TA Act:
see paragraphs 7.149-7.150 above.
134 VTHC, Submission, 2 May 2008, p 36.
135 SIAV, Submission, May 2008, p 20.
7.178. The SIAV is also concerned that the potential for the combination of impairments poses a
significant risk that a self-insurer may be liable for a condition to which it has made less than
a significant or material contribution.
136
(Unlike the TAC, the VWA must apportion the level of
injury attributable to each employer involved in each incident for the purposes of premiums).
7.179. Ai Group has noted that there may be difficulties associated with managing multiple injuries
from multiple incidents, given the potential premium disadvantage.
137
7.180. Combining multiple injuries and paying impairment benefits for the combined WPI caused by
those injuries carries the risk that an injury will be attributed an employer, when the injury did
not occur during or as a result of that specific employment.
7.181. For example, a worker may suffer a physical injury with one employer and, as a result of that
injury, be assessed as having an 8% WPI. The worker might then suffer a further injury with a
second employer, and the two injuries are combined for a 10% WPI. Only the second
employers premium liability would reflect the entire cost of the two injuries.
7.182. Allowing separate injuries to be combined in that way is likely to create a disincentive for
employers to employ workers who have previously suffered a work-related injury.
7.183. Another issue is that a worker may be paid compensation twice, in error, for the same injury
(against separate employers), if the system does not recognise that both combined lump sum
payment relate to the same injuries.
7.184. To ensure that double-dipping does not occur in those circumstances, a method of allocating
an entitlement amount for each injury would be required, which is likely to add complexity to
the system.
7.185. As noted in paragraph 7.29 above, the SIAV has also submitted that
. . . the entitlement threshold must be satisfied for every injury as it clearly encourages workers
to report injuries and make claims in a timely manner rather than waiting for the accumulation
of various injuries to reach an applicable threshold.
138
7.186. Allowing for multiple injuries to be combined for the purpose of compensating permanent
impairments may provide an incentive for workers to delay notification or assessment of an
impairment benefit claim, because delay might increase the entitlement awarded.
7.187. The risk of workers delaying notification of an injury appears to be small. Most workers who
lodge an impairment benefit claim would already have notified the employer or authorised agent
of the injury to obtain payment for medical services or weekly benefits. Nevertheless, a
potential incentive to delay assessment contradicts one of the objectives of the AC Act
to identify and compensate injuries as early as practicable.
7.188. Common law damages may also be affected by changes to the assessment of multiple injuries.
When common law damages are awarded for pain and suffering, any payment of impairment
benefit for the same injury is deducted from the award.
139
Combining multiple injuries, each of
which would not entitle the worker to compensation, may impact on the deduction of the
impairment benefit payment from common law damages.
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136 SIAV, Submission, May 2008, pp 19-20.
137 Ai Group, Submission, May 2008, p 59.
138 SIAV, Submission, May 2008, p 19.
139 AC Act, s 134AB(25)(b).
7.189. Assume that a worker suffers an injury as a result of one incident, and is assessed as having an
8% WPI. The same worker then suffers an injury as a result of a separate incident and the
resulting WPI is assessed at 4%.
If the TAC regime was adopted, the worker would be entitled to a combined 12% WPI and
paid compensation accordingly.
If the worker then successfully sought common law damages based on the cause of action
arising from the second incident, the benefit entitlement awarded for the second injury would
be nil (only the combined injury would have been awarded a benefit entitlement), and there
would be no deduction under section 134AB(25)(b) of the AC Act.
7.190. Combining multiple injuries would also have the effect of reducing the physical or psychiatric
impairment thresholds required for any future injuries that occur as a result of separate
incidents. The 10% threshold for physical impairments would become more attainable where
multiple injuries have been sustained, each of which resulted in a minor impairment when
assessed in accordance with AMA-4.
7.191. Reducing the threshold for all impairments to 5% WPI could achieve a similar outcome.
However, where multiple minor injuries result from multiple incidents, there may still be no
entitlement to compensation.
7.192. The Reviews independent actuaries anticipate that adopting the TA Act approach to
assessment and entitlement for multiple injuries arising from separate incidents would cost the
WorkCover scheme $100 million or more a year.
140
7.193. Each impairment benefit claim incurs costs associated with managing the claim. Although it
might be more efficient administratively to manage multiple claims as one claim, rather than as
a series of separate claims, the combination of multiple injuries is likely to increase the average
cost associated with lump sum payments and increase the number of claims lodged under the
AC Act.
7.194. A further consideration, that of consistency of approach to entitlements, is relevant.
If the approach of combining were adopted for impairments below 10%, it should also be
adopted for impairments above 10%.
The former course would allow some workers to qualify for compensation; the latter course
would reduce the amount of compensation payable to workers (because the formula for
combining impairments generally leads to a combined impairment that is less than the
arithmetic sum of the individual impairments).
I doubt that any worker would support a regime that required impairments of 10% or more,
resulting from injuries arising out of different incidents (occurring months or years apart), to
be combined before assessing the amount of compensation.
However, if that approach were to be adopted for individual impairments below 10%, a
rational and consistent approach would require that approach to be adopted for individual
impairments of 10% and above.
7.195. Despite the potential administrative efficiencies and savings that might result from combining
impairments from multiple injuries, there are persuasive arguments against changing the
approach to multiple injuries. Those arguments include the substantial impact on scheme
liabilities, the increased complexity associated with managing a multiple injury impairment
determination system and the importance of a consistent approach to questions of entitlement.
7.196. For the above reasons, I do not recommend a change to the assessment and determination of
multiple injuries.
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140 Source: advice from the Reviews independent actuaries.
TWO SEPARATE SYSTEMS
7.197. As noted in table 7.1 (see paragraph 7.18), the maims payment and impairment benefit systems
involve different principles and processes for determining entitlement to compensation.
Different dispute resolution processes also apply under the two systems.
141
7.198. When a claim is made for a maims payment, the VWA has 90 days in which to accept or reject
the claim. If the claim is accepted, the VWA will offer to settle the claim for a particular amount.
If the worker does not accept the offer, the worker can take the dispute to the ACCS, but only
after he or she has taken reasonable steps to resolve the matter. The process effectively
requires the worker to make a counter offer to the VWA in an effort to settle the claim.
7.199. If the matter proceeds to the ACCS, the VWA is required to make a further formal statutory
offer and the worker is required either to accept the VWAs statutory offer or to make a
statutory counter offer before the dispute proceeds to conciliation.
7.200. A more streamlined process applies to disputes about impairment benefits. If the VWA rejects a
claim for an impairment benefit, or the injured worker disputes the VWAs calculation of an
entitlement, the dispute goes directly to the ACCS.
142
If a dispute arises about the assessment
of the workers level of impairment, the dispute is referred directly to a Medical Panel for an
opinion.
143
7.201. Although the maims payment system was abandoned in 1997, maims claims continue to be
lodged each year for injuries sustained between 1 September 1985 and 11 November 1997,
albeit in diminishing numbers as table 7.5 demonstrates.
TABLE 7.5: MAIMS CLAIMS LODGED PER CALENDAR YEAR FROM 1992 TO 30 NOVEMBER 2007
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141 The process for maims payments is set out in the AC Act, s 104. The process for impairment benefit
claims is set out in the AC Act, s 104B.
142 AC Act, s 104B(3).
143 AC Act, s 104(9).
0
2000
4000
6000
8000
10000
12000
14000
2
0
0
7
2
0
0
6
2
0
0
5
2
0
0
4
2
0
0
3
2
0
0
2
2
0
0
1
2
0
0
0
1
9
9
9
1
9
9
8
1
9
9
7
1
9
9
6
1
9
9
5
1
9
9
4
1
9
9
3
1
9
9
2
7.202. In 2006/2007, approximately 400 maims claims were lodged. In the same year, approximately
4600 impairment benefit claims were lodged.
7.203. Although the number of maims claim lodgements is reducing, there is a range of issues
associated with maintaining two different lump benefit schemes, including
potential confusion for workers about the benefit they may be entitled to claim and the
process that should be followed in making a claim;
inconsistencies in outcomes for workers whether a worker is entitled to lump sum benefits
and the amount of any compensation payable will depend on the date of the workers injury;
inconsistency in the processes to be followed to resolve disputes that arise under each system;
administrative burdens and inefficiencies caused by the need for the VWA to administer two
different systems; and
difficulties in assessing gradual onset injuries that may span the two different benefit systems.
7.204. In an effort to reduce confusion about the lump sum benefit system, the VWA website
144
provides information relating to impairment benefit eligibility and claims processes.
Unfortunately, the website does not provide the same detail for maims payments.
7.205. It is essential, while the maims payment system remains in place, that the VWA update its
website with details about maims payments, so as to reduce confusion about the differences
between the two lump sum benefit systems.
7.206. In order to remove inconsistencies in processes and entitlements and reduce the administrative
burden of managing two systems, one option would be to replace the maims system with the
impairment benefit system.
7.207. However, the VTHC has submitted that, due to the decreasing number of maims claims lodged
Any attempt to incorporate the two systems is unnecessary and potentially confusing.
145
7.208. Ai Group has also submitted that
There do not appear to be any major benefits associated with merging the two schemes.
146
7.209. If the maims system was abolished and replaced by the impairment benefits system, it is likely
that some workers would benefit from the reform. For example, workers with psychiatric
injuries could qualify for impairment benefits, whereas compensation for such injuries has not
been available under the maims system since 1992.
7.210. However, workers with back, neck or hearing loss injuries sustained between 1 September 1985
and 11 November 1997 might be disadvantaged by the reform. Those workers are more likely to
receive an entitlement, and may receive a more generous entitlement, under the maims system
than under the impairment benefit system.
7.211. Over time, at least 2000 workers might be disadvantaged by abolishing the maims system and
replacing it with the current impairment benefit system.
7.212. To minimise those negative effects, it might be possible to adjust some of the thresholds for
access to impairment benefits, so as to bring them closer to the thresholds under the maims
system.
7.213. For example, the threshold for all spine injuries could be reduced (to 1% WPI) and hearing loss
injuries (to 7% WPI), regardless of when the injury was sustained. For all other injuries, the
current thresholds could be maintained. The current thresholds for access to impairment
benefits for back, neck and pelvis claims could also be lowered to align with the lesser maims
thresholds for these injuries.
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144 WorkSafe Victoria 2008, viewed 21 May 2008, <www.worksafe.vic.gov.au>.
145 VTHC, Submission, 2 May 2008, p 35.
146 Ai Group, Submission, May 2008, p 59.
7.214. The Reviews independent actuaries anticipate that reducing the threshold in that way
would increase scheme costs by approximately $40 million to $45 million a year (or 2% of
the break-even premium).
7.215. Of course, replacing the maims payment system with the impairment benefit system would
streamline the administrative processes, and reduce the inconsistency in the assessment of
permanent injuries.
7.216. However, although streamlining the two systems would be beneficial for the VWA and some
workers, the benefits do not outweigh the costs.
7.217. Given the high cost to the WorkCover scheme of replacing maims benefits with impairment
benefits and the detrimental effect on some workers of loss of entitlement, I consider it
sensible to maintain the two separate systems at this time.
DELAYS IN LODGING CLAIMS
7.218. A claim for impairment benefits can be lodged with the workers employer by an injured
worker,
147
or initiated by the VWA or a self-insurer on the injured workers behalf.
148
7.219. A claim for impairment benefits
149
lodged by an injured worker cannot be made until 12 months
after the date of the relevant injury.
150
Earlier lodgement can be accepted by an authorised
agent if the injury is considered to have stabilised. Even if there is a delay in the stabilisation
of the injury, the claim can still be made 12 months after the date of injury; however, the
assessment of the injury is likely to be postponed until the injury has stabilised.
151
7.220. The current average delay from the date of injury to the date of impairment benefit claim
lodgement is approximately 900 days.
152
A delay of that kind obviously will delay a workers
receipt of the compensation to which the worker is entitled. Delays are due to:
workers (particularly those who are not legally represented) being unaware of their
entitlements;
instability or presumed instability of work-related injuries; and
workers waiting for all injuries to manifest.
7.221. Some delay due to the instability of a workers injury or illness is unavoidable. It is important
that an injury has stabilised to ensure that the permanent impairment resulting from the injury
is appropriately assessed and the entitlement to compensation accurately calculated.
7.222. However, in some circumstances unnecessary delay is caused by confusion about whether a
condition has stabilised: an injured worker may not know when her or his condition is stable
enough to be assessed to allow determination of the level of permanent impairment.
7.223. The AC Act
153
permits initiation of an impairment benefit claim by the VWA or self-insurer. In
practice, however, the VWA does not initiate impairment benefit claims for compensation.
7.224. The provision allowing the VWA to initiate impairment benefit claims was introduced into the
AC Act in 2000. The VWA must wait for 18 months after the date of the relevant injury before
initiating an impairment benefit claim.
154
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147 AC Act, s 103(1)(c).
148 AC Act, s 104B(1C), (1CA) and (2AA).
149 Apart from hearing loss claims.
150 AC Act, s 104B(1A).
151 AC Act, s 104B(1B).
152 Source: VWA.
153 AC Act, s 104B(1C).
154 AC Act, s 104B(1C).
7.225. In 2006, a statement of rights
155
was developed by the VWA in conjunction with stakeholder
representatives. The statement of rights is intended to ensure workers are made aware of their
rights and responsibilities should the VWA initiate an impairment benefit claim. As the VWA
does not currently initiate impairment benefit claims, the effectiveness of the statement of
rights cannot be evaluated.
7.226. VWA initiation of lump sum claims has the potential to reduce the number of workers who
require a legal representative in order to start the impairment benefit process. (At present, 90%
of all injured workers pursuing an impairment benefit claim are legally represented.)
156
Workers
still have the option to engage legal representation if desired.
7.227. With or without legal representation, the statement of rights legislated in 2006 aims to protect
the rights of injured workers where the impairment benefit process is initiated by the VWA.
7.228. Some authorised agents do advise injured workers of their right to pursue a permanent
impairment once the injury has stabilised. However, the VWA generally does not individually
notify injured workers of the ability to claim for a lump sum benefit.
7.229. The VTHC submits that
. . . it is not appropriate for the VWA to commence the impairment claim process.
157
7.230. VECCI believes that
. . . it is not up to an insurer to declare a liability but up to a worker to claim.
158
7.231. Despite those points of view, the VWA is sometimes better placed to decide whether an injury
or multiple injuries have stabilised for the purpose of conducting an impairment examination.
This is especially true where the worker remains off work and continues to seek medical
intervention to improve the condition of the illness or injury.
7.232. In the majority of such cases, the VWA will obtain medical reports from the treating specialist
on the up-to-date status of the injury, and the reports will often indicate whether any
improvement or deterioration of the injury is expected.
7.233. Unlike the VWA, the TAC initiates impairment benefit claims. The TA Act requires the TAC to
determine the impairment of a person injured as a result of a transport accident either when
the injury stabilises,
159
or three years after the accident, or three years after the injury first
manifests itself.
160
7.234. If the TAC determines that the level of impairment is more than 10%, it must then calculate
the impairment benefit, using a formula in the TA Act.
161
7.235. Given that the TAC has been able to initiate impairment benefit claims successfully, the VWA
should also consider initiating impairment benefit claims in order to provide faster delivery of
lump sum benefits.
7.236. The VWA would be able to identify those claims where there is a potential lump sum benefit by
considering the initial injury notification lodged by the worker with the VWA and any up-to-date
medical reports.
7.237. Identification of those workers who are likely to achieve the threshold will ensure that injured
workers do not unnecessarily attend medical examinations.
7.238. I recommend that the VWA should use the provision in the AC Act that allows it to initiate
impairment benefit claims on behalf of injured workers.
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155 AC Act, s 104B(5C).
156 Source: VWA.
157 VTHC, Submission, 2 May 2008, p 38.
158 VECCI, Submission, April 2008, p 62.
159 Although not before three months after the date of the accident: TA Act, s 46A(1AA).
160 TA Act, s 46A(1)(a).
161 TA Act, s 47(2).
DELAYS IN PROCESSING CLAIMS
7.239. On receipt of an impairment benefit claim, the VWA or a self-insurer has a maximum of
120 days to:
accept or reject liability for each injury included in the claim;
obtain an independent impairment assessment by an approved medical practitioner;
determine any entitlement to compensation; and
advise the worker of the determination.
162
7.240. A number of factors delay the VWAs decision-making processes.
7.241. In the case of impairment benefits, there maybe delays in issuing the determination of
entitlement and delays in receiving a response to that determination.
7.242. In the case of maims payments, delays can be caused by the lodging of incomplete claims,
non-attendance at medical examinations by a worker or a medical practitioner, delays in the
VWA issuing an offer and delays in the worker responding to an offer.
7.243. As at 30 April 2008, the average time taken to determine an impairment benefit claim lodged on
or after 18 November 2004 was approximately 230 days.
163
By comparison, in 2007 the time
from receipt of a maims claim to benefit delivery (with no disputes) was approximately 360
days.
164
If a maims claim is disputed and referred to the ACCS for resolution, the time to
resolution increases to an average of approximately 825 days.
165
7.244. It is unsatisfactory from the perspective of the worker and the VWA that the average time taken
to process a maims claim is almost one year and the average time taken to process an
impairment benefit claim is almost two-thirds of a year.
7.245. I accept that there are inherent difficulties with the processing of maims claims. For any maims
claim lodged in 2008, the relevant injury will already be 10 years old and may have occurred as
long as 22 years ago.
7.246. Delays in lodging claims can affect the speed with which claims are processed. Delays can also
affect the availability and quality of evidence to support a claim, and create difficulties for the
VWA in determining the extent to which a permanent impairment is work-related.
7.247. The SIAV favours an amendment to the impairment benefit provisions to prevent the making
of claims for impairment benefits more than six years after injury, in line with the Limitations of
Actions Act 1958,
166
after which time the injured worker would need to apply for an extension
of time.
167
The SIAV submits that
There should be a requirement that impairment benefits claims be commenced within no
more than 6 years of the occurrence or manifestation [of] the alleged injury, (indicated by an
incident report) failing which, the extension provisions of the Limitation Act should apply.
168
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162 AC Act, s 104B(2).
163 For claims lodged on or after 18 November 2004 that have resolved as at 30 April 2008. Data obtained
from the VWA, 30 April 2008.
164 Source: VWA.
165 Source: VWA.
166 The limitation period for commencing actions for damages for workplace injuries is six years from the
date when the cause of action arises: Limitation of Actions Act 1958, s 5(1), as preserved by s 40(a).
167 As provided, for example, by the Limitation of Actions Act 1958, s 27K.
168 SIAV, Submission, May 2008, p 22.
7.248. Imposing a limitation period for the lodging of maims and impairment benefit claims might be
justified. However, provisions identifying circumstances in which a worker could lodge a claim
after the prescribed limitation period would also be required. Such a provision would be
required for workers who suffer a delayed onset injury (such as an industrial disease), and who
may not become aware of the injury for an extended period of time. It would also be necessary
to take account of the requirement that an injury must stabilise before the injury is assessed
and the workers entitlement to any lump sum benefit is determined.
169
7.249. Although the average time between the date of injury and lodging an impairment benefit claim
is 900 days, some injuries may take longer to stabilise. For that reason, any limitation period
would need to allow for the situation where a workers injury does not stabilise.
7.250. For example, claims that have been lodged recently under the maims benefit system (that is,
claims that relate to injuries occurring before 12 November 1997) generally relate to those
injuries which may take time to manifest or stabilise such as musculoskeletal gradual process
back injuries, neck injuries or hearing loss injuries.
7.251. The Queensland WorkCover scheme requires claims for compensation, including claims for
permanent injury, to be lodged within six months after the entitlement to compensation
arises.
170
7.252. Under the Queensland legislation, an insurer must waive the requirement for lodgement of
a claim within six months if the insurer is satisfied that special circumstances of a medical
nature, decided by a medical assessment tribunal, exist;
171
and the insurer may waive that
requirement if the insurer is satisfied that a claimants failure to lodge the application was
due to
mistake; or
the claimants absence from the state; or
a reasonable cause.
172
7.253. Presumably, if a limitation period was introduced for permanent impairment claims, there would
be exceptions similar to those in the Queensland legislation, to allow for cases where a claim
could not be made within the limitation period.
7.254. If a limitation period for lodging claims was introduced, the necessary exceptions would permit
late lodgement of many claims. For that reason, I do not support restricting the time within
which a permanent impairment claim is to be lodged.
7.255. It is clear that the VWA should be more proactive in advising workers of their rights to
impairment benefits;
173
I have recommended that the VWA exercise the power conferred by
section 104B(1C) of the AC Act to initiate impairment benefit claims,
174
a step that would assist
in decreasing the time taken to identify and process lump sum benefits. It would also help to
ensure that all injured workers who may be eligible for a lump sum benefit are notified of their
entitlements in a timely manner.
7.256. If the VWA is to initiate impairment benefit claims, I do not think it is necessary to place a
limitation period on the lodging of those claims.
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169 AC Act, s 91(1A).
170 Workers Compensation and Rehabilitation Act 2003 (Qld), s 131(1).
171 Workers Compensation and Rehabilitation Act 2003 (Qld), s 131(4).
172 Workers Compensation and Rehabilitation Act 2003 (Qld), s 131(5).
173 See paragraphs 7.223-7.238 above.
174 See paragraph 7.238. above.
IMPAIRMENT BENEFIT ASSESSMENT PROCESS
7.257. As noted in paragraph 7.239 above, the AC Act allows the VWA or a self-insurer a maximum of
120 days to:
accept or reject liability for each injury included in the claim;
obtain an independent impairment assessment by an approved medical practitioner;
determine any entitlement to compensation; and
advise the worker of the determination.
175
7.258. The period allowed for determining impairment benefit claims was reduced in 2004 for all
impairment benefit claims lodged on or after 18 November 2004. As a result, the assessment
of the level of impairment and the calculation of the benefit payable are undertaken at the same
time, replacing what were previously separate stages in the process.
176
7.259. The impairment benefit dispute process in the AC Act allows for a worker to dispute the
authorised agents initial impairment determination. The worker has 60 days to dispute the
decision;
177
a disputed liability determination is then referred to the ACCS for resolution;
178
and a disputed impairment assessment is referred to a Medical Panel
179
for a final and binding
decision.
7.260. For the vast majority of claims, the authorised agents advise injured workers of the
determination of liability and any entitlement to compensation within the legislated timeframe.
For claims lodged on or after 18 November 2004, the average time taken for an authorised
agent to issue the initial determination notice to a worker is 111 days.
180
7.261. If the worker accepts the initial determination of liability (including the assessment of any
permanent impairment and the calculation of entitlement), the worker is paid her or his
entitlement.
181
7.262. Unfortunately, despite authorised agents generally delivering initial determinations within
the legislated timeframe, workers are not receiving their benefits in a timely manner.
As at 30 April 2008, the average time taken to process impairment benefit claims lodged
since 2000 was approximately 400 days.
182
As at the same date, the average time taken to process claims lodged since 18 November
2004 was approximately 230 days.
183
This average timeframe includes the time taken to
resolve disputes and delays in issuing the determination of the entitlement.
7.263. Although there have been improvements in the time taken to deliver impairment benefits,
some claims made an extended period of time ago are still unresolved, and affect on the
overall average.
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175 AC Act, s 104B(2).
176 Victoria Legislative Assembly, Debates, 7 December 2004, p 2070.
177 AC Act, ss 104B(6), (7B), (10A).
178 AC Act, s 104B(3).
179 AC Act, s 104B(9). The Medical Panels provide a free service for injured workers. A Medical Panel
conducts a further examination of the workers injuries and delivers a final and conclusive assessment
of permanent impairment. A Medical Panel must issue its opinion within 67 days from the date it
received the request (60 days to form the opinion and seven days to forward the opinion to the agent).
Therefore, a review will delay the final determination of the impairment entitlement. A Medical Panel
decision cannot be appealed on substantive grounds and is to be adopted as conclusive. A Medical
Panel must observe the rules of natural justice and procedural fairness and can therefore be
challenged under administrative law.
180 Source: VWA.
181 The VWA has 14 days to make this payment after being advised that the worker accepts the offer.
182 Source: VWA.
183 Source: VWA.
7.264. The delay in benefit delivery may be caused by several factors, including:
the authorised agents failure to comply with the legislated timeframes;
the authorised agent suspending an impairment benefit claim within 90 days of receiving it;
184
the workers failure to comply with the legislated timeframes for disputing a determination; or
the ACCSs and Medical Panels acceptance of disputes from injured workers outside
legislated timeframes for lodging disputes.
7.265. According to the 2006/2007 ACCS annual report, the ACCS received 1362 disputes relating to
impairment benefit claims
185
in that financial year (9.9% of the total number of disputes
received by the ACCS).
186
7.266. As noted in paragraph 7.259 above, if a worker wishes to dispute a determination on the
workers entitlement to impairment benefits (whether on liability or on assessment), the AC Act
requires that the worker does so within 60 days of receiving the determination. Of the disputes
identified in paragraph 7.265 above, it is reasonable to expect that a proportion would have
been lodged by the worker outside the required timeframe.
7.267. There is currently no consequence if the worker lodges a dispute outside the 60 days. The
ACCS and Medical Panels may accept a referral submitted after the 60 days has expired, and
they routinely do so.
7.268. Benefits might be delivered more efficiently if there was some consequence for a worker who
did not respond to a determination within the required timeframe.
7.269. I consider that the process for determining an impairment benefit claim in accordance with
section 104B of the AC Act is fundamentally sound. However, there are specific areas that can
be improved, such as:
the time taken to determine liability and obtain medical examinations;
the consistent application of legislation; and
the consistent management of claim lodgement or initiation.
7.270. I recommend that the VWA consider a one-stop shop for the management of impairment
benefits. This could help to reduce inconsistencies and delays in the determination and
finalisation of impairment benefits.
7.271. The one-stop shop could be structured in a way similar to the Medical Panels, so that there
would be a central location where all impairment benefit claims can be processed and where all
independent medical assessments occur.
187
Given that the impairment benefit structure is
separate to the claims management structure, a one-stop shop could facilitate the lodgement
and initiation of impairment benefit claims and manage the claim processes.
7.272. The one-stop shop would replace the current management of impairment benefits by
authorised agents. The VWA could engage medical practitioners who would be nominated to
undertake independent impairment assessments of injured workers, while remaining
independent from the worker and the VWA.
7.273. The VWA should explore the option further in consultation with medical practitioners, authorised
agents and relevant stakeholders. Those consultations could help to develop structures to
ensure that such an approach maintains the independence of impairment assessments for all
injured workers and improves the timelines for finalisation of the impairment benefit process.
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184 Authorised agents, on behalf of the VWA, can suspend an impairment benefit for specific reasons set
out in the AC Act under section 104B(1D). There is no legislated time that determines how long an
impairment benefit claim may remain suspended.
185 Victoria, Parliament, Accident Compensation Conciliation Service Annual Report 2006/07.
186 Victoria, Parliament, Accident Compensation Conciliation Service Annual Report 2006/07.
187 In some cases, medical examinations will need to occur outside of the central location for example,
in regional areas, in hospitals or long-term care facilities.
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ACCESS TO JUSTICE
FOR SERIOUSLY
INJURED WORKERS:
COMMON LAW
Assessing proposals for change
The deeming test
The narrative test for economic
loss damages
Review of the method of assessing
permanent impairment
Psychiatric/psychological
consequences of physical injuries
The impact of ongoing weekly
payments on statutory offers
Terminally ill workers
Access to medical information
One application
Reduction in scale costs
Appeals
8.1. The issue of access to common law damages for injured workers and their dependants has
been a subject of significant controversy, debate and reform at different stages of the Victorian
schemes history.
8.2. Common law damages currently make up a substantial part of the benefits paid by the scheme.
As at 30 November 2007, 7150 serious injury applications had been lodged under the current
regime (which commenced operation in October 1999) more than 3500 common law claims had
been resolved and approximately $402 million in damages had been paid to seriously injured
workers. During the 2006/2007 year, 1556 claims were resolved and almost $268 million was
paid in damages. Legal costs associated with the administration of common law totalled
approximately $94 million.
8.3. In this chapter, I:
examine issues relating to the serious injury threshold for accessing common law damages;
recommend changes to ensure that the statutory offer and counter-offer process operates
fairly whilst maintaining incentives for the early settlement of common law actions;
recommend changes to ensure that, where a worker dies before his or her entitlement to
access common law damages has been determined, the proceedings can continue after the
workers death for the benefit of surviving dependants;
examine ways to ensure that the VWA has timely access to medical information relevant to a
workers common law claim;
recommend clarification of the rule that prevents workers from making more than one
serious injury application;
examine whether the 20% reduction in legal costs recoverable by a worker following a
successful common law action remains appropriate; and
review the appeals process for serious injury matters.
Overview of the current scheme
8.4. The AC Act allows a seriously injured worker to take legal action to recover compensation
(in this context, called damages) from a party whose negligence has caused the worker a
work-related injury. The legal action to recover damages is referred to as a common law
action.
8.5. In common law actions, courts assess the impact of a serious injury on the worker, taking into
account the workers occupation, personal circumstances and future prospects. The court then
determines the damages to be paid to the worker. The objective of the award of damages is, in
general terms, to compensate the worker for his or her past and anticipated loss under various
headings including pain and suffering and loss of earning capacity (sometimes referred to as
economic loss or financial loss).
8.6. Rather than providing continuing support (as weekly payments of compensation do), common
law damages provide a one-off lump sum benefit to an injured worker.
8.7. There is nothing in the AC Act that prevents an injured worker from seeking access to both
statutory benefits and common law damages. However, if a worker obtains common law
damages, the worker cannot receive any future statutory benefits for the same kind of loss,
apart from payment of benefits under section 99 of the AC Act for medical and like services. An
award of common law damages will also be reduced by the amount of any statutory benefits
already received.
1
8.8. Employers, other than approved self-insurers, are required to hold an insurance policy with the
VWA, for which the employers pay a premium. The policy covers the costs of common law
claims by an employers workers. Damages awarded against employers in common law actions
are paid by the VWA from the WorkCover Authority Fund. The VWA handles all aspects of any
common law claim against scheme-insured employers. Self-insurers handle their own common
law claims, subject to some oversight by the VWA.
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1 AC Act, s 134AB(25).
8.9. In Victoria, the earliest workers compensation schemes preserved the right of injured workers
to bring common law actions, but injured workers were required to choose between recovering
statutory benefits and pursuing a common law action.
8.10. By the 1970s, that position had changed and workers could claim unlimited damages through
common law actions in addition to claiming statutory benefits.
8.11. From 1985 to 1997, successive Governments restricted access to damages through common
law actions as follows:
For injuries occurring between 1 September 1985 and 30 November 1992, injured workers
could only obtain damages for pain and suffering (with limited exceptions).
For injuries occurring between 1 December 1987 and 30 November 1992, upper limits
(caps) were placed on the amount of damages that injured workers could obtain for pain
and suffering.
For injuries occurring between 1 December 1992 and 11 November 1997
the right of injured workers to obtain damages for economic loss through common law
actions was restored and an upper limit on the amount of damages was imposed for this
type of loss; and
access to common law was restricted to seriously injured workers.
8.12. Access to common law damages was abolished by the Kennett Government for all injured
workers from 12 November 1997. It was restored by the Bracks Government, for seriously
injured workers, from 20 October 1999. In restoring access to common law damages, the
responsible Minister confirmed the important role played by common law, as follows:
The Government believes that the right of seriously injured workers to sue negligent
employers is a fundamental right that should never have been removed. The Government is
committed to the restoration of common law rights for seriously injured workers within the
context of a fully funded and financially stable system which maintains competitive premiums.
2
New common law
8.13. Section 134AB of the AC Act regulates potential common law actions for workplace injuries
sustained on or after 20 October 1999 in Victoria. However, it should be noted that the various
common law regimes (from 1992 to date) still apply to workers whose injuries occurred in the
relevant time periods. For example, workers who were injured between 12 November 1997 and
19 October 1999 cannot access common law damages.
8.14. Access to new common law damages (that is, damages under the scheme that commenced
from 20 October 1999) is restricted to workers who have sustained a serious injury. This
means that the workers injury must satisfy either of the deeming test or the narrative test.
3
Deeming test
8.15. The worker must have a WPI of 30% or more assessed in accordance with AMA-4.
4
8.16. Under the AMA guides, physical and psychological injuries are assessed differently, as are
injuries to different parts of the body. This means that some types of injuries rate higher
(in terms of impairment levels) than others.
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2 Victoria, Legislative Assembly, Debates, 13 April 2000, p 1001.
3 The deeming test is applied as part of an administrative procedure with the VWA as administrative
decision-maker. The narrative test may also be applied by the VWA; alternatively, where the worker is
notified by the VWA that he or she has not satisfied the deeming test or the narrative test, the worker
can apply to the County Court, which will apply the narrative test.
4 AC Act, s 134AB(15).
Narrative test
8.17. Under the so-called narrative test a worker must have suffered:
a serious permanent impairment or loss of a bodily function; or
a permanent serious disfigurement; or
a severe permanent mental disorder or severe long-term behavioural disturbance; or
loss of a foetus.
5
8.18. The impairment, disfigurement, disorder or disturbance is assessed as serious or severe
based on the consequences of the particular injury for the worker. Those consequences are
judged in comparison with other possible cases in the range of impairments, disfigurements,
disorders or disturbances.
6
8.19. Mental disorders or behaviour disturbances are assessed separately from physical injuries for
the purpose of determining whether an injury satisfies the narrative test.
7
8.20. A similar narrative test also applies as the gateway to access common law under Victorias
transport accident scheme.
8.21. In restoring access to common law, the Government envisaged that most seriously injured
workers would obtain access to common law through the deeming test. The opposite has
proven to be true. Relatively few workers have been able to access common law through the
deeming test, because AMA-4 provides relatively low impairment ratings when compared to
its predecessor AMA-2. In particular, spinal injuries (which make up a large percentage of
workers compensation claims) rarely score over 10% WPI when assessed under AMA-4.
8.22. A significant body of case law has developed around the narrative test, providing a degree of
stability and certainty as to its application. The recent review of the Tasmanian workers
compensation scheme recommended the introduction of a narrative test, based on the Victorian
test, to facilitate access to common law damages.
8
8.23. Workers seeking damages for economic loss must also demonstrate a permanent loss of
earning capacity of 40% or more to satisfy the narrative test for access to that type of
damages.
9
That is, a worker can satisfy the narrative test and be eligible to recover damages for
pain and suffering, but not qualify to recover damages for economic loss if the workers loss of
earning capacity is less than 40%.
8.24. The loss of earning capacity component of the test does not apply to a worker aged under 26
Aor a worker who is an apprentice or trainee as at the date of injury.
10
8.25. In order to determine whether a worker satisfies the loss of earning capacity part of the
narrative test, a comparison is made between
the gross annual income that the worker was earning or was capable of earning in the three
years before injury and the three years after injury; and
the income that the worker is earning or is capable of earning in suitable employment at the
date of the court hearing.
11
8.26. Of the jurisdictions that allow access to common law for compensation for economic loss,
Victoria is the only jurisdiction that requires a worker to demonstrate that his or her economic
loss is serious in addition to demonstrating that he or she has suffered a serious injury.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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5 AC Act, s 134AB(16), (37).
6 AC Act, s 134AB(38)(b).
7 AC Act, s 134AB (38)(h).
8 Review of the Tasmanian Workers Compensation System: Report, Alan Clayton, September 2007,
p 105.
9 AC Act, s 138AB(38)(e).
10 AC Act, s 134AB(38)(e)(i) and (ii).
11 AC Act, s 138AB(38)(f).
8.27. The AC Act also fixes minimum amounts that must be reached before a court can award
common law damages. The amounts are indexed. For damages for economic loss, the
threshold is currently $49,460.
12
For damages for pain and suffering, the threshold is currently
$47,770.
13
8.28. Maximum thresholds also apply to damages awards. Injured workers cannot recover amounts
exceeding:
for pain and suffering $484,830;
14
and
for economic loss $1,113,590.
15
8.29. In order to access common law damages, a worker must apply to the VWA for a serious injury
certificate. When applying, the worker must provide specific information to assist the VWA in
its decision-making process. The requirements are set out in the Ministerial Directions 2001
16
and oblige a worker to provide:
a completed Form A,
17
specifying the nature of the injury and types of damages sought, in
addition to other relevant particulars;
a draft statement of claim naming all parties against whom the worker has a cause of action;
an affidavit regarding the workers injury, and the circumstances surrounding, and
consequences of, that injury;
any medical reports on which the worker intends to rely;
taxation returns and financial documents for three years before the injury and three years
after the injury (or to the date of the application); and
any other expert reports or witness statements on which the worker intends to rely.
8.30. If a worker does not provide the above information, the workers application may be
suspended.
18
8.31. Workers can also elect to provide a signed authority for the VWA to access medical information
within the 120-day period.
19
8.32. The process seeks to ensure that the VWA has the information it needs to undertake
investigations required to decide the application within the 120-day timeframe for
assessment.
20
8.33. If the VWA does not grant the injured worker a serious injury certificate, the worker may apply
to the County Court for a review of the VWAs decision. This application must be made within
30 days of the VWAs decision,
21
subject to limited exceptions.
22
8.34. Once the VWA or the court has determined that an injured worker has a serious injury (that is,
once the worker has satisfied either the deeming test or the narrative test), the worker and the
VWA must follow an offer and counter-offer process that is laid down in the AC Act. That
process aims to ensure claims are settled without the need for costly and protracted litigation.
23
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PAGE 281
12 AC Act, s 134AB(22)(a)(i).
13 AC Act, s 134AB(22)(b)(i).
14 AC Act, s 134AB(22)(b)(ii) (indexed annually).
15 AC Act, s 134AB(22)(b)(i) (indexed annually).
16 Source: Victorian Government Gazette, No. S 235, 20 December 2001, pp 3-9, available at
<http://www.gazette.vic.gov.au/Gazettes2001/GG2001S235.pdf>
17 Form A Form of application approved by the authority under section 134AB(5)(a) of the Accident
Compensation Act 1985. (Source: Victorian Government Gazette, No. S 235, 20 December 2001,
pp 10-12, available at <http://www.gazette.vic.gov.au/Gazettes2001/GG2001S235.pdf>
18 AC Act, s 134AF.
19 See the discussion of access to medical information at paragraphs 8.1938.215.
20 AC Act, s 134AB(7).
21 AC Act, s 134AB(16)(b).
22 AC Act, s 134AB(20)(b).
23 AC Act, s 134AB(12).
8.35. Around 80%
24
of common law claims settle during the offer and counter-offer process, which
involves the following steps:
The worker and the VWA meet to discuss the claim within 48 days after the workers serious
injury was determined.
The VWA makes an offer in writing in settlement or compromise of the claim either at this
meeting or no later than 88 days after the workers serious injury was determined.
25
The worker either accepts the VWAs offer, or makes a counter-offer,
26
within 21 days after the
VWAs offer.
The VWA either accepts or rejects the workers counter-offer within 21 days after that
counter-offer.
8.36. The AC Act limits the legal costs that a worker may recover where the worker rejects the VWAs
settlement offer and pursues court proceedings. The provisions limiting costs create an
incentive for workers to settle their claims as early as possible. The limits on recovery of legal
costs apply in the following way:
If a worker is unsuccessful in obtaining compensation, the worker must pay the legal costs of
the VWA on a party/party basis,
27
as well as the workers own costs.
28
If a worker is successful and is awarded compensation in an amount that is equal to at least
90% of the workers statutory counter-offer, and more than the VWAs offer, the VWA must
pay the workers legal costs. The VWA must also pay its own costs.
29
If a worker is successful and is awarded compensation in an amount that is no more than the
offer made by the VWA, the worker must pay the VWAs legal costs, as well as his or her own
costs.
30
If a worker is successful and is awarded compensation in an amount that is more than the
VWAs offer, but less than 90% of the workers counter-offer, each party must bear its own
legal costs.
31
8.37. Legal costs can be considerable in common law proceedings and, where workers have to bear
their own costs, they can substantially reduce the amount of compensation actually received by
the worker.
8.38. The costs rules are intended to provide an incentive for the parties to make realistic offers and
resolve claims at the earliest opportunity. From the perspective of the VWA, the costs rules are
seen as an important measure for containing the cost of common law claims; but, from the
perspective of workers and their lawyers, the costs rules may operate to discourage workers
from pressing their legitimate claims.
8.39. If the negotiation process fails to resolve the matter, a worker may commence court
proceedings. The worker must issue a writ within 30 days of the expiry of the workers statutory
counter-offer. The court proceedings will determine whether the employer has been negligent
and, if so, the amount of damages payable to the worker.
8.40. Once an injured worker receives damages through this process, the worker effectively ceases
to be a part of the compensation scheme.
32
Workers who are receiving weekly benefits and are
awarded an amount for economic loss will cease to receive weekly benefits as soon as their
damages claims are resolved.
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24 Source: VWA.
25 Form B Section 134AB(12)(b) Statutory Offer. (Source: Victorian Government Gazette, No. S 235, 20
December 2001, p 13, available at <http://www.gazette.vic.gov.au/Gazettes2001/GG2001S235.pdf>
26 Form C Section 134AB(12)(c) Statutory Counter Offer. (Source: Victorian Government Gazette, No. S 235,
20 December 2001, p 14, available at <http://www.gazette.vic.gov.au/Gazettes2001/GG2001S235.pdf>
27 Party/party costs are those costs allowed by a court, once litigation is finalised, for the work performed
by a lawyer, and which are considered to be necessary and proper to the attainment of justice.
28 AC Act, s 134AB(28)(a). Party/party costs do not represent the VWAs entire costs. They are costs
incurred by the VWA, based on the relevant court scale, and which can reasonably be charged to the
unsuccessful party. Under the current VWA costs recovery protocols, costs are rarely pursued.
29 AC Act, s 134AB(28)(b). These are limited to paying the workers party/party costs.
30 AC Act, s 134AB(28)(c). The costs to be paid by the worker are the VWAs party/party costs.
31 AC Act, s 134AB(28)(d).
32 A worker who has settled a common law claim will continue to receive reasonable medical benefits in
accordance with the AC Act.
8.41. As at 30 January 2008, 5315 serious injury applications lodged by that date under the current
regime (see paragraph 8.2 above) had been resolved.
8.42. Of the 5315 resolved serious injury applications, 4533 had been accepted as involving a serious
injury (either by the VWA or by the County Court), with only 606 (approximately 13%) deemed to
involve a serious injury, and the remainder relying on the narrative test.
8.43. The most recent statistics indicate that 81% of initial serious injury decisions made by the VWA
are eventually reversed. This could indicate either that the initial decision making process is
flawed or that there is a significant difference between the VWAs approach to serious injury
and the approach taken by the courts.
8.44. The higher than expected reliance on the narrative test, combined with the high rate of
challenges to the VWAs decisions, have resulted in large transaction costs (including legal
costs) and inefficient benefit delivery. I have considered whether this situation could be
improved without affecting the balance between access to common law damages and scheme
viability.
8.45. Table 8.1 provides an overview of the differing state and territory common law provisions,
if they do exist. This table illustrates just how diverse the schemes are.
TABLE 8.1: OVERVIEW OF ACCESS TO COMMON LAW DAMAGES IN AUSTRALIAN
JURISDICTIONS
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CHAPTER 8 ACCESS TO JUSTICE FOR SERIOUSLY INJURED WORKERS: COMMON LAW
PAGE 283
Tasmania Comcare NSW Vic Qld WA SA NT ACT
Availability Economic
loss and
non-
economic
loss
Non-
economic
loss only
except for
dependant
claims
Economic
loss
Economic
loss and
non-
economic
loss
Economic
loss and
non-
economic
loss
Economic
loss and
non-
economic
loss
Abolished
from 3
December
1992
except for
limited
claims
against
third
parties
Abolished
from 1
January
1987
Economic
loss and
non-
economic
loss
Thresholds 30% whole
person
impairment
(WPI)
No 15% WPI 30% WPI
or serious
injury
narrative
Pecuniary
loss:
$49,460;
Pain and
suffering:
$47,770
No 15% WPI NA NA No
Caps No Non-
economic
loss:
$110,000
No Pecuniary
loss:
$1,113,590
Pain and
suffering:
$484,830
No For WPI of
1524%
$334,093
No cap
where
WPI > 25%
NA NA No
Election Within
two years
of date
comp
claim
given to
employer
subject to
extension
in
stipulated
situations
Must elect
between
statutory
non-
economic
loss
payment
and
common
law
No No For related
impairment
of less than
20% of
statutory
maximum
must elect
between
statutory
lump sum
and
common
law
For WPI of
1524%
there is
reduced
access to
statutory
benefits
NA NA No
Recent reviews
8.46. South Australia recently commissioned an independent review of its workers compensation
scheme. The review, conducted by Alan Clayton, recommended that the existing exclusion of
access to common law damages in South Australia should be maintained. The review noted
that common law was naturally adversarial and therefore not aligned with a return to work
focus. It also observed that empirical studies of the operation of common law demonstrate that
common law tends to over-compensate minor injuries, and significantly under-compensate
more serious injuries, when compared to long-tail statutory benefit arrangements.
33
8.47. The 2007 review of the Australian Capital Territory scheme
34
identified access to common law,
without thresholds or limits and with no mandatory discount rate, as one of the main cost
drivers of the scheme. The review canvassed capping damages and imposing an impairment
threshold test to reduce common law payments and associated legal costs. However, the
review conceded that such measures could increase the number of workers remaining on
weekly benefits, leaving little net savings for the scheme.
35
The review concluded that further
research and analysis of scheme performance was required, particularly given that the current
scheme had only been in place since 2002.
36
Stakeholder views
8.48. Access to common law damages is limited by a number of thresholds, which an injured worker
must meet in order to be eligible to make a claim. VECCI submits that
If there were no limits to access and no thresholds Victoria would probably not have common
law as an available benefit because the costs would make Victoria uncompetitive with
jurisdictions which have no common law at all.
37
8.49. Given the current position that common law damages can be sought by an injured worker in
addition to any statutory benefits which may be available, Ai Group is of the view that
. . . consideration of these entitlements is made in conjunction with other entitlements so that a
total package of compensation and support can be considered.
Ultimately, there must be an appropriate balance between compensation for injured workers
and the ongoing viability of the scheme.
38
8.50. A number of submissions, particularly those from legal organisations, argue that thresholds can
result in an injustice to injured workers, particularly low-income earners.
8.51. The ALA considers a change to the 40% loss of earning capacity threshold to be one of the
most vital for ensuring that injured workers receive adequate protection and compensation in
Victoria. In particular, the ALA submit that
The additional threshold . . . that requires workers claiming pecuniary loss damages to prove at
least a 40% loss of pre-accident earning capacity is, in our opinion, too onerous a test,
particularly for low income earners.
. . . Victoria is the only jurisdiction that requires a worker to demonstrate a serious financial
loss in addition to establishing a serious physical or psychological injury.
39
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33 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System, Report, December 2007, p 128.
34 Australian Health & Safety Services Pty Ltd, Dibbs Abbott Stillman & Cumpston Sarjeant Pty Ltd,
ACT Workers Compensation How do we make it work better? Issues Paper, February 2007, p 6.
35 Australian Health & Safety Services Pty Ltd, Dibbs Abbott Stillman & Cumpston Sarjeant Pty Ltd,
ACT Workers Compensation How do we make it work better? Issues Paper, February 2007, p 22.
36 Australian Health & Safety Services Pty Ltd, Dibbs Abbott Stillman & Cumpston Sarjeant Pty Ltd,
ACT Workers Compensation How do we make it work better? Final Report, August 2007, p 55.
37 VECCI, Submission, April 2008, p 65.
38 Ai Group, Submission, May 2008, p 58.
39 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, p 3.
8.52. The Common Law Bar Association supports the ALAs view, and adds
The current 40% economic loss threshold is unfair because it disenfranchises a large group of
injured workers who might have suffered significant pecuniary loss but are not entitled to
recover damages for those losses simply because they fail to establish an arbitrary threshold
for which no justification has ever been given.
40
8.53. The way in which psychiatric injuries are dealt with under the scheme has been raised as a
concern by stakeholders. At present, the psychiatric consequences of a physical injury are not
taken into account when assessing the seriousness of an injury for the purposes of common
law damages.
8.54. The VTHC submits that
. . . the consequence of all work related injuries should be assessed. To do otherwise is to
ignore the true impact of an injury . . .
. . . the distinction has no place in a legislative scheme designed to provide just
compensation.
41
8.55. The County Court of Victoria also expresses concerns about the rationale and practicability of
distinguishing between two kinds of pain and suffering, and submits
. . . in view of the clinical difficulty of stripping out the psychological causes from the physical
causes of a workers pain, it is not practicable for judges to undertake this task.
42
8.56. However, VECCI points out that
Pain and suffering that has a physical cause is always real and probably consistent for similar
injuries. Pain and suffering that arises from a reaction to the injury is variable from person to
person and therefore more difficult to substantiate and objectively determine.
The ability of actuaries to reasonably predict the scheme costs is as vital as it was when
common law was re-introduced.
43
8.57. On the issue of the recovery of legal costs by workers following successful common law
claims, the Common Law Bar Association submits that
. . . injustice and unfairness arises for workers with serious injury who remain on weekly
payments pending trial. The injustice and unfairness is that because of delays in the Court
system, and through no fault of the worker, the longer a worker has to wait for his or her
common law case to come on for trial, the more likely that he or she will fall foul of Section
134AB(28)(d). Thus, such a worker who legitimately and reasonably determines that he or she
should not settle the claim at the compulsory conference stage, and who would not have a
problem with Section 134AB(28)(d) if the case was heard at that time, is penalised by the mere
effluxion of time caused by the delays inherent in the Court system.
44
ASSESSING PROPOSALS FOR CHANGE
8.58. I have not considered the option of removing access to common law, which will continue as
part of the Victorian scheme. I have interpreted my terms of reference (in particular, the
Governments recognition that the underlying principles of the accident compensation laws
remain sound), as indicating that key elements of the scheme, including common law, should
remain in the scheme.
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40 Common Law Bar Association, Submission, 2 May 2008, p 1.
41 VTHC, Submission, 2 May 2008, p 40.
42 County Court, Submission, 2 May 2008, p 8.
43 VECCI, Submission, April 2008, p 66.
44 Common Law Bar Association, Submission, 2 May 2008, p 5.
8.59. At the same time, I believe that there are sound reasons for continuing to limit access to
common law damages to the most seriously injured workers. Common law is a slow, expensive
and generally inefficient way of delivering compensation to injured workers. In addition, the
availability of common law damages in a workers compensation scheme can have adverse
impacts on return to work outcomes and the health of injured workers.
8.60. Proposals to extend access to common law damages, or change the way in which that form of
compensation is delivered, must be treated with considerable caution. Because of the legal
process that is used to determine liability to pay, and the amount of, damages, common law is
inherently less predictable and therefore more volatile in its potential impact on overall scheme
viability. In addition, access to common law in Victoria has been subject to major changes over
the last 20 years. Frequent change has resulted in uncertainty and instability and needs to be
carefully managed.
8.61. The present scheme actuaries, PricewaterhouseCoopers, continue to regard common law as a
major area of uncertainty, noting as follows at the beginning of 2008
While we consider our new common law estimates to be central estimates based upon
knowledge to date, it must be appreciated that a reasonable amount of development remains,
even for the oldest injury year.
45
8.62. When common law was re-introduced in 2000 (with effect from 20 October 1999), the
Government implemented specific limitations and features designed to ensure that common
law would be financially sustainable, including:
limiting access to common law to seriously injured workers, based on the 30% WPI deeming
test or the narrative test;
the 40% economic loss threshold in the narrative test for serious injury when claiming
damages for economic loss;
preventing the combination of psychological consequences of a physical injury with the
physical injury for the purpose of meeting the threshold for serious injury;
imposing caps on the maximum damages that can be awarded;
reducing by 20% the legal costs recoverable by a worker who succeeds in obtaining common
law damages;
erecting thresholds by way of minimum damages; and
creating the statutory offer and counter offer process (designed to deter litigation after the
VWA offers to settle).
8.63. Some of the cost containment features were a continuation of provisions that had applied under
the previous common law regime (for example, the 30% threshold for serious injury, statutory
counter offer process, and maximum and minimum damages thresholds). However, additional
cost containment measures were introduced with the new common law regime (for example,
the 40% economic loss test and the 20% legal costs reduction).
8.64. Many of the issues raised by stakeholders in this Review raise the question whether the cost
containment features remain appropriate.
8.65. Given that more than eight years have elapsed since the introduction of the new common law
regime, it is timely to assess whether the limitations are still necessary, or whether they could
be relaxed to improve benefits to injured workers. The improvement in the VWAs management
of common law over this period (which has reduced common law liabilities), also provides an
opportunity to consider whether the limitations are still necessary.
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45 PricewaterhouseCoopers, Executive Summary Actuarial Valuation of Outstanding Claims as at
31 December 2007, 12 February 2008.
8.66. Over the last eight years, problems have emerged in the implementation of the current
common law regime. In particular, common law has been more litigious than was intended.
More than 85% of serious injury applications are now awarded through the narrative test, and
85% of the VWAs decisions to deny a serious injury certificate are overturned by the courts.
Increased litigation is causing delays and uncertainty for seriously injured workers, and higher
legal costs are borne by the scheme and injured workers. I have looked for opportunities to
remedy this situation.
8.67. The experience of the last eight years has also uncovered a number of anomalies in the
operation of the legislation, which require attention. I have considered how the legislation could
be reformed to remove those anomalies.
8.68. While the views of stakeholders and the experience of the scheme over the last eight years
point to many potential opportunities for reforming common law, I have been sensitive to the
risks of changing the rules governing access to common law damages. In particular, I am
mindful of the warning of the schemes actuary (see paragraph 8.61 above) that the costs of
new common law for even the oldest accident year (1999/2000) are still emerging, and not
confirmed. Therefore, the cost consequences of any changes that I might recommend may not
be fully known for up to 10 years.
8.69. That risk and uncertainty create the potential for scheme instability, given that governments are
understandably reluctant to sponsor retrospective legislation. For example, if it took five years
before the cost of new entitlements were recognised, serious injuries occurring in that five
years would be entitled to the costly entitlements, even if the legislation was immediately
amended, with the scheme bearing the cost for many years to come. This consideration has led
me to adopt a cautious approach when considering any proposals for changing common law,
especially proposals with some potential to increase scheme costs significantly.
8.70. In making recommendations about common law, I have also borne in mind the Governments
commitment, as expressed in my terms of reference, to:
maintaining a stable and competitive workers compensation scheme;
ensuring that injured workers receive the assistance and support they need;
improving return to work outcomes for injured workers; and
efficient delivery of existing benefits.
8.71. With those principles in mind, and in the context of the finite resources available to improve
benefits for injured workers, I have had to consider the relative merits of increased expenditure
on common law benefits as opposed to statutory benefits, such as weekly, death and
impairment benefits. Overall, my preference has been to recommend the delivery of enhanced
benefits to workers through the statutory benefits scheme rather than through the common law
regime. I believe that preference is appropriate, bearing in mind:
the risk that expanding access or benefits available under common law could undermine the
stability and competitiveness of the scheme;
the potential for greater access to common law to undermine incentives for injured workers
to increase their work capacity and return to work; and
the high transaction costs associated with delivering common law, which make it an
inefficient method of delivering benefits to injured workers.
THE DEEMING TEST
8.72. The deeming test was introduced in 1992, mirroring the deeming test for serious injuries in the
TA Act.
46
Under the deeming test, a worker must have a WPI of 30% or more assessed in
accordance with AMA-4 in order to access common law damages.
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46 See TA Act, s 93(3)(b).
8.73. The deeming test requires that a worker establish one of the following to qualify as having a
deemed serious injury:
a 30% physical WPI; or
a 30% primary
47
psychological WPI; or
a 30% combined physical and primary psychological WPI.
8.74. Access to common law operates differently in other Australian jurisdictions, despite some
points of similarity.
48
Deeming tests apply in New South Wales,
49
Western Australia
50
and
Tasmania.
51
In New South Wales, the deeming test is 15% WPI. However, claimants can only access
damages for loss of earnings.
52
There is also a maximum cap on weekly earnings that can be
taken into account for the purposes of calculating the amount of damages.
53
In Western Australia, a 15% deeming test applies for access to damages for pain and
suffering and economic loss. A cap applies to the maximum damages available to workers
assessed as having a WPI between 15% and 25%.
Tasmania also has a 30% WPI deeming provision.
8.75. Clearly, Victorias deeming test is at the higher end of the range. However, Victoria also has the
narrative test, providing an alternative point of access for workers who do not reach the
deeming threshold. No other jurisdiction has the narrative test.
Stakeholder views
8.76. The VTHC supports lowering the deeming test to 20% for physical injuries, 20% for primary
psychological injuries and 30% for combined physical and primary psychological injuries. In
particular, the VTHC submits
Those who score 20% whole person impairment on a physical basis are highly likely to obtain
serious injury certification on a narrative basis. Thus the additional benefit is merely to provide
eligibility for economic loss damages. This category of claimants with impairment ratings of
between 20 to 30% are the most claimants to likely remain on, or return to weekly payments.
This creates a long tail liability for payments and administrative costs which could be avoided.
It is likely that an increased liability for economic loss damages for this group of claimants will
be equivalent to the long tail liability including system created medical costs.
There is already every indication that non pecuniary loss damages in cases with significant
physical pathology are increasing in any event. Those with major physical injuries may receive
an informal or de facto allowance (without any redemptive effect) in the quantification of pain
and suffering damages.
The increasing of the deemed category would significantly reduce transaction costs in the
legal process by the removal of this category, for the litigated group. It is this group that is
currently most likely to receive serious injury certification following litigation. The avoidance of
the cost of litigation will be significant.
The only category advantaged by a reduced physical threshold will be those who suffer
equally impairing but diffuse injuries. Currently claimants with less than 30% whole person
impairment can seek certification under the narrative test. Those with diffuse injuries face
difficulty in demonstrating a serious and permanent loss of a single body function. It is likely
that the cost of increased group would be offset by reduced legal transaction costs.
54
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47 Secondary psychological injury is neither assessable nor compensable.
48 See Table 8.1, paragraph 8.45 above.
49 Workers Compensation Act 1987 (NSW), s 151H.
50 Workers Compensation and Injury Management Act 1981 (WA), ss 93K(4), (5).
51 Workers Rehabilitation and Compensation Act 1988 (Tas), s 138AB.
52 Workers Compensation Act 1987 (NSW), s 151G.
53 Workers Compensation Act 1987 (NSW), ss 35, 151I.
54 VTHC, Submission, 25 January 2008, p 6.
8.77. Apart from VECCI, employer groups oppose any lowering of the current deeming threshold.
VECCI submits that lowering the deeming threshold could be considered if the narrative test
were removed.
55
Lower the deeming test for physical injuries
8.78. The current deeming and narrative tests perform an important function. They ensure that
common law damages are available only to the most seriously injured workers. The current
tests also operate as a gatekeeper that helps to protect the ongoing viability of the scheme.
8.79. However, the high number of serious injury applications initially refused by the VWA and
subsequently accepted during the litigation process is a cause for concern. Changes to the
thresholds that are cost-neutral and ensure benefits are delivered more quickly and efficiently
should be considered.
8.80. Of the 4533
56
serious injury applications granted under the new common law system from
20 October 1999 to 30 January 2008, 606 were granted under the deeming test. Of the
remainder (that is, the applications granted under the narrative test), 815 had a physical and/or
psychological WPI between 15% and 29%.
57
8.81. Of the 815 applications involving a physical and/or psychological WPI between 15% and 29%,
505 were initially denied by the VWA and subsequently accepted at some point during the
litigation process. Based on those figures, if the deeming test had been reduced to 15%, over
500 cases would not have required any litigation. The average party/party costs payable for both
parties in 2006/2007 for a litigated serious injury claim were approximately $36,000,
58
but in an
individual instance may far exceed that figure.
8.82. However, reducing the deeming threshold may extend access to common law damages to
workers who would not previously have qualified as having a serious injury. The number of
workers who underwent an impairment benefit assessment and did not lodge a common law
claim under the current common law regime from 20 October 1999 to November 2007 is as
follows:
1281 workers with a physical or psychological WPI between 20% and 29%;
59
and
1941 workers with a physical or psychological WPI between 15% and 19%.
60
8.83. If the deeming test were to be reduced to 20%, it is likely that an additional 1281 workers
would be eligible for common law; and, if the deeming test were to be reduced to 15%, the
number of workers eligible for common law would be increased by 3222.
8.84. I have considered two options for the deeming threshold to speed up benefit delivery:
lowering the deeming threshold for physical injuries to 20% WPI; and
lowering the deeming threshold for physical and psychiatric injuries to 20% WPI.
8.85. On the first option, the Reviews independent actuaries estimate that decreasing the physical
impairment threshold to 20% is likely to be cost-neutral, provided that it did not encourage the
lodging of additional common law claims.
61
That assumption seems to be reasonable, given
that the vast majority of claims access common law through the narrative test.
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55 VECCI, Submission, April 2008, p 65.
56 Source: VWA.
57 Source: VWA.
58 Source: VWA. This is inclusive of disbursements and counsel costs.
59 Source: VWA.
60 Source: VWA.
61 Source: advice from the Reviews independent actuaries.
8.86. It is anticipated that reducing the physical deeming threshold to 20% would not result in a
significant increase in the number of claims accessing common law damages. It is estimated
that reducing the physical deeming threshold would increase the number of deemed claims
each year from 150 to 230 workers, but reduce the number of claims that succeed through the
narrative test.
8.87. A small increase in the number of claims that access common law damages could be expected,
because some of the 80 workers, who would now be deemed to have a serious injury as a
result of the lowering of the physical threshold, may previously have been denied access to
common law damages under both the deeming and narrative tests.
8.88. The Reviews independent actuaries estimate that the increase in costs, resulting from the
additional claims referred to in the preceding paragraph and the potential increase in the
settlement size for workers who could now claim damages for economic loss, would be offset
by savings in legal costs through increased use of the deeming test rather than the narrative
test in determining serious injury.
8.89. In addition, there is concern that reducing the deeming test could increase the size of the
average damages award or settlement because workers who previously would only have
accessed common law through the narrative test, and would have been granted access to
damages for pain and suffering only, would now be able to access damages for economic loss
as well.
62
8.90. However, data indicate that, since the beginning of the new common law system (on
20 October 1999) very few workers with a physical WPI assessment in the 20%29% range
were granted serious injury status (through the narrative test) for pain and suffering only.
63
Thus, it is unlikely that there will be a substantial increase in the number of workers accessing
both heads of damages, so that it is anticipated that there would be limited impact
64
on average
settlement sizes.
8.91. In 2006/2007, 39
65
workers with a 20%29% physical WPI were denied serious injury in the
pre-litigated stage, with that decision being reversed at some time during the litigated stage.
A lower deeming threshold would have saved those workers time and money. Ultimately, this
will save the scheme transaction costs, including legal costs, as well as providing workers with
faster access to their entitlements.
8.92. The Reviews independent actuaries have estimated that the second option (reducing the
deeming threshold to 20% for both physical and psychological injuries), would have a
considerable, and in my view unacceptably high, financial impact on the scheme of up to
$70 million a year, based on an additional 500 claimants accessing common law damages
if the psychological threshold was reduced to 20%.
66
8.93. I therefore recommend lowering the deeming test to 20% WPI for physical injuries only.
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62 See paragraphs 8.948.95.
63 For 20% physical WPI 76. On average, this amounts to 9 workers per year. Data provided by the
VWA, as at November 2007.
64 Source: advice from the Reviews independent actuaries.
65 Source: VWA.
66 Source: advice from the Reviews independent actuaries.
THE NARRATIVE TEST FOR ECONOMIC LOSS DAMAGES
8.94. Workers who satisfy the deeming test for serious injury can pursue damages both for pain and
suffering and for economic loss.
67
8.95. Workers who obtain access to common law damages under the narrative test are permitted to
pursue damages for pain and suffering but will not be permitted to pursue damages for
economic loss if they cannot demonstrate a permanent loss of earning capacity of 40% or
more.
68
8.96. To determine whether a worker satisfies the loss of earning capacity aspect of the narrative
test, a comparison is made between
the gross annual income that the worker was earning or was capable of earning in the three
years before injury and the three years after injury; and
the income that the worker is earning or is capable of earning in suitable employment at the
date of the court hearing.
69
8.97. In Barwon Spinners Pty Ltd v Podolak,
70
the Court of Appeal held that, when identifying suitable
employment, courts are to consider the types of work that the worker can carry out, whether or
not that work is available. Further, courts cannot have regard to such matters as whether an
employer is likely to employ a worker who has been injured and lodged a workers
compensation claim.
Stakeholder views
8.98. The VTHC
71
, the AWU
72
, the LIV
73
and the ALA
74
submit that the 40% threshold is too onerous,
particularly for lower paid workers who find it harder to show that level of loss.
8.99. The LIV
75
and the ALA
76
submit that, if the loss of earning capacity test is not abolished,
attention should be given to the method of establishing loss (that is, the relevant six-year
period). The ALA also notes that the AC Act has a different test from that in the TA Act, which
creates an anomaly between the two schemes.
77
8.100. The Common Law Bar Association submits that the loss of earning capacity test discriminates
against younger workers, because there is no recognition of the income that younger workers
might go on to achieve.
78
8.101. The SIAV submits that the 40% loss of earning capacity test
. . . discourages the commencement of spurious and speculative claims. The removal of the
threshold is likely to significantly increase the number of common law claims . . .
79
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67 AC Act, s 134AB(15).
68 AC Act, s 134AB(17).
69 AC Act, s 134AB(38)(f).
70 (2005) 14 VR 622; [2005] VSCA 33.
71 VTHC, Submission, 2 May 2008, p 40.
72 AWU, Submission, 31 January 2008, p 1.
73 LIV, Submission, 8 February 2008, p 2.
74 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, pp 3-4.
75 LIV, Submission, 8 February 2008, p 2.
76 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, pp 3-4.
77 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, pp 3-4.
78 Common Law Bar Association, Submission, 5 February 2008, p 1.
79 SIAV, Submission, May 2008, p 23.
No change to the 40% loss of earning capacity threshold
8.102. It is true that the lower a workers gross earnings, the harder it may be to prove a permanent
inability to earn 40% of that figure.
8.103. The ALA provided the following example in its submission to illustrate the point
. . . A manual labourer earned $1,000 gross per week in full time employment before suffering
a back injury at work that required surgery. As a consequence of his physical injuries the
worker was unable to return to his pre-injury occupation and was forced in to a more
sedentary occupation. Although the worker was able to secure full time light office work the
maximum the worker can earn in that new career is $650 gross per week. 60% of his without
injury earnings is $600 gross per week. Despite the fact that the worker has a demonstrable
loss of $350 each week for the foreseeable future, by virtue of the operational of the 40% loss
of earning capacity test, he is precluded from receiving compensation for past and future loss
of earnings and loss of earning capacity.
80
8.104. One way of addressing the situation would be to remove the 40% loss of earning capacity test
and replace it with a serious loss of earning capacity test, thereby harmonising the AC Act
and TA Act. However, I do not support the removal of the 40% economic loss test for the
following reasons.
8.105. First, although I generally support harmonising the provisions of the AC Act and the TA Act,
I consider that there are good reasons for differentiating between the two schemes in this area.
The TAC receives half as many common law claims as the VWA, and the claimants who do
access common law receive far higher average damages (approximately 60% higher than the
average common law payment by the VWA). In addition, the Reviews independent actuaries
note there is a further pressure on the loss of earnings component of VWA settlements that is
not present (or as evident) for TAC settlements. The Reviews independent actuaries have
advised that there is a considerably higher probability that TAC claimants working at the time of
injury will wish to return to work than is the case with VWA claimants. That difference may be
related to the strain that workers compensation claims can place on the employer-worker
relationship.
81
The data detailing the difference in the number and quantum of claims highlight
the differences between the two schemes and their claimants, and give an indication of the
cost pressure that removal of the 40% loss of earning capacity test could place on the workers
compensation scheme.
8.106. Secondly, removal of the 40% threshold may lead to more uncertainty and an increased level of
disputes about what constitutes a serious injury. At present, a fixed threshold provides workers
and their representatives with substantial certainty regarding their prospects of success.
Removing the fixed threshold could increase litigation on the question of what constitutes a
serious injury, especially where there is no adverse cost consequence for doing so. As noted in
paragraphs 8.42 and 8.66 above, one of the problems that has arisen since the re-introduction
of common law has been the far greater reliance on the narrative test than originally envisaged,
and the high level of disputes involved in determining serious injury. I am keen to reduce the
high level of disputes, but removing the 40% requirement would be counter to that objective.
8.107. Thirdly, I am concerned about the potential cost of removing the test. I am aware that the 40%
threshold for economic loss damages was one of the key measures established by the
Government when re-introducing common law damages and was aimed at preserving the
schemes financial viability. The relatively clear-cut threshold was designed to avoid the steady
erosion of more flexible thresholds through the processes of litigation.
8.108. I am well aware that there remains a significant level of uncertainty in current estimates of
common law liabilities and that common law remains one of the major areas of concern for the
schemes actuaries.
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80 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, pp 3-4.
81 Source: advice from the Reviews independent actuaries.
8.109. The Reviews independent actuaries have estimated that the annual cost of replacing the 40%
loss of earning capacity test with a serious loss of earning capacity test could range between
a marginal cost impact and $85 million.
8.110. The marginal impact is based on the assumption that the courts would continue to apply the
precedent set in Petkovski v Galletti,
82
in determining what constitutes a serious loss of earning
capacity. In that case, the Supreme Court found that a reduction in working capacity from
40 hours a week to between 25 and 20 hours a week was a serious consequence in terms of
loss of earning capacity. The marginal impact also relies on the assumption that there would be
minimal impact on lodgement rates and on the proportion of injured workers pursuing damages
for loss of earning capacity.
8.111. The $85 million estimate is based on the assumption that all workers who qualify to recover
common law damages for pain and suffering will be able to show a serious loss of earning
capacity and so recover damages for economic loss at the current average level.
8.112. The higher estimate (of $85 million) might be thought extreme, given the expectation that, if the
40% loss of earning capacity test were replaced by a serious loss of earning capacity test,
the judicial approach of serious loss of earning capacity (as summarised in paragraph 8.110
above) might continue.
8.113. However, replacement of the current relatively inflexible threshold test for loss of earning
capacity with a more flexible and judgment-based threshold test could result in increased
litigation and additional legal costs, as well as posing the risk that the course of litigation and
judicial decisions would erode the threshold.
8.114. Given that there is a risk that removing the 40% loss of earning capacity threshold could have
very significant financial consequences, I do not support it, particularly in light of my preference
for improving statutory benefits for injured workers rather than enlarging entitlements to
common law damages (see paragraph 8.71 above).
8.115. Finally, I accept that the proposal to replace the 40% threshold with a more flexible, judgment-
based test of serious loss of earning capacity (similar to the test that applies under the TAC
scheme) is driven by concerns that the threshold unfairly disadvantages lower paid workers.
8.116. Plaintiff lawyers and trade union organisations have consistently referred to this disadvantage in
the course of my Review, and I do not doubt that the threshold does have some discriminatory
effect. However, the extent of the discrimination is not clear. I am not willing to jeopardise the
stability of the scheme and the place of common law within the scheme for the sake of an
unquantified problem, particularly in light of the fact that the scheme provides support for low
income workers through statutory weekly benefits.
83
8.117. I have also considered whether it might be possible to apply a lower threshold for lower income
workers. For example, a threshold of 25% could be introduced for workers earning, say, $30,000
a year before injury (about half of average of weekly earnings).
84
Those workers would only
need to show a loss of earning capacity of $7500 a year, compared to $18,000 a year under the
current 40% threshold.
8.118. However, I do not consider that such an approach is desirable or workable. First, the approach
would be unfair to workers whose income was slightly above the new threshold. The unfairness
might be addressed by introducing a sliding scale of percentage of economic loss and income,
but such a scale would add additional complexity to an already intricate provision.
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82 [1994] 1 VR 436.
83 I recommend improvements to the level of weekly benefits in Chapter 5, Better Income
Replacement.
84 Australian Bureau of Statistics, Average Weekly Earnings Australia, 6302.0, November 2007, ABS
Canberra, p 16.
8.119. Secondly, the level of employment required by a worker to qualify for the lower threshold would
need to be considered. For example, one worker may have been working 28 hours a week and
earning $28,000 before injury, whereas another worker may have been working 38 hours a week
and earning $28,000. The most reasonable approach might be to apply the threshold to workers
who earn $30,000 a year or less if working full time. However, this would also add further
undesirable complexity.
8.120. Actuarial analysis has indicated that implementing a 25% loss of earning capacity threshold
for workers who earn $30,000 a year or less would cost between $10 and $30 million a year.
The upper estimate is based on the assumptions that:
all low income workers who currently receive damages for pain and suffering would now
qualify for damages for economic loss whereas, in practice, some may not meet the lower
25% threshold; and
low-income workers who would now qualify for economic loss would receive the average
economic loss payout whereas, in practice, it is expected that their economic loss would be
less than the average.
8.121. The lower $10 million estimate is based on the assumption that only half of low income workers
who currently receive damages for pain and suffering would now qualify for economic loss, and
that the amount recovered would be 75% of the average recovery.
8.122. On balance, I do not support amending the Act to apply a lower threshold for economic loss for
lower paid workers, because such an amendment would:
add another level of complication to an already intricate and controversial test, which would
be at odds with my terms of reference to improve the usability of the legislation and improve
understanding of the Act;
create new anomalies affecting workers whose income was above the threshold, and
between part-time and full-time workers, which would be at odds with my terms of reference
to identify and resolve anomalies; and
involve considerable cost, and in my view would be of less benefit to injured workers than the
other reforms I am proposing.
8.123. Lower paid workers will benefit from my recommendations to amend statutory benefits, in
particular weekly benefits. They will have access to:
80% of PIAWE from 14 weeks on weekly benefits;
increased access to permanent partial incapacity benefits after 130 weeks on weekly
benefits; and
superannuation contributions after 52 weeks on weekly benefits.
85
8.124. Those amendments will mean that weekly benefits will be improved; and my recommendation
that provisional liability payments be introduced will provide faster and more efficient access to
those benefits.
8.125. It must also be remembered that the value of any amount of compensation for economic loss
received by workers by way of damages under common law should be reduced to take into
account:
the risks of litigation; and
the fact that the damages are received as a lump sum in a single, once-only payment.
86
Those reductions can markedly reduce the value of an economic loss award. Under a weekly
benefits regime, injured workers receive regular income which will be indexed annually for the
duration of their incapacity.
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85 I recommend improvements to the level of weekly benefits in Chapter 5, Better income
replacement.
86 AC Act, s 134AB(32).
REVIEW OF THE METHOD OF ASSESSING PERMANENT IMPAIRMENT
8.126. As noted in paragraph 8.66 above, a key problem with Victorias experience of the current
common law system is that the assessment of serious injury the gateway to common law
has become overly litigious.
8.127. When it restored access to common law from 20 October 1999, the Government envisaged that
most seriously injured workers would obtain access to common law through the deeming test,
not the narrative test but the opposite has proven to be the case.
8.128. The greater reliance on the narrative test has increased legal costs for injured workers and the
VWA, and delayed injured workers access to common law damages. It has also contributed to
other concerns, such as the impact of the 40% economic loss test on low income workers
when they are obliged to seek access to common law damages through the narrative test (see
paragraphs 8.94 and 8.95 above).
8.129. Ideally, the assessment of serious injury should be a medical question, not a legal one.
However, relatively few workers have been able to access common law through the deeming
test because the AMA-4 guides provide relatively low impairment ratings when compared to
its predecessor.
8.130. AMA-4 was adopted in the AC Act in 1998,
87
for the assessment of permanent injuries that
occurred on or after 12 November 1997. At that time, AMA-4 would have been considered the
most relevant guides available for the scientific assessment of permanent impairments.
88
AMA-4 is used to assess permanent impairments in accordance with the AC Act, the TA Act
and the Wrongs Act 1958.
8.131. Since 2000, two further editions of the AMA guides have been published.
89
To date, the AC Act,
the TA Act and the Wrongs Act have not adopted either of the more recent editions of the AMA
guides.
8.132. If a review of the guides were to result in the adoption of an assessment tool that provided
greater certainty and coverage to injured workers, there could be greater reliance on the deeming
threshold for access to common law, including for access to damages for economic loss.
8.133. However, this is not an area where the workers compensation jurisdiction can move unilaterally.
Reviewing AMA-4 and changing its use, for the purpose of assessing work-related permanent
injuries only, would lead to inconsistent assessments of permanent impairments across
Victorian compensation schemes. Any review of the use of AMA-4 should be conducted with
the administrators of the TA Act and Wrongs Act and relevant medical specialists.
8.134. Accordingly, I recommend that the VWA initiate a review of the method of assessing permanent
impairment, with the participation of all relevant stakeholders across the Victorian compensation
schemes.
8.135. Once the assessment of permanent impairment has been reviewed and the percentages of
impairment produced by that assessment are thought to reflect more accurately the level of
impairment suffered by injured workers, a further analysis of the relevant deeming threshold for
all injuries can be undertaken. If that analysis shows that the new impairment assessment tool
can fairly and accurately identify the seriously injured, it might be possible to abandon the
narrative test and rely on a measure of impairment as the sole gateway to common law
damages (although such a move should only be taken after further consultation and
consideration of the effectiveness of the new assessment tool). Even if the narrative test is not
abandoned, a more accurate impairment assessment tool should enable the majority of
seriously injured workers to access common law through the deeming test, rather than the
narrative test, as was intended when the two tests were introduced.
90
The reform would reduce
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87 AC Act, s 91(1)(a)(i) and (8).
88 AMA-4 was first published in 1993.
89 AMA-5 and AMA-6.
90 See paragraph 8.21 above.
the legal costs of common law and speed up access to common law damages for most, if not
all, seriously injured workers.
PSYCHIATRIC/PSYCHOLOGICAL CONSEQUENCES OF PHYSICAL INJURIES
8.136. Several different types of injury may result in a serious injury for the purposes of access to
common law damages. However, the AC Act prevents a worker who has suffered a physical
injury from combining the psychiatric consequences of that injury with the physical
consequences when considering whether the worker has suffered a serious injury.
8.137. For example, a worker who has suffered a back injury may have a reduced capacity to do all the
things he or she used to do, or to perform all the duties of his or her previous job. That
reduction may cause the worker anxiety or depression. The worker may then be seen to suffer a
physical and a psychiatric injury. If the worker applies for a serious injury certificate, the worker
may claim for both the physical and psychiatric injuries. However, under the AC Act, the
consequences of each type of injury must be considered separately and cannot be combined
for the purposes of satisfying the serious injury test.
8.138. The reason for the exclusion of the psychiatric consequences of a physical injury was explained
when the Accident Compensation (Further Amendment) Bill 1996 was introduced:
91
The number of workers being classified as having a serious injury has steadily risen due to
the assessment of psychological or psychiatric impairments consequential upon an initial
physical injury. To ensure that the classification of serious injury remains within the bounds
originally envisaged by the government, the bill provides that, with the American Medical
Associations guides or the prescribed methods, regard must not be had to any psychiatric or
psychological injury, impairment or symptoms arising as a consequence of, or secondary to,
a physical injury.
8.139. Generally, under the AC Act, psychological or psychiatric injuries are treated differently from
physical injuries. The difference is apparent both in the current serious injury narrative test for
pain and suffering and in the current thresholds for impairment benefit entitlement.
8.140. Under section 134AB(37) of the AC Act, serious injury is defined to mean:
(a) permanent serious impairment or loss of a body function;
(b) permanent serious disfigurement;
(c) permanent severe mental or permanent severe behavioural disturbance or disorder; or
(d) loss of a foetus.
8.141. Under section 134AB (38)(h) of the AC Act, the psychological or psychiatric consequences of a
physical injury are to be taken into account only for the purpose of paragraph (c) of the
definition of serious injury and not otherwise.
92
8.142. In other words, psychiatric consequences resulting from a physical injury are not taken into
account in assessing whether an injured worker has a serious physical injury.
8.143. That restrictive approach was confirmed by the Court of Appeal in Richards v Wylie,
93
a case
relating to the parallel provisions in the TA Act, where Buchanan JA held:
[I]f impairment or loss of a body function is not the result of organic damage but rather a
mental or behavioural reaction to past damage or trauma, the condition producing the
impairment or loss is to be assessed according to the criteria found in paragraph (c).
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91 Legislative Assembly, Debates, 14 November 1996, p 1226; second reading speech on the Accident
Compensation (Further Amendment) Bill 1996.
92 AC Act s 134AB(38)(h).
93 [2000] VSCA 50.
8.144. In the Court of Appeals judgment in West v Pac-rim Printing Pty Ltd,
94
the rationale in Richards v
Wylie was extended to section 135A of the AC Act. The issue in West v Pac-rim Printing Pty Ltd
was whether a workers back symptoms of pain were the product of a physical cause (a disc
injury) or the result of a chronic pain syndrome. The Court found that, although there was an
historical connection between the workers disc injury and the pain, the evidence showed that
the pain no longer had an organic physical basis and therefore the injury did not fall within
paragraph (a) of the definition of serious injury.
8.145. The issue has been considered in other Court of Appeal proceedings.
95
The Court of Appeal has
confirmed that the onus is on the worker to separate out the cause of any ongoing impairment,
according to whether the impairment has an organic (physical) cause or a psychiatric or
psychological cause.
8.146. In Mutual Cleaning and Maintenance Pty Ltd v Stamboulakis,
96
the Court of Appeal set out a
number of principles to assist in the necessary stripping out of psychiatric or psychological
causes of pain. The onus is placed on the worker to separate out any pain and suffering that
results from or is a manifestation of:
any recognised psychiatric condition (or example, depression, adjustment disorder);
chronic pain syndrome or disorder;
functional overlay;
97
exaggeration of symptoms, whether conscious or unconscious; or
any other aspect of the injured persons psychological response to the physical injury.
98
8.147. In the Stamboulakis case, the President of the Court of Appeal, Maxwell P, raised questions
about the difficulties for the courts, medical professionals and the injured worker of applying
section 134AB(38)(h). Maxwell P also raised the equity issue of distinguishing between whether
the cause of the pain is physical or not for the purposes of paying compensation:
[G]iven that genuine (non-feigned) pain is just as disabling when it has a psychological cause
as when it has a physical cause, does this distinction have any place in a legislative scheme
whose object (amongst others) is to provide just compensation?
99
8.148. The principles set out in the Stamboulakis case were somewhat tempered in Zivolic v Hella
Australia Pty Ltd,
100
where the Court of Appeal held that:
. . . if the nature of the medical evidence permits the conclusion that the physical
consequences of the injury constitute a serious injury, then, notwithstanding the requirements
of s 134AB(38)(h), no disentangling or stripping away of psychological consequences may be
required.
Stakeholder views
8.149. In a joint submission, Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater &
Gordon and the ALA characterise section 134AB(38)(h) as another example of the
discrimination against psychiatric injuries contained in the Act.
101
The submission concludes
that the prohibition contained in section 134AB(38)(h) is not only unfair but unworkable.
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94 [2003] VSCA 68.
95 Barwon Spinners v Podolak (2005) 14 VR 622; [2005] VSCA 33; Mutual Cleaning and Maintenance Pty
Ltd v Stamboulakis [2007] VSCA 46; and Zivolic v Hella Australia Pty Ltd [2007] VSCA 142.
96 [2007] VSCA 46.
97 Functional overlay refers to the presence of physical symptoms that they are not explained by any
organic condition. See also Abela v Goodman Fielder Mills Ltd [2000] VSCA 19.
98 Mutual Cleaning and Maintenance Pty Ltd v Stamboulakis [2007] VSCA 46 at [9].
99 Mutual Cleaning and Maintenance Pty Ltd v Stamboulakis [2007] VSCA 46 at [10].
100 [2007] VSCA 142 at [19].
101 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, p 6.
8.150. On the other hand, Ai Group
. . . is opposed to the removal of this distinction. Unlike most physical injuries, it is virtually
impossible to empirically assess psychological and psychiatric conditions. It is therefore far
easier to assert that they suffer these types of conditions when the contrary is in fact the case.
102
8.151. In its submission to the Review, the County Court of Victoria endorses Maxwell Ps observations
in Stamboulakis (see paragraph 8.147 above), adding:
. . . in view of the clinical difficulty of stripping out the psychological causes from the physical
causes of a workers pain, it is not practicable for judges to undertake this task.
103
8.152. The VTHC also notes the comments of Maxwell P, and submits
The Charter of Human Rights and Responsibilities Act 2006 declares that every person is
entitled to the equal protection of the law without discrimination. Discrimination on the basis
of impairment is plainly prohibited. The Charter directs that so far as is possible, all statutory
provisions must be interpreted in a way that is compatible with the human rights recognised
by the Charter.
104
No change
8.153. The Charter of Human Rights and Responsibilities Act 2006 (Vic) (the Charter), which
commenced its substantial operation on 1 January 2008, raises several relevant questions that
are still to be explored by the courts. For example, the Charter declares that every person is
entitled to the equal protection of the law without discrimination, and defines discrimination by
reference to the Equal Opportunity Act 1995 (Vic), which prohibits discrimination on the basis of
impairment. The Charter directs that, so far as is possible, all statutory provisions must be
interpreted in a way that is compatible with the human rights recognised by the Charter.
105
However, the Charter cannot override the plain words of any Act of Parliament, including the
AC Act.
8.154. It may be that the courts will rely on the Charter to interpret section 134AB (38)(h) of the AC Act
in line with the judgement in the Zivolic case (see paragraph 8.148 above), so that any
perceived discrimination is minimised.
8.155. There are a number of reasons for the distinction drawn between the origins of physical and
psychiatric or psychological injuries, for the purposes of common law damages. The reasons
include the imprecision of clinical assessment of psychiatric injuries and the subjective nature
of many psychiatric injuries.
8.156. Although other Australian jurisdictions do not have a narrative test for determining access to
common law damages, those jurisdictions approach to compensation for psychiatric or
psychological injuries indicate that the Victorian schemes approach is not isolated.
8.157. Some statutory benefit schemes (for example, that of the Australian Capital Territory) do not
allow benefits for psychological injuries. New South Wales does not allow the psychiatric or
psychological consequences of physical injury (secondary psychiatric injuries) to be taken into
account. Other jurisdictions (for example, the Queensland scheme) provide that, in calculating
impairment percentages, psychiatric or psychological injury cannot be combined with physical
injury. Tasmania follows the same path as Victoria in setting a higher threshold for entitlement
to psychiatric or psychological impairment benefits.
106
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102 SIAV, Submission, May 2008, p 23.
103 County Court, Submission, 24 April 2008, p 8.
104 VTHC, Submission, 2 May 2008, p 41.
105 Charter, s 32(1).
106 See paragraph 7.85 of Chapter 7, Lump sum benefits for significantly injured workers.
8.158. If a workers compensation scheme is to permit recovery of common law damages while
remaining viable and solvent, the scheme needs to ration access to those damages. The AC Act
does that by distinguishing between workers with serious injuries and workers with less serious
injuries. The distinction is drawn to ensure that common law damages are available to those
who need them most, but not at the expense of the schemes viability. Allowing the
psychological consequences of a physical injury to be taken into account would significantly
cloud the point at which the distinction is drawn.
8.159. The Reviews independent actuaries have estimated that removing section 134AB(38)(h)
(which excludes the psychological consequences of a physical injury from the assessment of
the seriousness of an injury) could cost the scheme $400 million to $500 million a year,
equivalent to around 30% of the break-even premium, and the schemes outstanding claims
liabilities could increase by about $3 billion, equivalent to 40% of the schemes current
liabilities.
107
8.160. For the reasons outlined in paragraphs 8.158 and 8.159 above, I recommend that the status quo
be maintained.
THE IMPACT OF ONGOING WEEKLY PAYMENTS ON STATUTORY OFFERS
8.161. Section 134AB(28)
108
of the AC Act creates legal costs consequences for all parties when an
action for damages is not resolved within the statutory offer process prescribed by section
134AB(12) and summarised in paragraph 8.35 above. The cost consequences are summarised
in paragraph 8.36 above.
8.162. Before a worker can recover legal costs following the determination of a common law action,
the amount for which the action is ultimately resolved must be at least 90% of the statutory
counter-offer made by the worker.
8.163. The operation of section 134AB(28), and its potential to work significant unfairness, are
illustrated by Court of Appeals judgment in Raeburn v Tenix Defence Systems Pty Ltd.
109
Mr Raeburn, a seriously injured worker made a counter-offer to the VWA of approximately
$438,000 to settle his claim consisting of $325,000 for pain and suffering and financial loss,
and $113,000 that Mr Raeburn had already received in weekly benefits at the time of his
counter-offer.
8.164. The case did not settle and proceeded to a court hearing two-and-a-half years later, when a jury
awarded Mr Raeburn $450,000. From this amount, approximately $203,000, representing weekly
payments received by Mr Raeburn up to the time of the court verdict, was deducted, resulting
in a net damages award of $267,000.
8.165. The VWA then argued that the operation of section 134AB(28) meant that Mr Raeburn could not
recover his legal costs because his ultimate award ($267,000) was less than 90% of his counter-
offer ($325,000).
8.166. Mr Raeburn argued that such a result would be unjust because the only reason why his ultimate
award fell below 90% of his counter-offer was that he had continued to receive weekly
payments from the VWA (as was his right) until the date of the court verdict. Mr Raeburn
argued that the amount awarded to him by the jury ($450,000) actually exceeded his counter-
offer of $438,000.
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107 Source: advice from the Reviews independent actuaries
108 Section 134AB(28) replicates section 135A(13A), which was introduced in 1997 in relation to actions
for damages for injuries occurring before 12 November 1997.
109 [2007] VSCA 90; (2007) 16 VR 290.
8.167. The Court of Appeal determined the argument in favour of the VWA, and ordered that
Mr Raeburn pay his own legal costs. The Court of Appeal said that the costs rules in the AC Act
required the Court to compare an injured workers counter-offer, excluding weekly payments
already received, and the compensation ultimately awarded by the Court, excluding weekly
payments received by the worker up to the date of the Courts verdict. However, the Court
commented on the unfairness of the legislation:
But notwithstanding the matters to which we have just referred, counsels submission about
unfairness had real force . . . Counsel submitted that the consequence of s 134AB(12) and (28)
is that, given the uncertainty as to when the proposed proceeding will come to trial, but given
also the certainty of a significant time lapse between commencement of a proceeding and
trial, a worker is put in the position of having to make a low statutory counter-offer in an
attempt to avoid the consequences of [section 134AB(28)(d)]. That works an unfairness,
counsel submitted, at least because the VWA can accept the counter-offer and is then able to
terminate payments of compensation.
We see no reason to doubt that a workers concern about the operation of sub-section (28)
might cause a sequence of events of the kind described; specifically, where the worker
remains on compensation payments at the time when the counter-offer is made.
110
8.168. The VWA had submitted to the Court of Appeal that the potential for unfairness was minimal
because:
weekly payments do not often continue beyond a two-year period (now 130 weeks);
a worker could elect not to receive weekly payments between the statutory offer and trial;
and
section 134AB was designed to restrict proceedings at common law and to place pressure on
parties to resolve their disputes without litigation.
8.169. In response, the Court of Appeal observed that the only persons who can bring a common law
proceeding are those who satisfy the serious injury test, and it is those persons who are most
likely to have an entitlement to weekly payments beyond the two-year period.
111
The court also
observed that it would be a serious indictment of the operation of the AC Act if a worker was
constrained to renounce a compensation entitlement in an attempt to avoid an adverse costs
consequence.
112
8.170. Mr Raeburns case presents an extreme example of the powerful incentive created by the
AC Act for settlement of common law cases. However, the case also demonstrates the
potential for significant unfairness for workers who continue to receive weekly benefits while
waiting for their cases to be heard particularly where there is a substantial delay before a case
is heard. In Mr Raeburns case, a significant amount of time elapsed between the statutory
counter-offer and the finalisation of his common law action.
8.171. A limit to the operation of section 134AB(28)(d) of the AC Act was recently recognised by the
County Court in Herbath v Spotless Pty Ltd.
113
Judge Howie held that, where a worker recovered
damages against her employer and the occupier of premises where the worker had been
injured, the occupier could not invoke the protection of section 134AB(28)(d), which affects
only the costs of the worker and the Authority or self-insurer with respect to the proceedings
against each other. The occupier was ordered to pay the workers costs, even though section
134AB(28)(d) prevented the worker recovering any costs from the employer. Further, Judge
Howie held that the occupier could recover from the employer 60% of the costs it had been
ordered to pay to the worker (the 60% representing the proportionate liability of the employer
for the workers injuries, as found by the Court), because issues of costs as between the
occupier and the employer fell outside section 134AB(28).
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110 Raeburn v Tenix Defence Pty Ltd [2007] VSCA 90; (2007) 16 VR 290 at [16][17].
111 [2007] VSCA 90; (2007) 16 VR 290 at [18].
112 [2007] VSCA 90; (2007) 16 VR 290 at [19].
113 County Court of Victoria, 26 May 2008, unreported. An appeal to the Court of Appeal is pending.
8.172. The more typical operation of section 134AB(28)(d), preventing a successful worker recovering
costs from an unsuccessful employer, has been criticised in submissions made to the Review.
In their joint submission to this Review, Holding Redlich, Maurice Blackburn, Ryan Carlisle
Thomas, Slater and Gordon and ALA submit that the cost penalty applicable to a worker who
fails to recover 90% of the workers statutory counter offer should be abolished. The joint
submission argues
There is no other type of litigation in Victoria . . . where a successful party is not entitled to
full payment of their party/party costs and disbursements by the losing party (subject to the
application of the court rules and common law with respect to offers of compromise and
Calderbank offers).
. . . this provision operates to deter workers from pursuing their full entitlement to damages
as the cost risks for workers are simply too great to bear . . . Workers should be in a position
to obtain their full entitlement to damages neither more nor less than this is fair to either
party.
In the event that the 90% rule is not abolished, then the Act must be amended to
counter the inequities caused by the operation of this section as illustrated by the case of
Raeburn . . .
114
8.173. The SIAV submits that
Workers who continue to receive weekly benefits while waiting for their cases to be heard are
at no significant disadvantage.
. . . SIAV would propose either additional funding for the County Court to allow it to hear these
matters on a more expedited basis . . . or the funding of other initiatives to streamline the
management of cases.
115
Address the potential for injustice
8.174. In the Raeburn case, the worker had recovered judgment for more than his statutory counter-
offer and in excess of three times the amount of the VWAs statutory offer. The worker would
have been awarded costs if the jury verdict had been delivered before 20 January 2006
116

more than 21 months after the statutory counter-offer, but nine months before the actual
verdict.
8.175. Section 134AB is designed to encourage early resolution of common law claims and it is very
successful in achieving this aim. Approximately 74%
117
of claims are resolved through the
statutory conferencing process. However, achieving that aim should not involve the sacrifice of
a workers entitlements.
8.176. In the most extreme case, the Raeburn decision shows that section 134AB(28) may create a
disincentive for workers to remain on weekly benefits and could lead to great personal
hardship. That effect of the provision is contrary to the underlying philosophy of the scheme.
8.177. It is difficult to estimate the extent of the problem revealed by the Raeburn decision. Of the
settlements and judgments of workers common law actions from 20 October 1999 to date,
around 50% of workers were receiving weekly benefits at the time of lodgement of their
serious injury application and, of those, 80% were still receiving weekly benefits at the time of
settlement or judgment.
118
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114 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 8 February 2008, p 5.
115 SIAV, Submission, May 2008, p 25.
116 That is, before the continuing weekly payments had accumulated to the point where his damages
award was reduced below 90% of the statutory counter-offer.
117 Source: VWA.
118 Source: advice from the Reviews independent actuaries.
8.178. Section 134AB(28) and the Raeburn decision are likely to cause workers who are receiving
payment of weekly benefits to moderate their statutory counter-offers, in the light of their
estimate of the likely amount of weekly payments that they will receive before any trial of their
common law action in a context where the trial date is unknown and the workers ongoing
entitlement to weekly payments is uncertain.
8.179. One solution to the difficulty created by section 134AB(28) and the Raeburn decision would be
to disregard all weekly payments received after the workers statutory counter-offer. As a result,
any cost consequences flowing from the net judgment amount would not be affected by delays
in bringing a case to trial, which could increase the workers overall weekly benefits and
disadvantage the worker in terms of legal costs.
8.180. Discounting any weekly payments made after the statutory counter-offer would ensure that a
worker could be certain of the value of the counter-offer. Amending section 134AB(28) to this
effect would retain the incentive to resolve common law claims without recourse to further
litigation, because workers would still be subject to the 90% rule.
8.181. Independent actuarial advice obtained by the Review is that the cost of the change could range
between $0 and $20 million.
119
8.182. The Reviews independent actuaries have commented that the change could provide the basis
for more aggressive settlement counter-offers and lead to an increase in the average size of
common law damages. The higher estimate reflects that possibility, which is based on a
7.5% increase in average common law payments.
8.183. However, the Reviews independent actuaries have commented that, as long as the statutory
counter offer is required to remain within a range of the final settlement or damages award and
the claims management process is maintained, the cost to the scheme is likely to be marginal.
8.184. For the above reasons, I recommend amending section 134AB(28) so that all weekly payments
received after the workers statutory counter-offer during the section 134AB(12) process are
disregarded when comparing the judgment, settlement or compromise with the workers
statutory counter-offer.
TERMINALLY ILL WORKERS
8.185. In the interests of protecting the rights of terminally ill workers, the AC Act provides for the
common law claims process to be expedited. Proceedings may be fast-tracked so that those
workers can access damages while they are still alive.
8.186. There have been eight cases where workers have filed proceedings for an expedited hearing
before a Master of the Supreme Court. The cases have taken between one and five months to
resolve, with an average timeframe of around three-and-a-half months. In none of those cases
did the worker die without resolving the claim.
8.187. Claims for common law damages by terminally ill workers are provided for in section 135BA of
the AC Act. Terminally ill is not defined in the AC Act, but section 135BA(1) provides that
section 135BA applies where:
. . . a worker who may have an entitlement to recover damages in respect of an injury . . .
believes that that injury or unrelated medical condition or injury gives rise to an imminent risk
of death.
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119 Source: advice from the Reviews independent actuaries.
8.188. Section 135BA allows a terminally ill worker to bring a special application in the Supreme Court,
to facilitate faster resolution of the workers claim.
120
The section was inserted in the AC Act to
avoid the need to comply with the serious injury procedures as a precondition to obtaining
common law damages. As noted in the preceding paragraph, the expedited procedure applies
where there is an imminent risk of death.
8.189. However, if a worker has not crossed the serious injury threshold before the workers death, the
workers estate will not be entitled to access common law damages.
121
If the cause of death is
related to the workplace injury, the workers dependants can claim pursuant to section 92A, 92B
or 92C of the AC Act, and there may be a dependency claim under the Wrongs Act 1958.
122
However, if the cause of death is unrelated to work, the dependants will have no entitlement,
denying them of the prospect of much needed funds.
8.190. The ALA submits that the AC Act should be amended to allow a serious injury application to
continue where a worker dies before the application is heard.
123
8.191. The Wrongs Act 1958 provides for such a situation. Claimants under that Act are required to
establish that they have a significant injury before they can claim damages. The Act provides
that, where the claimant dies before the determination of significant injury from a cause
unrelated to the injury to which the claim relates, the Court may make a determination of
significant injury.
124
8.192. I recommend that a similar amendment be made to the AC Act.
ACCESS TO MEDICAL INFORMATION
8.193. The VWA or self-insurer determines whether an injury is serious on the basis of information
provided in the workers application.
8.194. The VWA and the self-insurer need sufficient information to make an accurate decision.
Under the AC Act, the VWA or self-insurer has 120 days in which to advise whether the worker
is deemed to have a serious injury. If a decision is not made within the statutory period,
the worker is automatically deemed to have a serious injury.
8.195. The VWA or self-insurer makes the decision on the basis of medical reports and affidavits
provided by the worker, which may include information or material on which the VWA or self-
insurer would rely in any subsequent proceedings brought by the worker. That prospect may
discourage the worker from providing all the information in the workers possession.
8.196. One reason why 81% of initial serious injury decisions made by the VWA are later reversed may
be that the serious injury application process does not ensure that sufficiently detailed or
accurate information is provided by the worker.
8.197. As discussed in paragraphs 8.106 and 8.135 above, I am keen to reduce the level of disputes
and legal costs in the common law process and to achieve faster benefit delivery. One way of
achieving those objectives may be through facilitating greater access to information early in the
process.
8.198. In 2006, the VWA introduced a consent and authority to release information and documents
form (Form D).
125
Form D aims to ensure that material is gathered quickly. The authority to
release information in Form D purports to be irrevocable until the VWA or self-insurer has
decided whether the worker is deemed to have a serious injury.
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120 Victoria, Legislative Assembly, Debates, 18 November 2004, p 1730.
121 Swannell v Farmer [1999] 1 VR 299.
122 See Chapter 9, Benefits for dependants following work-related deaths, paragraph 9.7.
123 ALA, Submission, 20 February 2008, by email.
124 Wrongs Act 1958 (Vic), s 28LZN(3).
125 See Ministerial Directions, 2006; AC Act, s 134AF; appendix 5.
8.199. There have been problems in practice with Form D:
some medical practitioners refuse to release medical information because of confidentiality
and privacy concerns; and
some workers either do not provide a signed form, or deny that they have provided consent
between October 2006 and October 2007, a signed medical authority was provided in only
32% of the 2175 serious injury claims received.
126
8.200. The statutory basis for the use of Form D in serious injury applications (covering a workers
claim for common law damages) is section 134AF of the AC Act. The section authorises the
Minister to issue directions for procedures under section 134AB, including directions about the
provision of information by affidavit.
8.201. The pre-litigated legal costs payable by the VWA upon successful resolution of a serious injury
claim will be higher for workers who have provided a Form D with their application. The scale of
fees set out in the WorkCover Legal Costs Order 2006 aims to encourage early resolution of
claims and the provision of medical authorities by allowing increased costs for applications that
include such authorities.
8.202. However, it is arguable that a worker may revoke the consent and authority to release personal
health information at any time, despite the assertion to the contrary in Form D.
8.203. Further, the operation of Form D is expressly limited to the 120 days in which the VWA must
make a determination under section 134AB(7). This means that the maximum time that the
workers authority can operate is 120 days after the VWA receives the application.
8.204. Taken together, the four factors identified in paragraphs 8.199 to 8.203 above, namely that:
some medical practitioners refuse to release information;
two-thirds of serious injury applications do not include a Form D;
workers can revoke the authority at any time; and
the authority is time limited and there is no scope for extension;
mean that the Form D has not proven to be effective in addressing the issue of timely access
to medical information.
Stakeholder views
8.205. The AMA is
. . . concerned at the increasing trend towards [the VWA] requesting production of workers
entire medical records pursuant to establishing the merits of workers claims for lump sum
compensation. It is fundamental to best practice health outcomes that patients medical
records remain private as between patient and doctor. Though [the VWAs] request for full
medical histories of claimants may arguably and in limited circumstances enhance its ability to
assess a claim, the implications of compelling production of such comprehensive records are
potentially devastating to the confidence a patient should properly have that their private and
personal medical history remains so.
127
8.206. The AMA proposes that the release of complete medical records should not be a requirement,
either explicitly or implicitly, for a worker seeking lump sum compensation.
128
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126 Source: VWA.
127 AMA, Submission, 8 February 2008, p 3.
128 AMA, Submission, 8 February 2008, p 3.
Ensure VWA has a statutory authority to access relevant medical information
8.207. Access to information could be improved by introducing a case management process similar to
that which operates in England and Wales. That process includes pre-action protocols, which
govern matters such as discovery, joint medical experts, details of special damages and fixed
costs. One of the purposes of the protocols is to enable the parties to obtain the information
they reasonably need in order to enter into an appropriate settlement.
129
8.208. The protocols are similar to the information and conduct required by the Ministerial Directions,
with one notable exception. Where a party does not comply with the pre-action protocols, a
court may consider the parties conduct when assessing or awarding costs. A worker may be
ultimately successful in his or her claim, but have costs awarded against the worker for failing
to comply with the relevant pre-action protocols, or for behaving obstructively. Although that
approach has considerable merit, I would prefer not to place another cost penalty in the AC Act
that would impact on injured workers.
8.209. I have also considered the model used by the TAC, which has developed common law protocols
(similar to the Ministerial Directions that govern a serious injury application under section 134AB
of the AC Act) to deal with access to information. (None of the protocols is legislated in the TA
Act.) The TAC must provide a serious injury determination within 60 days, unless the application
does not provide sufficient information and the TAC reasonably requires:
additional information about any matter contained in the application;
an authority signed by the claimant;
additional medical material of a fundamental nature; or
the claimant to be medically examined.
8.210. Upon receipt of the additional material requested, the TAC must make a determination within
60 days. If the TAC does not make a decision within the 60 days, the application is deemed to
be denied. However the timeframes are not legislated and are therefore not enforceable
in contrast with the position under the AC Act, where a failure to determine serious injury within
120 days leads to deemed acceptance of the application.
8.211. I do not consider that the TAC model would work well in the workers compensation context.
The ability to extend the timeframe for decision-making to access further information would not
assist in effective benefit delivery for workers. It may also cause confusion and have a negative
impact on the other important timeframes in the AC Act. The TA Act and protocols do not
include determination date, statutory conferencing and the applicable costs provisions.
8.212. In my view, the AC Act should be amended to provide that, where a worker lodges a serious
injury application, the worker is taken to give a statutory authority for the VWA to request and
obtain relevant medical information.
8.213. One of the limitations of the current Form D is that requested medical information is often not
provided or not provided within the 120 day timeframe. For a statutory authority to have any
impact it must be capable of being enforced.
130
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129 Rt Hon. Lord Woolf, Final Report to the Lord Chancellor on the civil justice system in England and
Wales, 1996.
130 The Heath Records Act 2001 (Vic) provides a useful example. That Act sets out a process of
conciliation for disputes regarding healthcare records. It allows a penalty of up to 600 penalty units or
3000 penalty units (in the case of bodies corporate) to be imposed on health care professionals or
clinics for non-compliance.
8.214. The AC Act should include a framework that:
sets clear parameters for the type of information that can be requested and the extent of the
authority;
provides a mechanism for dealing with disputes that may arise about the provision of
information in an efficient and effective manner, bearing in mind the relevant timeframes;
enables the serious injury decision-making timeframe to be extended by a further (say)
30 days in the event that vital information has not yet been provided; and
ensures appropriate and proportionate methods of enforcing non-compliance with the
authority by healthcare providers.
8.215. If my recommendations are accepted, the current legal costs order would need to be altered,
as all workers would be required to provide a medical information authority and thus no
financial incentive or sanction need be included in the costs order.
ONE APPLICATION
8.216. Under the old common law system for pre-November 1997 injuries, legislative provisions
controlled how and when workers could apply to the Court for leave to access common law
damages.
8.217. Generally, an application could be made only after the VWA had rejected the workers serious
injury application.
131
This meant that an injured worker could make only one serious injury
application to the VWA for a particular injury.
132
8.218. The new common law system, introduced in 2000 for injuries sustained after 20 October
1999, prescribes the same timeframes as the old system. Both systems contain the
mandatory time limit of 30 days for a worker to make an application to the Court to seek leave
to bring common law proceedings after the VWA or self-insurer has denied the workers
application.
133
In both systems, the VWA retains discretion to allow applications to be made
outside that timeframe.
8.219. Unlike the pre-1997 system, the current common law system does not explicitly restrict the
making of more than one application to the VWA for a determination of a serious injury
application.
8.220. However, a provision inserted in 2001 prohibits a worker who has failed to satisfy a court that
the injury is a serious injury from making a further application for leave to bring proceedings in
respect of the same claimed cause of action.
134
In Cockerill-Wright v State of Victoria,
135
the
County Court considered the application of that provision.
8.221. The VWA had refused a workers serious injury application outside the prescribed 120 days.
At the time, the worker did not recognise the implication of the VWAs delay (which was that
the worker was deemed to have a serious injury). The worker issued an originating motion
seeking a court decision on the serious injury application and the matter proceeded to hearing.
Before the hearing, the workers legal advisers realised that, because the VWAs determination
had not been made within 120 days, the worker was deemed to have a serious injury.
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131 Under s 135A(2C) of the AC Act, if the application is received during the first 104 weeks after injury,
the VWA or a self-insurer can refuse to make a determination if they are not satisfied that the injury
has stabilised. The worker can apply again under s 135A(4A).
132 AC Act, ss 135A(2A), (4) and (4A).
133 AC Act, s 135A(4)(b).
134 AC Act, s 134AB(21), inserted 2001.
135 [2007] VCC 1015.
8.222. The judge before whom the serious injury application was to commence dismissed the
originating motion as the worker was deemed to have suffered a serious injury. The unforeseen
effect was that the worker had missed the various time limits for statutory conferencing, offers
and issuing a damages writ all of which run from the determination date of the workers
serious injury status. In this instance, the determination date was the date when the injury
was deemed to be a serious injury by reason of the lapse of the 120 days for the VWAs
response to the serious injury application. That date had long since passed; and therefore any
possibility of complying with the time limits for the statutory conference, statutory offers, and
commencement of legal proceedings had also passed. The worker requested that the VWA
grant permission to issue a common law damages writ out of time.
136
The request was denied.
8.223. The worker then lodged a further serious injury application, which was refused by the VWA and
the VWA challenged the validity of the second application. A further originating motion was
issued. In considering the matter, Judge Strong of the County Court allowed the workers
application based on his Honours interpretation of section 134AB(21) of the AC Act. Judge
Strong interpreted section 134AB(21) as only prohibiting further applications where a court had
considered whether the worker had a serious injury. The order made by the Judge in the first
instance to dismiss the Originating Motion for non-compliance with the time limit was held not
to be a decision on the substance of the workers case.
8.224. Judge Strongs interpretation involved a strict reading of the words, in section 134AB(21),
fails to satisfy a court that the injury is a serious injury. The Judge also applied the well-
established principle that, in the event that there is ambiguity in workers compensation
legislation, the legislation should be interpreted in favour of the worker.
137
8.225. Following the Cockerill-Wright decision, it appears that section 134AB(21) might permit a further
application to be made in some circumstances. Those circumstances include where:
the initial application was withdrawn after receipt of the VWAs determination;
an originating motion was struck out or dismissed by a court order; or
the originating motion was not issued within the time limit prescribed by the AC Act.
8.226. Although the Cockerill-Wright decision appears to involve an extreme situation, it is the only
example of judicial interpretation of section 134AB(21). The interpretation of the section may be
taken further and extended, for example, to any matter in which a Judge has not made a finding
or heard any evidence or argument.
8.227. The VTHC submits that this anomaly ought to be retained, and that
. . . an injured worker should not be prevented from making a further serious injury application.
Presently, a worker upon having an application rejected by the VWA is entitled to withdraw the
application and resubmit at a later date.
It is important that this option be preserved for injured workers who may have legitimate
grounds for not issuing court proceedings immediately upon receipt of the rejection of the
application. These circumstances include where a workers injury has not stabalised, requires
future surgery or where the worker is not in a financial position to proceed to court.
138
8.228. It is unlikely that section 134AB(21) was intended to allow workers to issue further applications
where they had not complied with the time limits. That kind of result would appear to negate
the purpose of the mandatory time limits.
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136 Pursuant to AC Act, ss 134AB(20), (20A).
137 Dodd v Executive Air Services Pty Ltd [1978] VR 668; Hegedis v Carlton and United Breweries Ltd
[2000] VSC 380 at [32]. Judge Strongs ruling in Cockerill-Wright, which was given on an interlocutory
application, was confirmed on the final hearing of the serious injury application, which resulted in the
worker being given leave to commence common law proceedings. That decision is currently under
appeal to the Court of Appeal.
138 VTHC, Submission, 2 May 2008, p 41.
8.229. The 30-day time limit is intended to reduce delays in the serious injury process. The VWA can
consent to applications being made outside the time limit (such as where an injury fails to
stabilise). The Supreme Court may also adjudicate, on an application for judicial review, whether
the VWA failed to recognise valid reasons for an application being made outside the time
limit.
139
The availability of that power in the VWA, subject to a degree of judicial oversight,
provides sufficient flexibility to protect workers from prejudice where they fail to comply with
the time limits.
8.230. There are other steps available, such as court-ordered adjournments of proceedings, to protect
a workers interests where changes to the workers condition develop while proceedings are on
foot.
8.231. It appears that the drafting of section 134AB(21) has created an unintended loophole.
A prohibition on repeated applications accords with the common law principle that the public
interest requires that there be an end to litigation.
140
Allowing more than one application for the
same injury arising from the same circumstances contradicts that principle, and is neither time-
nor cost-effective.
8.232. I recommend that the AC Act be amended to clarify section 134AB(21), and remove the
unintended loophole that has arisen. The sub-section should make it clear that, where an
application for serious injury has been denied or accepted, or has resulted in a determination of
serious injury (including a deemed determination), or has otherwise been resolved, a worker
may not make a further application for the same cause of action.
REDUCTION IN SCALE COSTS
8.233. Invariably, an injured worker will be legally represented in any serious injury application or
common law damages claim. If a worker is successful in obtaining either a judgment or a
settlement, the VWA will ordinarily pay for a proportion of the workers legal costs.
8.234. For the purpose of determining liability to pay legal costs, costs are divided into two categories
solicitor/client costs and party/party costs. Solicitor/client costs are the fees that a lawyer
charges a client for work performed in relation to the clients case, and are usually determined
in accordance with an agreement between the client and the lawyer. The costs can be in the
form of a fixed fee, or calculated in accordance with the lawyers hourly rate. Party/party costs
are the costs that are allowed by a court once litigation is finalised for the work performed by a
lawyer, on the basis that they are necessary and proper to the attainment of justice.
141
8.235. Generally, when a case is litigated and a court awards judgment to one party, the losing party is
liable to pay the legal costs of the successful party. Costs can be awarded on several different
bases, but they are usually awarded on a party/party basis.
142
8.236. Party/party costs are always less than solicitor/client costs. Party/party costs are not intended to
reimburse the successful party for all of the money spent in bringing or defending litigation.
Rather, they are intended to provide a fair and reasonable partial reimbursement. Accordingly,
there is usually a gap between any party/party costs awarded and the amount that the
successful party will have to pay to his or her lawyer.
8.237. Workers are required to issue proceedings for common law damages in either the County Court
or Supreme Court if their entitlement is disputed by the VWA. Both courts have a scale of
costs, which is used to calculate party/party costs. The scale is general in application and not
specific to workers compensation.
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139 See Robertson v Victorian WorkCover Authority (2006) VSC 54.
140 State Railway Authority v Codelfa Constructions (1982) 150 CLR 29.
141 County Court Rules of Procedure in Civil Proceedings 1999, rules 63A.29.
142 County Court Rules of Procedure in Civil Proceedings 1999, rules 63A.28 and 63A.31.
8.238. The courts scale of costs sets out what has been determined to be a fair and reasonable
amount for particular work by lawyers. The scale fees vary according to the amount of damages
awarded. Fees are calculated in a number of different ways, including by reference to particular
documents prepared, or other steps in litigation, and the length of time spent doing those tasks.
8.239. As part of the amendments in 1997 that abolished the right to seek common law damages, a
new provision was introduced to deal with costs. The provision provided that, when assessing
costs in proceedings commenced on or after 12 November 1997 for injury before that date,
any applicable scale of costs was to be reduced by 10%. In other words, the amount of any
party/party costs awarded by the courts was to be reduced by 10%. Among the aims of this
reduction was securing the financial stability of the scheme, without reducing the overall
benefits paid to workers.
143
8.240. When the right to seek common law damages was reinstated in 2000, a 20% reduction of scale
costs was introduced to balance workers access to common law damages against the financial
viability of the scheme. At the time, the responsible Minister indicated the Governments desire
to ensure that lawyers costs were kept at a reasonable level.
144
8.241. Section 134AG of the AC Act was introduced at the same time as the 20% reduction of scale
costs. Under section 134AG, the Governor in Council can set fees
145
that may be recovered by
a lawyer acting for the worker in proceedings under several sections of the AC Act, including
section 134AB.
146
Any setting of fees under section 134AG would prevail over section
134AB(29), the subsection that imposes the 20% scale cost reduction.
8.242. Currently, the WorkCover Legal Costs Order 2006 sets out the legal costs that may be recovered
on a party/party basis by a lawyer acting for a worker in respect of any claim, application or
proceeding under section 134AB of the AC Act. The costs relate mainly to work done by
lawyers representing injured workers before the commencement of litigation in the serious
injury application process.
8.243. The pre-litigation costs, to which a workers lawyer may be entitled, were increased in 2006
from $6500 to between $8034 and $15,000. Any disbursements paid by the lawyer will be paid
in addition to that amount.
8.244. The main reason for the 2006 increase was to encourage earlier settlement of common law
claims by providing incentives for lawyers to settle cases earlier, without the need to proceed to
litigation to recover the costs of preparing the claim.
8.245. Depending on the amount of the settlement and the statutory offers, if a matter proceeds to
litigation, the workers lawyers can be entitled to receive both pre-litigation costs and
party/party costs. This range of costs is intended to take account of the various costs involved
in making a serious injury application on behalf of a worker.
Stakeholder views
8.246. The ALA advocates abolishing or reducing the 20% reduction of scale costs and submits
There is no public policy rationale for altering the well-established principle that the losing
party pays the legal costs of the successful party. If anything, given the generally perilous
financial state of the worker compared to the financial position of the VWA or Self-insurer, and
the risks adopted by the worker in pursuing what is later determined to be adequate and just
compensation, a worker should be afforded more protection not less on the issue of costs.
147
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143 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1073.
144 Victoria, Legislative Assembly, Debates, 13 April 2000, p 1009.
145 The Governor in Council comprises the Governor and at least two Ministers. The Governor in Council
sits weekly and may make formal orders at the request of the relevant Minister. Any legal costs order
must be published in the Government Gazette: AC Act, s 134AG(2)(a).
146 AC Act, s 134AG.
147 Joint submission by: Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, Slater & Gordon and
ALA, 2 May 2008, p 7.
8.247. The LIV submits that
. . . legal costs for all other types of litigation are recovered on the basis of the Scale of Costs,
without reduction.
148
No change
8.248. Although the ALA and the LIV have submitted that there is no public policy rationale for the
20% scale costs reduction, and that the reduction is effectively paid for by injured workers,
I am not convinced that this is correct.
8.249. First, there are differences between litigation arising out of work-related injury and other
litigation that could justify a departure from the scale of costs that applies to litigation
generally. Much of the work required to prepare originating motions and writs in common law
proceedings under the AC Act is carried out in the pre-litigation stage. That is, for common
law proceedings under the AC Act, there is some duplication of the work carried out in the
pre-litigation stage, which is paid for in the pre-litigation costs fixed by the WorkCover Legal
Costs Order 2006 (see paragraphs 8.242 and 8.243 above). In most other court proceedings,
there is no formal mechanism for payment of the costs for pre-litigation work.
8.250. Secondly, measures to encourage the early settlement of common law actions are important
and support the ongoing sustainability of the right to bring common law actions. Early
settlement provides faster access to damages for workers, and reduces the legal costs
associated with the delivery of those damages. The generous remuneration of pre-litigation
work, the statutory offer process and the scale cost reduction are all measures designed to
promote early settlements.
8.251. Finally, abolition of the scale cost reduction may not lead to a commensurate reduction in the
out-of-pocket legal costs borne by injured workers, because workers out-of-pocket costs may
be acting to constrain solicitor/client costs. Removing the 20% scale cost reduction could lead
solicitors to increase their fees, with the result that lawyers rather than workers would benefit
from the change.
8.252. To justify removing the scale cost reduction, the legal profession would need to conduct a
comprehensive review of costing practices in the work-related injury litigation. The outcome
of that review should provide some actual evidence of the impact that the 20% scale cost
reduction has on legal costs and on injured workers. Such a review would provide a proper
basis for determining whether, and if so how, this issue should be resolved.
8.253. I recommend a review of legal costs in work-related injury litigation to determine the impact of
the 20% scale cost reduction on injured workers.
APPEALS
8.254. If a party disagrees with the outcome of a serious injury originating motion, the party may
appeal to the Court of Appeal (where, in accordance with normal practice, the appeal is heard
by a bench of three judges).
8.255. Section 134AD of the AC Act provides that the Court of Appeal:
. . . shall decide for itself whether the injury is a serious injury on the evidence and other
material before the judge who heard the application and on any other evidence which the
Court of Appeal may receive under any other Act or rules of court.
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148 LIV, Submission, 2 February 2008, p 3.
8.256. Section 134AD was inserted in the April 2000 legislative amendments that reintroduced
common law damages. In explaining the rationale behind the provision, the Minister quoted
the High Court in Warren v Combes,
149
to the effect that:
. . . the duty of the appellate court is to decide the case the facts as well as the law for
itself. In doing so it must recognise the advantages enjoyed by the judge who conducted the
trial.
8.257. The section was also intended to provide an equal and consistent right of appeal for workers
and employers. Before the enactment of section 134AD, employers required leave to appeal
from a judgment on the question of serious injury, whereas workers did not require leave.
8.258. The general appellate jurisdiction of the Court of Appeal is set out in the Supreme Court Act
1986 (Vic). The Court of Appeal may hear:
all appeals from the trial division of the Supreme Court constituted by a judge,
150
subject to
certain limitations on the right of appeal created by the Supreme Court Act
151
or any other
Act
152
(an appeal by way rehearing);
all applications for leave for new trials in any civil or criminal proceeding;
153
all appeals from the County Court constituted by a judge,
154
unless the right of appeal is
limited by other legislation;
155
all appeals, applications, questions and other matters that were previously required to be
heard by the Full Court of the Supreme Court (the predecessor to the Court of Appeal) or
that are referred to, reserved for or directed to the Court of Appeal.
156
8.259. The AC Act is not the only legislation that allows or requires the Court of Appeal to conduct
a rehearing of a matter, and to reach its own conclusion on the matter.
8.260. Section 134AD has been the subject of recent litigation about two issues. The first issue is
whether it is necessary for the Court of Appeal to substitute its own findings in section 134AB
appeals, or if these matters can be remitted to the County Court for rehearing. The second
issue is whether any appeal relating to a section 134AB matter should be confined to a question
of law.
8.261. The purpose of section 134AD (as requiring the Court of Appeal to conduct a rehearing on the
facts as well as the law) was affirmed in the recent judgment of the High Court in Dwyer v
Calco Timbers Pty Ltd.
157
In that case, the High Court held that it is necessary for the Court of
Appeal to rehear a matter and substitute its own findings for those made by the County Court in
any section 134AB appeal.
8.262. There has been concern expressed that the decision in Dwyer v Calco Timbers Pty Ltd may
create an increase in serious injury litigation appeals, creating an unreasonable burden on the
Court of Appeal.
8.263. However, that concern must be balanced against the clear intention of the Government that the
question of serious injury should be thoroughly reviewed by the Court of Appeal exercising its
appellate function, with the appeal right not limited to questions of law.
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149 (1979) 142 CLR 531 at 552.
150 Supreme Court Act 1986 (Vic), s 10(1)(a).
151 Supreme Court Act 1986 (Vic), s 17A.
152 Supreme Court Act 1986 (Vic), s 17(2).
153 Supreme Court Act 1986 (Vic), s 10(1)(b).
154 Supreme Court Act 1986 (Vic), s 10 (1)(c); County Court Act 1958 (Vic), s 74(1).
155 For example, section 52 of the AC Act, which limits appeals on statutory benefits and damages
proceedings heard in the County Court.
156 Supreme Court Act 1986 (Vic), s 10(1)(d).
157 [2008] HCA 13; (2008) 244 ALR 257.
8.264. The Common Law Bar Association supports the view outlined in the preceding paragraph and
submits that section 134AD
. . . should be retained for the reasons advanced by the High Court. The system of allowing an
Appeal, and then remitting that Appeal to the County Court without any expression of opinion
by the Court of Appeal on what it thinks constitutes a serious injury, leads to an unnecessary
continuation, perhaps even duplicity, of litigation. If a body of jurisprudence emerged from the
Court of Appeal on what is serious, then the County Court Judges would have to operate
within clear parameters and the level of variation from Judge to Judge (in the County Court)
would be significantly reduced. The variation which presently exists, in the absence of the
Court of Appeal determining the issue of serious injury for itself, occurs at least in part because
of the refusal of the Court of Appeal to set appropriate standards.
158
8.265. The complexity of section 134AB and the need to develop and maintain a consistent application
of the section requires appellate court direction and oversight. The ability of the Court of Appeal
to give such direction to the County Court on, for example, the application of the serious
injury criteria to particular fact situations would be unduly restricted if appeals could only be
based on an error of law. It is clear that the intention of the Government, when section 134AD
was added to the AC Act, was to allow the Court of Appeal to oversee and direct the County
Court in section 134AB matters, as the High Court has recently affirmed.
8.266. The degree of disagreement between County Court judges and the level of disputes over
section 134AB matters should decrease as the Court of Appeal creates clear precedents in
relation to the section and provides direction for the County Court and accident compensation
lawyers.
8.267. For those reasons I recommend no change to section 134AD.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 8 ACCESS TO JUSTICE FOR SERIOUSLY INJURED WORKERS: COMMON LAW
PAGE 312
158 Common Law Bar Association, Submission, 2 May 2008, p 8.
BENEFITS FOR
DEPENDANTS
FOLLOWING WORK-
RELATED DEATHS
Adequacy of current death benefits
Eligibility for compensation
Accessing death benefits
9.1. From its introduction in 1985, the AC Act has provided compensation for the surviving
dependants of a worker whose death results from a work-related injury or illness.
9.2. The death benefits currently provided by the AC Act aim to:
ease the financial burden suffered by the deceased workers family as a result of the death;
compensate, where possible, for the pain and suffering suffered by the deceased workers
family;
provide ongoing financial support to the deceased workers dependants; and
provide services to assist the deceased workers family to cope with the loss of a loved one.
9.3. When the AC Act commenced in 1985, a lump sum benefit of $61,750
1
was payable to any
dependant who had been wholly or partly dependent on the deceased workers earnings. Since
that time, the amount and type of benefits payable have changed significantly.
9.4. In 1997, a new system of ongoing support for dependent spouses and children was introduced
2
and the existing lump sum benefit was increased from $150,000 to $175,000. The aim of the
new system was said to be the development of a workers compensation scheme that provided
fair and comprehensive protection for injured workers.
3
9.5. In 2006, there was a further increase in the lump sum benefits payable on the death of a
worker.
4
The increased lump sum benefits for deceased workers dependants were designed to
ease at least some of the pain felt by families.
5
9.6. Under the current legislation, a deceased workers dependants may be entitled to:
lump sum payments to a maximum of $265,590;
6
weekly pensions to a maximum of $1250 per week;
7
the reasonable costs of medical and like expenses incurred between the date of injury and
the workers death;
8
the reasonable costs of family counselling services to a maximum of $5160;
9
the cost of burial/cremation to a maximum of $9300.
10
9.7. In addition to the death benefits available under the AC Act, dependants can also seek common
law damages for the death of a worker under the Wrongs Act 1958 where the negligence of an
employer or a third party contributed to the workers death.
11
9.8. Death benefits currently make up approximately 1% of the outstanding claims liabilities and
involve payments of about $20 million each year.
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CHAPTER 9 BENEFITS FOR DEPENDANTS FOLLOWING WORK-RELATED DEATHS
PAGE 314
1 AC Act (No 10191), s 92(2).
2 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1075.
3 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1072.
4 Accident Compensation and Other Legislation (Amendment) Act 2006.
5 Victoria, Legislative Assembly, Debates, 1 June 2006, p 1542.
6 AC Act, s 92A.
7 AC Act, ss 92B, 92C.
8 AC Act, s 99(1)(a).
9 AC Act, s 99(1)(aa); WorkSafe online claims manual, section 11.4.3.
10 AC Act, s 99(1)(b); WorkSafe Claims Manual, section 11.4.3.
11 AC Act, s 134A.
9.9. In this chapter, I:
discuss the adequacy of current death benefits in Victoria and consider the current maximum
lump sum and weekly benefits available to dependants;
examine the way in which death benefits are distributed amongst dependants and the
adequacy of counselling services;
examine who is eligible for death benefits and discuss the current test for dependency in the
AC Act, including whether a deceased workers unborn child is a dependant;
consider the need for compensation for people who are not dependants of deceased
workers, and discrepancies in the current payments available for some dependent children;
and
examine issues associated with access to benefits, delays in processing death benefit claims,
the requirement for court approval of settlements of death benefit claims, and interest on
weekly benefits.
The current scheme
9.10. The maximum lump sum death benefit payable on a workers death is a fixed amount of
compensation, designed to compensate all the deceased workers dependants.
9.11. The current maximum lump sum payable to the dependants of a worker who dies as a result of
a workplace injury or illness is $265,590.
12
The lump sum benefit is indexed annually (in July
each year) by reference to movements in the CPI.
13
9.12. The AC Act prescribes the distribution of that lump sum between dependants, and caters for
different family arrangements and situations, as described in Table 9.1 below.
TABLE 9.1 LUMP SUM BENEFITS PAYABLE ON A WORKERS DEATH
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 9 BENEFITS FOR DEPENDANTS FOLLOWING WORK-RELATED DEATHS
PAGE 315
12 Worksafe Claims Manual, section 11.11.32.
13 AC Act, s 100(2C) and (2D).
Section Dependants Amounts payable
Section 92A(5) Orphan child
No partner
No child
$265,590 to an orphan child
More than 1 orphan
child
No partner
No child
Equal share of $265,590 to each orphan child
Section 92A(4) 1 partner
No children
$265,590
More than 1 partner
No children
Equal share of $265,590 to each partner
Section 92A(6) 1 partner
1 child
$239,020 to the partner
$26,560 to the child
More than 1 partner
1 child
Equal share of $239,020 to each partner
$26,560 to the child
Section 92A(7) 1 partner
25 children
Balance of $265,590 to the partner
$13,280 to each child
More than 1 partner
25 children
Balance of $265,590 in equal shares to each partner
$13,280 to each child
Section 92A(8) 1 partner
6 or more children
$199,180 to the partner
An equal share of $66,390 to each child
More than 1 partner
6 or more children
An equal share of $199,180 to each partner
An equal share of $66,390 to each child
TABLE 9.1 LUMP SUM BENEFITS PAYABLE ON A WORKERS DEATH continued
9.13. In addition to lump sum benefits and weekly pensions, the AC Act allows for payment of:
the reasonable costs of medical and like expenses incurred between the date of injury and
the workers death;
15
the reasonable costs of family counselling services to a maximum of $5160;
16
the cost of burial/cremation to a maximum of $9300.
17
Other jurisdictions
9.14. All Australian jurisdictions provide compensation to a workers dependants where the worker
dies as a result of a work-related injury or illness. The compensation payable is a combination of
lump sum and periodic payments. However, the amount of benefits varies significantly between
jurisdictions, as Table 9.2 demonstrates.
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PAGE 316
14 Worksafe Claims Manual, section 11.11.2.
15 AC Act, s 99(1)(a).
16 AC Act, s 99(1)(aa); WorkSafe online claims manual, section 11.4.3.
17 AC Act, s 99(1)(b); WorkSafe online claims manual, section 11.4.3.
18 The South Australian maximum entitlement has increased to $400,000 for all claims received on or
after 1 July 2008, as confirmed in the brochure The WorkCover Scheme. A guide to the changes,
WorkCover SA, 2008.
Section Dependants Amounts payable
Section 92A(8A) No partner
1 child (not being an
orphan)
County Court determines a reasonable share for the dependant,
up to a maximum of $265,590
No partner
More than 1 child (not
being an orphan)
County Court determines a reasonable share for each dependant,
up to a maximum of $265,590
Section 92A(9) No partner and no
children but other
person(s) are
determined dependent
County Court determines a reasonable share for each dependant,
up to a maximum of $265,590
Section 92A(10) Deceased worker under
21 years and no
domestic partner or
children.
Immediately before the
workers injury/death
the worker contributes
to the maintenance of
the family home or
family members.
Family members are
deemed dependents.
County Court determines a reasonable share for each dependant,
up to a maximum of $265,590
14
TABLE 9.2 BENEFITS PAYABLE ON A WORKERS DEATH IN EACH AUSTRALIAN JURISDICTION
Stakeholder views
9.15. IDSA submits
There is a real need to make all possible attempts to speed up and streamline all procedures
when determining any compensation payable to enable dependants to receive immediate
financial relief.
19
9.16. VECCI recommends that provisional payments could be introduced to speed up the delivery of
death benefits to dependents and states that
. . . there is a strong case for provisional payments . . . to tide the dependants over the initial
period of high trauma and significant expense.
20
9.17. Ai Group submits that
it would seem appropriate to allow the payment of weekly benefits for a limited period,
to the known spouse to enable the general household bills to be paid; similarly funeral
expenses could be covered without the need to determine dependency.
21
9.18. The VACC is of a similar view and submits that the current 90-day time limit to determine
liability should be reduced to 30 days.
22
9.19. The determination of death benefits without the need for court approval has been supported by
the VTHC and the SIAV because it would enhance the speed and delivery of benefits. The VTHC
notes
In most matters, the courts role is minimal and the requirement that the court in effect rubber
stamps the payments adds to administrative burdens and delays.
23
9.20. The VTHC has also submitted that the TACs dependency scheme does not require approval
from the Court before the payment of death benefits.
24
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PAGE 317
19 IDSA, Submission, 2 May 2008, p 1.
20 VECCI, Submission, April 2008, p 63.
21 Ai Group, Submission, May 2008, p 63.
22 VACC, Submission, 1 May 2008, p 12.
23 VTHC, Submission, 2 May 2008, p 38.
24 VTHC, Submission, 2 May 2008, p 39.
Jurisdiction Lump sum payments Periodic payments
Victoria $265,590 Related to the deceased workers pre-injury average weekly earnings
for spouse or equivalent and for a dependent child
Queensland $409,090 Related to the deceased workers Queensland full-time adults
ordinary time earnings (QUOTE) and level of dependency
New South Wales $337,700 $106.20 per week for dependent child
Northern Territory $268,788 $103.38 per week for dependent child
South Australia $400,000
18
Related to the deceased workers notional weekly earnings for spouse
or equivalent and also for dependent children
Commonwealth $225,594.33 $75.15 per week for dependent child
Western Australia $230,992 $44.20 per week for dependent child
Tasmania $208,370.61 Related to deceased workers total incapacity benefit for spouse or
equivalent
$56.47 per week for dependent child
Australian Capital
Territory
$170,719.51 $56.91 per week for dependent child
9.21. However, Ai Group
25
and VECCI
26
submit that it is essential to have a court approval process, in
order to protect the rights and interests of all persons.
9.22. The VACC submits that interim partial payments should be made to dependants because
. . . this would assist dependants and their children by providing short term financial assistance
until the Courts have made a formal and binding decision.
27
9.23. The Compensation Law Bar Association submits
A determination, and payment, could be made on a provisional basis with an automatic right
of review by the County Court by any dependant.
28
9.24. IDSA submits that the VWA could make a determination where only one dependant and the
dependants children make a claim but any further claims should be determined by the courts.
29
9.25. VECCI,
30
Ai Group
31
and the Compensation Law Bar Association
32
support an amendment to the
AC Act to clarify the entitlements of dependent and partially dependent partners.
9.26. The VTHC submits that the current two-stage test for establishing dependency is unnecessary
and cumbersome and suggests that
. . . the definition of dependence in s.5(1) should be amended to broaden the concept of
dependence beyond merely financial dependence to mutual dependence on each other.
33
9.27. The VTHC also submits that a surviving partner should be deemed a dependant of the deceased
worker as is the approach in the Comcare jurisdiction.
34
ADEQUACY OF CURRENT DEATH BENEFITS
9.28. As noted in paragraph 9.11 above, the current maximum lump sum death benefit payable to a
deceased workers dependants is $265,590.
9.29. Lump sum payments are not only intended to compensate for grief and suffering occasioned by
the death of a partner or family member, but also aim to mitigate the financial impact of a
workers death on surviving dependants.
9.30. By way of comparison, a worker may be awarded a maximum benefit of $396,690
35
for
sustaining a significant permanent work-related injury.
36
The impairment benefit is also paid, in
part, to compensate a worker for the pain and suffering consequent on a significant permanent
impairment.
9.31. In Chapter 7, Lump sum benefits for significantly injured workers, I am recommending that the
maximum permanent impairment benefit be increased to the equivalent of the maximum
amount of common law damages for pain and suffering, $484,830.
37
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PAGE 318
25 Ai Group, Submission, May 2008, p 64.
26 VECCI, Submission, April 2008, p 63.
27 VACC, Submission, 1 May 2008, p 12.
28 Compensation Law Bar Association, Submission, 2 May 2008, p 21.
29 IDSA, Submission, p 1.
30 VECCI, Submission, April 2008, p 63.
31 Ai Group, Submission, May 2008, p 64.
32 Compensation Law Bar Association, Submission, 2 May 2008, p 22.
33 VTHC, Submission, 2 May 2008, p 39.
34 VTHC, Submission, 2 May 2008, p 39.
35 That is, workers whose impairment is assessed at 81% WPI or greater.
36 See Chapter 7, Lump sum benefits for significantly injured workers, see table 7.1, paragraph 7.18.
37 See Chapter 7, Lump sum benefits for significantly injured workers, paragraph 7.59.
9.32. As noted in paragraphs 9.29 and 9.30 above, lump sum death benefits and permanent
impairment benefits aim in part to compensate for the emotional distress that results when a
worker is injured at work.
9.33. In my view, it is not appropriate to fix different amounts for the lump sum benefits payable on
the death of a worker and payable for a workers significant permanent impairment.
9.34. Other compensation schemes, such as the New South Wales and Commonwealth schemes,
pay lump sum death benefits that are similar to or higher than the lump sum benefits payable
for a significant permanent injury.
9.35. I therefore recommend that the maximum lump sum death benefit be increased to the same
level maximum impairment benefit payable for a significant permanent impairment.
9.36. The Reviews independent actuaries have estimated that an increase in the lump sum death
benefit to a maximum of $484,830, will add approximately $12 million a year to the schemes
outgoings.
38
Distributing lump sum benefits
9.37. Lump sum benefits are distributed between all dependants in accordance with the formula
outlined in section 92A of the AC Act. (See Table 9.1 above).
9.38. The lump sum payable does not take into account the financial circumstances or responsibilities
of each dependant; nor does it take into account the financial impact caused by the death of a
worker on families with a large number of dependants.
9.39. IDSA submits that
Entitlements awarded to child dependants should not be taken from any payments awarded to
the partner. Childrens entitlements should be over & above the partners compensation
payment.
39
9.40. IDSA argues that
The financial requirements of a person that has the responsibility of raising children [are] far
greater than those that do not. There should be extra entitlements for all child dependants.
40
9.41. As noted in paragraph 9.29 above, lump sum death benefits aim to compensate, not only for
the financial burden felt by dependants, but also for the pain and suffering resulting from the
workers death.
9.42. For that reason, lump sum death benefits should be distributed between all dependants,
regardless of their financial situation or responsibilities. (It is also relevant that weekly pensions
will be available to some dependants.)
9.43. I therefore recommend that the current benefit structure be maintained.
Weekly benefits
9.44. In addition to lump sum benefits, weekly benefits, also known as pensions, are available to
certain dependants.
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CHAPTER 9 BENEFITS FOR DEPENDANTS FOLLOWING WORK-RELATED DEATHS
PAGE 319
38 Source: advice from the Reviews independent actuaries.
39 IDSA, Submission, 2 May 2008, p 1.
40 IDSA, Submission, 2 May 2008, p 1.
9.45. Where a worker leaves only one dependent partner, weekly benefits are paid to that partner as
follows:
for the first 13 weeks after the death of the worker 95% of the deceased workers PIAWE
(to a maximum of $1250 per week);
41
and
between 14 weeks and three years 50% of PIAWE (to a maximum of $1250 a week).
42
9.46. During the first 13 weeks after the workers death, the weekly benefit is shared equally in the
case of two or more dependent partners.
43
Dependent children are not eligible for weekly
benefits during the first 13 weeks if there is a surviving dependent partner.
9.47. If there is no dependent partner, and no dependent child other than an orphan child, that child
will be entitled to receive weekly benefits during the first 13 weeks,
44
and those benefits will be
shared equally where there are two or more dependent children who are orphan children,
45
until
the children cease to be eligible.
9.48. After the first 13 weeks, the weekly benefit is reduced to 50% of PIAWE, and is shared equally
in the case of two or more dependent partners.
46
Where the worker leaves dependent children
who are orphaned children, those orphaned children are also entitled to equally shared weekly
benefits.
47
9.49. A child ceases to be eligible for weekly benefits when the child turns 16 or, if a full-time
student, at the end of the calendar year in which the child turns 21.
48
9.50. The weekly benefits payable to a dependent partner after 13 weeks are reduced according to
the number of dependent children who are also eligible to receive a separate pension. The
dependent partners weekly benefits are calculated as follows:
where the deceased worker has left no more than five dependent children and the total
pension payable to all dependants would exceed $1250, the weekly entitlement is calculated
by reference to the number of dependent children, using a formula in the AC Act;
49
and
where the deceased worker has left more than five dependent children and the total pension
payable to all dependants would exceed $1250, the weekly entitlement is limited to $834.
50
9.51. The pension payable to dependent children (other than orphaned children) is calculated as
follows:
subject to the statutory maximum, where there are up to five dependent children, 5% of the
workers PIAWE;
51
or
subject to the statutory maximum, where there are more than five dependent children, an
equal share of 25% of the workers PIAWE.
52
9.52. For most weekly benefit claims, the deceased workers PIAWE is indexed from 1 July each year
by reference to the Average Weekly Earnings (AWE) amount published by the Australian
Statistician for the previous December quarter. The calculation differs where a workers death
occurs more than one year after the date of injury.
53
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PAGE 320
41 AC Act, s 92B(3)(a).
42 AC Act, s 92B(3)(b).
43 AC Act, s 92B(4).
44 AC Act, s 92B(5).
45 AC Act, s 92B(6).
46 AC Act, s 92B(4)(b)(ii).
47 AC Act, ss 92B(5)(b), (6)(b).
48 AC Act, s 92B(9).
49 AC Act, ss 92B(3)(b)(ii), (4)(b)(ii).
50 AC Act, ss 92B(3)(b)(iii), (4)(b)(iii).
51 AC Act, s 92B(7), (11).
52 AC Act, s 92B(8), (11).
53 WorkSafe Claims Manual, sections 11.5 and 11.11.3.3.
9.53. IDSA submits that weekly benefits should be calculated by reference to the average weekly
earnings of a worker in Australia, because it is sometimes difficult to determine a deceased
workers true PIAWE.
54
However, it is clear that such an approach would result in some
dependants not receiving benefits that reflect the deceased workers earnings.
9.54. On balance, the current system for determining weekly benefits is satisfactory.
9.55. The ALA, Holding Redlich, Maurice Blackburn, Ryan Carlisle Thomas, and Slater & Gordon jointly
submit that payments made under section 92B of the AC Act should be indexed annually in the
same way as ordinary weekly benefits.
55
9.56. Although indexation is not prescribed in the AC Act, the VWAs policy and practice are to index
amounts paid to dependants annually. In my view, the AC Act should be amended to reflect that
policy and practice.
56
9.57. I recommend that the AC Act be amended to ensure that the weekly benefits payable to the
dependants of deceased workers are indexed annually.
Counselling services
9.58. The AC Act provides for other compensation payments for dependants following the death
of a worker from a work-related injury or illness. Those other payments include the cost of the
deceased workers burial or cremation, and costs associated with counselling for the deceased
workers family.
9.59. In the event of the serious injury, or death, of a worker, the VWA (or self insurer) must pay the
reasonable costs (not exceeding $5160) incurred in Australia of family counselling services
provided to family members by a medical practitioner, a registered psychologist or a social
worker approved by the VWA.
57
9.60. Until the enactment of the State Taxation and Accident Compensation Acts Amendment Act
2007, the amount payable to families for counselling services was $1960 (indexed annually
pursuant to section 100(2BA) of the AC Act).
9.61. IDSA has submitted that the current maximum is nowhere near sufficient, particularly where
the deceased worker leaves a large family.
58
9.62. Although a large family is likely to have more financial need, the significant increase the current
level of compensation for counselling services in 2007 should provide reasonable support for
counselling services.
9.63. Victoria is one of the few jurisdictions to provide this form of compensation to family members,
because most jurisdictions limit compensation payments to lump sums and periodic payments,
usually in the form of pensions.
59
South Australias recent review of its workers compensation
legislation recommended the provision of some counselling services;
60
and the South Australian
Parliament has acted on that recommendation.
61
9.64. I therefore recommend that the current level of payment for the reasonable costs of family
counselling services be maintained at $5160 (indexed annually).
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PAGE 321
54 IDSA, Submission, 2 May 2008, p 2.
55 ALA, Submission, 8 February 2008, p 13.
56 WorkSafe Claims Manual, section 11.11.3.3.
57 AC Act, s 99(1)(aa).
58 IDSA, Submission, 2 May 2008, p 2.
59 NSW WorkCover provides a free counselling service to dependants of deceased workers. The TAC will
fund the reasonable cost of family counselling after the death of a family member as a result of a
transport accident.
60 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System: Report, December 2007 (the Clayton-Walsh Report).
61 Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 (SA), s 26, inserting
s 45C in the Workers Rehabilitation and Compensation Act 1986 (SA).
ELIGIBILITY FOR COMPENSATION
Who is a dependant?
9.65. The payment of compensation on the work-related death of a worker is directed at dependants.
The identification of a deceased workers dependants requires the application of a series of
provisions of the AC Act. The relationship between those provisions is complex and
unsatisfactory.
Entitlement to compensation
9.66. Section 82(2) of the AC Act provides that, where an injury arising out of or in the course of
employment results in or materially contributes to a workers death, the workers dependants
are entitled to compensation in accordance with the Act. Section 5(1) contains a definition of
dependant, as meaning a person who
(a) at the time of the death of a worker was wholly, mainly or partly dependent on the
earnings of the worker; or
(b) would but for the incapacity of the worker due to the injury have been wholly, mainly or
partly dependent on the earnings of the worker.
9.67. The detailed provisions for the payment of compensation are found in section 92A (for lump
sum compensation) and section 92B (for weekly pensions). In each section, provision is made
for the payment of compensation to various categories of dependants.
Lump sum compensation
9.68. For example, sections 92A(4), (6), (7), (8) and (8B) provide for the calculation of the lump sum
payable to a dependent partner in a number of different situations. (See Table 9.1 above).
Section 92B(3) and (4) provide for the calculation of the weekly pension payable to a
dependent partner or partners in a number of different situations. (See paragraphs 9.459.48
and 9.50 above).
9.69. For the purposes of section 92A (lump sum compensation) and section 92B (weekly pension),
section 92A(1) defines dependent partner.
62
That term is defined to mean a partner wholly or
mainly dependent on the workers earnings.
9.70. The operation of the section 92A(1) definition is modified by s 92A(2), which provides as
follows:
In determining, for the purposes of this section, whether a partner was wholly or mainly
dependent on the workers earnings at the time of the death of the worker or other relevant
time, no regard shall be had to any money which the partner had earned or was earning by
his or her own personal exertion or to any savings arising from any such earnings.
9.71. There are differences between the definition of dependant in section 5(1) (see paragraph 9.66
above) and the definition of dependent partner in section 92A(1) (see paragraph 9.69 above).
For example, although section 92A(2) (see paragraph 9.70 above) moderates the section 92A(1)
definition, it does not affect the section 5(1) definition.
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PAGE 322
62 AC Act, s 92B(1) adopts the s 92A definitions for the purposes of s 92B.
9.72. As the Court of Appeal found in Serdzeff v Victorian WorkCover Authority,
63
a partner of a
deceased worker is required, when seeking lump sum compensation under section 92A, to go
through a two-stage process:
first, to show that he or she is entitled to compensation under section 82(2) because he or
she is a dependant as defined in section 5(1); and
secondly, to show that he or she is a dependent partner as defined in section 92A(1),
subject to the ameliorating effect of section 92A(2).
9.73. In Serdzeff, the Court of Appeal accepted that, ordinarily, establishing that a claimant is a
dependent partner within section 92A(1) will also establish that the claimant is a dependant
as defined in section 5(1) and therefore entitled to compensation under section 83(2), even
where the claimant has qualified as a dependant partner only because his or her income has
been disregarded pursuant to section 92A(2). Chernov JA explained that a finding that the
claimant is a dependent partner will ordinarily mean that the deceased worker made at least
some provision for the partners maintenance and support; and, consequently, the claimant
would at least be partly dependent on the deceaseds earnings for the purposes of the section
5(1) definition:
64
No matter how small the extent of the claimants dependence may have been on the
deceased workers earnings short of de minimis it would ordinarily amount at least to
partial dependence sufficient to satisfy the requirements of s 82(2).
9.74. In Serdzeff, the Court of Appeal indicated that, for other categories of dependants (such as
dependent children), the two-stage process was not applicable.
65
The reason for that
distinction, which was not articulated by the Court, probably lies in the fact that the
section 92A(1) definition of dependent child closely follows the section 5(1) definition of
dependant, and in the fact the section 92A(2) does not affect the section 92A(1) definition
of dependent child.
Weekly pensions
9.75. The Court of Appeal based its reasoning in Serdzeff on what it saw as a requirement, expressed
in s 92A(3), that a partner show that he or she is entitled to compensation pursuant to section
82(2). There is no equivalent to section 92A(3) in section 92B, which prescribes the amounts of
weekly pension payable to, amongst other persons, a dependent partner.
9.76. On the contrary, the operative sub-sections in section 92B are expressed in terms of
entitlement, making recourse to section 82(2) (and the section 5(1) definition) redundant. It is
likely, therefore, that the two-stage process identified by the Court of Appeal in Serdzeff is not
applicable to partners who claim weekly pensions. However, the relationship between section
92B, section 82(2) and the section 5(1) definition remains a possible source of confusion and
uncertainty.
The two-step process
9.77. It is not clear why the AC Act requires a two-step process for determining whether a partner
qualifies for lump sum compensation, and it appears to be an anomaly. As Chernov JA said in
Serdzeff v Victorian WorkCover Authority,
66
it is difficult to see why such a two-stage process
was considered necessary but, given the frequent piecemeal amendments that have been
made to [the AC Act] it is not productive to seek to resolve such a question by resort to
commonsense analysis.
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63 [2005] VSCA 320 at [24], [25], [27].
64 [2005] VSCA 320 at [26].
65 [2005] VSCA 320 at [24].
66 [2005] VSCA 320 at [6].
9.78. Despite the constructive approach taken by the Court of Appeal in Serdzeff (see, in particular,
paragraph 9.73 above), the current provisions could disadvantage some claimants because
those provisions may deny them compensation, based on their failure to satisfy both steps of
the test to determine dependency on the deceased worker.
9.79. When determining whether a claimant is a dependant for the first step of the test, the
claimants earnings and savings may be taken into account. However, when determining
whether a claimant is a dependent partner for the second part of the test, the claimants
earnings and savings are disregarded.
67
The significance of financial dependence
9.80. Historically, eligibility to entitlements following the death of a worker was not determined on the
basis of marital or other status, but by reference to financial loss. That approach was softened
by section 92A(2), which ensures that a dependent partners own earnings or savings are not
taken into account in determining dependency.
9.81. The 1977 Harris Report
68
recommended the repeal of the predecessor to section 92A(2) of the
AC Act in the Workers Compensation Act 1958 (which applied in relation to so-called working
wives), for the following reasons:
Women made up a substantial proportion of the workforce, and to exclude their earnings
from consideration turned a blind eye to reality.
The provision was originally designed to protect a woman who was not wholly dependent
merely because she had a small income. Instead it was now applied equally to a partner who
was financially independent by reason of her own income. In other words, the provision
conferred a benefit on wives who were not at a financial disadvantage.
69
9.82. The Harris Reports recommendation was not implemented, presumably because the
Government intended that entitlement to lump sum death benefits should not be restricted to
those spouses who can demonstrate financial dependency.
A different approach
9.83. The recent report into the South Australian compensation scheme
70
observed that the Victorian
arrangements, with respect to lump sum death benefits, are the most comprehensive of any
Australian jurisdiction.
71
Following that report, the Workers Rehabilitation and Compensation
Act 1986 (SA) has been amended to mimic the Victorian legislation relating to lump sum death
benefits.
72
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67 Pursuant to section 92A(2), in determining, for the purposes of this section, whether a partner was
wholly or mainly dependent on the workers earnings at the time of the death of the worker or other
relevant time, no regard shall be had to any money which the partner had earned or was earning by
his or her own personal exertion or to any savings arising from any such earnings.
68 Victoria, Parliament, Board of Inquiry Into Workers Compensation 19761977 (the Harris Report).
69 The Harris Report, pp 7172.
70 The Clayton-Walsh Report.
71 The Clayton-Walsh Report, p 18.
72 Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 (SA), s 26, inserting
s 45A in the Workers Rehabilitation and Compensation Act 1986 (SA).
9.84. The Commonwealth legislation takes a different and arguably less complicated and more
transparent approach to the issue of dependent partners. Under the Commonwealth
legislation, a surviving partner who lived with an employee immediately before the employees
death is taken to be wholly dependent on the employee, whether or not the surviving partner
was financially dependent on the deceased employee.
73
The surviving partner would then
qualify as a dependant of the deceased employee,
74
and be eligible to receive lump sum
compensation.
75
A partner who was not living with the employee but was wholly or partly
dependent on the employee at the date of the employees death would also be a
dependant,
76
and would also qualify for lump sum compensation.
77
9.85. If implemented in Victoria, the deeming approach found in section 4(5)(a) of the SRC Act
would mean that there would no longer be any need for a surviving partner who was living with
a worker at the date of the workers death to demonstrate reliance on financial support
provided by the deceased worker.
9.86. That change would represent a significant shift from the notion that lump sum death benefits
and continuing pensions aim to mitigate the financial impacts of a workers death on dependent
partners. As interpreted by the Court of Appeal in Serdzeff (see paragraph 9.73 above), the
current provisions still require at least some level of financial dependence (however slight)
before a dependant is entitled to lump sum death benefits (and, by analogy, a continuing
pension).
9.87. IDSA believes that no account should be taken of the claimants earnings when determining
dependency and that there should be a one-step approach to determine dependency.
78
9.88. The VTHC and the ALA also support a simplified one-step test for dependency. However, they
would prefer a surviving partner to be deemed a dependant, doing away with the need to
satisfy a dependency test for a partner.
79
9.89. Currently the dependency provisions are interpreted broadly on the basis of the Court of
Appeals judgment in Serdzeff, but the AC Act prescribes an overly complicated two-step
process for dependent partners to obtain benefits. This is unsatisfactory. There may be several
ways to reduce the complexity and potential confusion. One possibility would be to
repeal the definition of dependant in section 5(1);
re-draft section 82(2) by substituting, for the words the workers dependants, the words
each dependent partner and dependent child of the worker, as defined in section 92A;
re-draft the definition of dependent partner in section 92A(1) to include a person who was
wholly or mainly dependent on a workers earnings at the time of the workers death and a
person who, but for the workers incapacity due to a work-related injury, would have been
wholly or mainly dependent on a workers earnings at the time of the workers death;
retain section 92A(2);
insert a new section 92A(2A), to provide that a person who falls within the definition of
partner in section 5(1) of the AC Act, and who was residing with a worker at the time
of the workers death, is deemed to be a dependent partner of the deceased worker for
the purposes of section 92A; and
retain section 92B(1), which adopts the definitions in section 92A.
9.90. The impact on scheme costs is likely to be immaterial. However, the form of any amendments
to resolve the complexity and potential confusion should be left to those who will be
responsible for drafting the necessary legislation.
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73 SRC Act, s 4(5)(a).
74 SRC Act, s 4(1) definition of dependant.
75 SRC Act, s 17(3).
76 SRC Act, s 4(1), definition of dependant.
77 SRC Act, s 17(3) or (4).
78 IDSA, Submission, 2 May 2008, p 2.
79 VTHC, Submission, 2 May 2008, p 39; ALA, Submission, 8 February 2008, p 13.
9.91. The changes suggested in paragraph 9.89 above would provide for two alternative means by
which a person could qualify as a dependent partner
through actual or hypothetical financial dependency; and
through co-residence at the time of death.
9.92. Those changes should also achieve the Reviews aim to resolve anomalies in the AC Act, as
well as improving the transparency of the legislation. Further, such a change would be
consistent with the approach taken under the Commonwealth scheme.
9.93. In any event, I recommend that the AC Act be amended to ensure that a surviving partner, as
defined in section 5(1) of the AC Act and who is residing with a worker at the time of the
workers death, is deemed to be dependent on the deceased worker. Such a deeming provision
would not prevent a surviving partner, who was (or would have been but for work-caused
incapacity) dependent on the worker but not residing with the worker at the time of death, from
qualifying as a dependant of the deceased worker.
Compensation for persons who are not dependants
9.94. There are situations where a person may be left financially disadvantaged because of the work-
related death of a relative, but the person is not compensated under the AC Act.
9.95. The parents of a deceased worker have told the Review that, following the death of their son,
they were severely financially disadvantaged.
The parents were ineligible to receive any compensation for their sons death, because they
were not considered dependants.
80
The parents have told the Review that they were obliged to cover the legal costs of
administering their sons estate, and had to re-mortgage their home to cover their sons
debts.
9.96. Section 92A(9) of the AC Act provides for payment of lump sum compensation for any other
person who is to any extent dependent on a workers earnings (in the absence of a dependent
partner or child). Section 92A(10) provides for lump sum compensation to the members of the
family of a worker under 21 years, who left no dependent partner or child, who contributed
immediately before his or her death to the maintenance of the family home or family members.
9.97. The situation described in paragraph 9.95 above raises the issue whether lump sum
compensation should remain limited to the situations set out in section 92A of the AC Act.
There may be situations where the death of a worker causes financial hardship to other
members of the workers family (such as parents or siblings). To address those situations, some
discretion may be required to allow a court to determine whether payment of lump sum
compensation is reasonable.
9.98. IDSA supports the position outlined in the preceding paragraph and submits that proof of
financial dependency on a deceased worker should enable others to claim compensation, as
determined by a court.
81
9.99. In my opinion, at a minimum, the AC Act should provide for a lump sum payment of
reasonable expenses incurred as a result of the workers death, including the reasonable
cost to a non-dependant of administering the will of a deceased worker.
9.100. I recommend that the AC Act should provide a lump sum payment for family members, other
than dependants, who suffer financial hardship as a result of a workers death, as identified in
paragraph 9.96 above. The entitlement to payment should only arise where the deceased
worker leaves no dependants.
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80 Confidential submission, 15 February 2008.
81 IDSA, Submission, 2 May 2008, p 1.
9.101. I further recommend that a court be given power to determine the reasonable amount of
compensation that is payable and whether financial hardship has been established as a result of
the work-related death.
9.102. The Reviews independent actuaries have estimated that this recommendation would cost the
scheme less than $2 million a year.
82
Discrepancies in pensions for dependent children
9.103. Dependent children, who are engaged in full-time study, continue to receive a pension to the
age of 21. The pension is paid to a full-time student until the end of the calendar year in which
the student turns 21.
83
This provision could disadvantage dependent children who continue to
study past the age of 21.
9.104. By way of comparison, the TA Act provides for an entitlement to a pension for dependent
children until they are 25, where they remain in full-time study.
84
9.105. As at 31 January 2008, there were some 30 active claims where dependants between the ages
of 18 and 21 were receiving weekly pensions under section 92B of the AC Act.
85
Of those 30
dependants, five will attain the age of 21 years during 2008, but those five will remain eligible to
receive the pension until the end of that calendar year.
86
Of course, the total number of
dependants between the ages of 18 and 21 years eligible to receive a pension in 2008 could
change if any of the currently eligible dependants leave full-time study or if any new claims for
pension are granted in the course of the year.
9.106. In my view, it is appropriate for child dependants who are studying to continue to receive a
pension up to the age of 25, in line with the TA Act.
9.107. The Reviews independent actuaries have indicated that such a change to the pension
entitlements of dependent children would cost approximately $0.3 million a year.
9.108. I recommend that the AC Act be amended to maintain pensions for dependent children until the
end of the calendar year in which they turn 25, where they are engaged predominantly in
learning, whether by way of study or under an apprenticeship.
9.109. The pension should be subject to an appropriate income cap, indexed annually in accordance
with the CPI.
Unborn children
9.110. The AC Act does not allow a workers child who was unborn at the time of the workers death
to be treated as a dependent child of the worker. There is no apparent reason why an unborn
child should be treated differently to a child who has already been born.
9.111. The New Zealand compensation scheme provides that any child of the deceased who is born
within 12 months after the deceaseds death shall be deemed to be dependent on the
deceased at the date of the deceaseds death.
87
Presumably, the New Zealand legislation
allows a generous gestation period to ensure that a prolonged pregnancy does not exclude any
workers child born after the workers death; however, drawing the line at 12 months would not
take account of the possibility of conception after death through IVF treatment.
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82 Source: advice from the Reviews independent actuaries.
83 AC Act, s 92B(9).
84 TA Act, s 59(4)(a).
85 Source: VWA.
86 Source: VWA.
87 Accident Rehabilitation and Compensation Insurance Act 1992 (NZ), s 57.
9.112. Damages can also currently be sought for a death resulting from a transport accident under the
Wrongs Act 1958. In accordance with the TAC Guidelines, when pursuing common law
damages for the loss of financial support under that Act, an unborn child is deemed to be a
dependent child if paternity can be proved.
88
9.113. The birth of a workers child after the workers death is likely to be a relatively rare occurrence
and the impacts on scheme costs are likely to be minimal.
9.114. I recommend that, where a child of a deceased worker is born after the workers death, the
child be treated as a dependant of the deceased worker under the AC Act, when paternity can
be proved.
ACCESSING DEATH BENEFITS
Weekly benefits
9.115. It is particularly important that the dependants of a worker are able to access compensation as
soon as practicable.
9.116. Currently, in order to claim compensation for the death of a worker, the dependant must submit
a Dependants Claim for Compensation to the employer (if still in existence) or to the VWA.
Upon receipt of the claim, the VWA refers the matter to one of its approved legal
representatives (panel firms) to manage the claim. The panel firm may require further
information to determine issues of liability and dependency, including the interests of other
potential dependants.
9.117. If liability for the claim is accepted, a separate process is undertaken through the County Court
to determine the specific lump sum entitlements of each dependant.
89
9.118. Where family arrangements and related issues of dependency are straightforward, the Courts
role is minimal and settlements are effectively negotiated between the VWA and dependants
based on the provisions of the AC Act.
90
9.119. Authorised agents can begin payment of weekly pensions to dependants once the agents have
determined liability and dependency issues, without referring the matter to the County Court.
Any dispute over the amount of the deceased workers PIAWE can be decided at a later stage,
including making any necessary adjustments to past and future pension payments. The AC Act
requires the first payment of weekly pensions to be made within 14 days after the amount of
the payment is determined by the VWA.
91
9.120. The AC Act requires interest to be paid on claims for lump sum entitlements, for the period
between the making of the claim and its determination.
92
The AC Act also requires interest to
be paid on weekly pensions, once granted, if there is a delay in making a payment,
93
but not for
the period between the making of a claim and its determination.
9.121. The ALA submits that interest should be payable on pensions, in the same way as it is paid on
lump sum benefits.
94
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88 www.tac.vic.gov.au, Wrongs Act.
89 AC Act, s 92A(3).
90 AC Act, ss 92A(4)(12).
91 AC Act, s 92C(3).
92 AC Act, s 92A(12).
93 AC Act, s 92C(7).
94 ALA, Submission, 2 February 2008, p 13.
9.122. As a matter of policy, the VWA, its agents, and any legal representatives work co-operatively to
obtain relevant information to expedite decisions relating to benefits for dependants. There
appears to be no evidence of any delay in deciding claims for pensions; and there is no
compelling reason to replicate the provision for interest on lump sum payments for weekly
pensions.
9.123. I therefore recommend no change in relation to interest on weekly payments.
Delays in processing lump sum benefits
9.124. However, the process of applying for entitlements following a workers death could be quicker
and simpler.
9.125. Other than the requirement for a claim to be lodged within two years of the date of death,
95
the AC Act is silent on procedures to obtain and manage the provision of lump sum benefits.
9.126. There are inherent difficulties in developing a process for handling death benefits that is
efficient, fair and sensitive to the needs of grieving families.
9.127. The current system reduces the complexity of the task of calculating the precise level of
financial loss suffered by each dependant by using the total award approach, with arbitrary
rules for the distribution of the total award amongst all surviving dependants. That approach
undoubtedly reduces the burden that would otherwise be placed on grieving dependants to
provide evidence of the extent of their actual financial loss as a result of a workers death.
9.128. The VWA and the ALA have cooperated in developing guidelines to promote an efficient
procedure for determining entitlement and payment of compensation for a workers death.
96
The guidelines require participation in a conference within 30 days of service of the claim, if the
dependants are legally represented (which is usually the case). A decision to accept or reject
the claim is to be made by the VWA within 90 days after receipt of the claim, unless an
extension has been agreed by the parties.
97
9.129. Legislating a timeframe within which the VWA must respond to a death benefits claim could be
considered. However, such an approach could produce hurried decisions that are not properly
informed and that may cause dependants undue distress. Further, the current guidelines
98
provide the flexibility required for the timely and sensitive handling of this type of claim. The
guidelines state that, if the VWA or an employer have been advised of a death that may be
work-related, they must inform the relevant agent of the incident, preferably on the same day.
9.130. As at 31 January 2008, the median delay between lodgement of a death benefit claim and
payment of a funeral expense was 286 days.
99
9.131. The delay between lodgement of a death benefit claim and payment of a lump sum entitlement
is longer, with a median delay of 381 days
100
between the date the claim is lodged and the date
the lump sum payment is made.
9.132. Some of the delay is not necessarily due to poor management of death benefit claims, but may
result from the management of the deceased estate, or a delayed notification of funeral
expenses. Recently, the VWA has made significant improvements in the time taken to make
benefits payable to the deceased workers family.
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95 AC Act, s 103(7)(b).
96 Guidelines for Claims for Compensation for Death of a Worker (effective 1 August 2004), p 1.
97 Guidelines for Claims for Compensation for Death of a Worker (effective 1 August 2004), p 5.
98 WorkSafe Claims Manual, section 11.11.1.
99 Source: VWA.
100 Source: VWA.
9.133. Ai Group submits
When a workplace fatality has occurred, employers can find themselves in a position of
wanting to provide appropriate support and assistance to the family, but finding that the system
is restricting their capacity to do so. It is recognised that the issue of dependency can
complicate the resolution of benefits. However, it would seem appropriate to allow the
payment of weekly benefits for a limited period, to the known spouse to enable the
general household bills to be paid; similarly funeral expenses could be covered without the
need to determine dependency.
101
9.134. In Chapter 3 of my Report, I recommend that the Victorian scheme implement provisional
liability for some benefits.
102
I also recommend the provisional payment of:
weekly pensions to dependants;
the reasonable costs of medical and like expenses incurred between the date of injury and
the workers death;
103
the reasonable costs of family counselling services (up to a maximum of $5160);
104
and
the cost of burial or cremation (up to a maximum of $9300).
105
9.135. VECCI strongly supports provisional payments where a worker has died as a result of a work-
related injury or illness, and submits
. . . that there is a strong case for provisional payments in these cases to tide the dependants
over the initial period of high trauma and significant expense. An immediate provisional
payment of $10,000-$15,000 (Subject to indexation under section 100) later to be deducted
from any lump sum allocation approved by the court would be reasonable.
106
9.136. In 2006/2007, 101 claims were lodged for dependency or funeral expenses.
107
Some of those
claims related to incidents that occurred in the 2006/2007 financial year, while other claims
related to earlier years.
9.137. Given the small number of claims lodged each year by the dependants of deceased workers,
the financial impact of introducing provisional liability for dependency claims is considered to be
nominal.
Court approval of death benefits
9.138. Eligibility for lump sum compensation following the death of a worker is determined by the
County Court.
108
The County Court also has jurisdiction to deal with all disputes about eligibility
to entitlements and their calculation, and disputes between dependants.
109
Any lump sum
compensation payable to a dependent child (under the age of 16) must be paid to a trustee
appointed by the County Court.
110
If there are no dependent children, the Court is not required
to appoint a trustee to administer the lump sum benefit for dependent partners.
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101 Ai Group, Submission, May 2008, p 63.
102 Chapter 3, Ensuring timely access to benefits and support, paragraph 3.150.
103 AC Act, s 99(1)(a)
104 AC Act, s 99(1)(aa); WorkSafe online claims manual, section 11.4.3.
105 AC Act, ss 99(1)(b); WorkSafe online claims manual, section 11.4.3.
106 VECCI, Submission, April 2008, p.63.
107 Source: VWA.
108 AC Act, ss 92(1) and 92A(3).
109 AC Act, s 39.
110 AC Act, s 92A(11). For example, the County Court may allow the dependent parent of a deceased
worker to set up a trust, into which the moneys for dependent children are to be paid.
9.139. Although a statutory maximum lump sum is payable under section 92A of the AC Act, claimants
frequently agree to accept a reduced amount. As with all legal settlements, a reduced amount
may be accepted as a compromise, to avoid what might be a more adverse outcome for the
claimant (such as a decision not to award compensation because the death was not related to
work). However, the AC Act does require the County Court formally to determine the amount of
compensation, notwithstanding the existence of the compromise.
111
In those circumstances,
the County Court will satisfy itself that the compromise figure is appropriate and that adequate
legal advice has been provided to the claimant.
9.140. Even in the absence of the current provisions in the AC Act, any compromise of a claim for
entitlements involving persons who are legally vulnerable (such as minors) would require
approval by the Court pursuant to the existing Court rules.
112
9.141. Despite the important role of the County Court, compulsory court involvement may be
unnecessary or counter-productive in some cases, given the expense of associated legal costs
and the fact that involvement can delay settlement of claims.
9.142. The VTHC believes that, in most matters, the Courts role is minimal. It supports the removal of
the requirement that all dependency claims be subject to court approval before payments are
made and submits
In most matters, the courts role is minimal and the requirement that the court in effect rubber
stamps the payments adds to the administrative burden and delays.
113
9.143. The introduction of such a scheme would no doubt ensure faster delivery of benefits for
dependants. However, some vulnerable dependants (for example, children or those incapable of
managing their own affairs because of a disability) should be provided with safeguards,
particularly where less than the maximum entitlement has been agreed.
9.144. There are at least three situations, in which court approval of settlements for lump sum death
benefit claims should be retained:
where vulnerable dependants
114
are to be paid their maximum entitlements under the AC Act,
to appoint an appropriate trustee;
115
where vulnerable dependants are paid a compromise amount, to ensure that the compromise
is fair and reasonable in all the circumstances; and
where dependants are not legally represented and agree to a compromise amount, again to
ensure that the agreed compromise is fair and reasonable.
9.145. Alternatively, in some cases a payment into a managed fund with structured payments may
best serve the interests of vulnerable dependants. This could be an option open to the Court.
9.146. Both VECCI
116
and Ai Group
117
support the current court approval process for the determination
of a death benefit.
9.147. The protection of vulnerable dependants is essential to retain integrity and fairness in the
process for determining lump sum benefits. However, there are also circumstances where
issues of dependency are straightforward. The need for a court process in such cases only
adds to a familys grief during a traumatic period. In line with the Reviews terms of reference
to provide fair and effective benefits, it appears reasonable to reduce the role of the Court in the
approval of lump sum entitlements in certain cases. The impact on scheme costs is likely to be
immaterial.
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111 AC Act, s 92A(3).
112 See Order 15.08 of the County Court Rules of Procedure in Civil Proceedings 1999.
113 VTHC, Submission, 2 May 2008, pp 3839.
114 That is, dependants who are persons under a disability within the meaning of Order 15 of the
County Court Rules.
115 AC Act, s 92A(11).
116 VECCI, Submission, April 2008, p 63.
117 Ai Group, Submission, May 2008, p 64.
9.148. For those reasons, I recommend that the AC Act be amended to reduce the role of the Court in
the approval of lump sum entitlements to the situations identified in paragraph 9.144 above.
Magistrates Court to replace County Court
9.149. Where Court approval of lump sum death benefits is necessary (see paragraph 9.144 above),
I propose that proceedings be commenced in the Magistrates Court, replacing the current
requirement that the County Court determine entitlement to compensation.
118
9.150. The Magistrates Court Rules currently provide for court approval of compromises by minors or
persons under a disability.
119
However, there may need to be amendment, either to the AC Act
or the Magistrates Court Rules, to ensure that the Court has appropriate powers
to appoint an appropriate trustee in connection with an award of compensation to a
dependant; and
to require court approval in the circumstances envisaged in paragraph 9.144 above.
9.151. In Chapter 10, Transparency in decision-making and the efficient resolution of disputes,
I recommend removing restrictions on the jurisdiction of the Magistrates Court with respect to
disputes over statutory benefits.
120
The intention is that all proceedings brought by dependants
for compensation in respect of the death of a worker, currently exclusively the jurisdiction of the
County Court, will be brought in the Magistrates Court. The objective is to establish the
Magistrates Court as the exclusive jurisdiction for the determination of all statutory entitlements
to compensation. I expect that the Magistrates Courts more streamlined and less expensive
processes will provide benefits for parties, and for the scheme generally.
9.152. Consistent with my recommendation in Chapter 10, removal of the current jurisdictional limit
of the Magistrates Court for statutory benefit disputes arising under the AC Act will need to
accommodate the relatively high level of compensation payable following a workers death:
see paragraphs 9.359.36 above.
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118 AC Act, s 92A(3)
119 See Rule 32.05, Magistrates Court Rules.
120 Chapter 10, Transparency in decision-making and the efficient resolution of disputes,
paragraph 10.348.
TRANSPARENCY IN DECISION-
MAKING AND THE EFFICIENT
RESOLUTION OF DISPUTES
Performance of the current
dispute resolution process
A modified approach to dispute resolution
Lodging a dispute
Internal review of statutory benefit decisions
A modified role for the ACCS
Arbitration
Medical questions
Medical Panel referrals by courts
Reasons
Accountability
Composition of Medical Panels
The Magistrates Court
Review of agent decisions by employers
10
10.1. In 2006/2007, there were over 13,000 disputes about statutory benefits in the Victorian scheme.
That number does not include disputes about common law actions and other types of
complaints made to the VWA, agents and self-insurers. By comparison, in the year ending
31 December 2007, New South Wales had 8175 applications to the Workers Compensation
Commission for the resolution of a dispute.
1
10.2. Disputes increase costs and delay benefit delivery. They can also affect return to work outcomes.
10.3. For those reasons, it is imperative that the Victorian scheme has an effective and efficient
dispute resolution framework. In this chapter, I recommend significant reforms to the current
dispute resolution model.
10.4. In particular, in this chapter I:
review the current dispute resolution framework in Victoria and consider how the dispute
resolution model has evolved over time;
analyse the structure and performance of other States dispute resolution frameworks, and
the structure and performance of the Commonwealth schemes framework;
examine the case for changing the dispute resolution model in order to enhance its
effectiveness; and
finally, set out my recommendations for a new dispute resolution model; outlining the
features, including a more robust process for the review of agent decisions, a more facilitative
role for the the Accident Compensation Conciliation Service (the ACCS) to encourage early
resolution of disputes, changes to the jurisdiction of the Magistrates Court, enhancements to
the operation of the Medical Panels and an expanded role for the Ombudsman in relation to
the Medical Panels.
The current framework
10.5. Dispute resolution mechanisms are available to workers, in the following order:
review by an agent senior manager;
conciliation, through the ACCS; and
legal proceedings, through the Magistrates Court or County Court.
2
10.6. Part III of the AC Act establishes the Medical Panels as a further alternative dispute resolution (ADR)
mechanism that aims to reduce the time and costs associated with more formal legal proceedings.
10.7. Disputes over medical issues can be referred to a Medical Panel for a final and binding decision
on a medical question.
10.8. Referrals to a Medical Panel may be made directly by an agent or self-insurer through the
impairment benefit assessment process or in relation to entitlement to weekly payments
beyond the second entitlement period of 130 weeks,
3
from Accident Compensation Conciliation
Service (the ACCS)
4
or from the courts following the commencement of litigation.
5
Review by agents
10.9. A worker may request internal review of an agents decision, and the review is undertaken by
a senior officer/manager of the agent who was not involved at the primary decision. The review
involves consideration of the claim file as a whole and the reviewer may ask the worker and/or
employer for additional information. The senior manager then writes to the worker advising of the
outcome of the review whether the original decision has been maintained, withdrawn or varied.
6
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1 Workers Compensation Commission, Annual Review 2007, WCC, Sydney, 2008, p 9.
2 Victorian WorkCover Authority Claims Manual, 17 Dispute Resolution, p 2.
3 AC Act, s 93(CD).
4 AC Act, s 56(6).
5 AC Act, s 45.
6 VWA Claims Manual, 17.1.a Review by Senior Manager, viewed 9 July 2008 at
http://www1.worksafe.vic.gov.au/vwa/claimsmanual/default.htm.
10.10. An affected worker may accept the outcome of internal review, or proceed to conciliation.
It is common for a request for conciliation to be lodged by a worker at the same time as the
agent is requested to review the decision internally. Internal review is not a precondition for
proceeding to conciliation and a considerable number of workers do not use the internal review
process at all.
The ACCS
10.11. The ACCS is an independent body corporate established under the AC Act.
7
Its function is to
provide conciliation services to resolve disputes efficiently and fairly for the purposes of the AC
Act and, in most cases, the ACCS represents a compulsory step before court proceedings can
be issued.
8
10.12. The Governor in Council appoints a Senior Conciliation Officer and Conciliation Officers on the
recommendation of the Minister.
9
Conciliation Officers are engaged on terms and conditions
specified by the Minister.
10
10.13. The ACCS conciliates disputes about statutory benefits (that is, compensation other than
common law entitlements). Disputes handled by the ACCS include disputes about:
liability for claims;
weekly benefits;
medical and like services;
liability for impairment benefit claims;
maims claims; and
access to information.
10.14. To refer a disputed decision to the ACCS, a party must lodge a request for conciliation form
within 60 days of the disputed decision.
11
Referrals are accepted outside this time if the Senior
Conciliator considers it appropriate.
12
10.15. Any party to a dispute may refer the dispute for conciliation.
13
In most cases, it will be a worker
who refers a dispute for conciliation. In those cases, the employer is informed of the dispute
and invited by the ACCS to attend the conference. Conciliation Officers must make all
reasonable efforts to conciliate in connection with a dispute and bring the parties to
agreement.
14
10.16. A referred matter is assigned to a Conciliation Officer, whose role is to act as an independent
third party in the dispute.
10.17. The Conciliation Officer arranges a conference to discuss the issues. Although lawyers may
attend the conference with the consent of all parties,
15
this occurs infrequently. Workers may
otherwise obtain assistance and representation from Union Assist (through their relevant union),
VWA Assist (an organisation that provides independent, free support to workers) or an
assistant of their choice, who is not permitted to act as an advocate.
16
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7 AC Act, s 52A.
8 AC Act, s 49 Claims relating to ss 92, 92A, 92B, 98 and 98A are excluded: s 49(1).
9 AC Act, s 52D.
10 AC Act, ss 52D(2) and 52E(2), the latter subject to an approved variation s 52E(3A).
11 AC Act, s 55(1), (2).
12 AC Act, s 55(3).
13 AC Act, s 55(1). Employers are represented by claims agents; they are not treated as parties in their
own right for the purposes of disputes under the AC Act.
14 AC Act, s 56(2).
15 AC Act, s 56(3), (4).
16 Usually a relative or friend, within the meaning set out in the relevant guidelines Bob Cameron MP,
Ministerial Guidelines for the arrangement of the Business of Conciliation Officers, paragraph 7,
undated.
10.18. Ministerial Guidelines provide for a Code of Conduct and supporting procedural protocols for
the ACCS to ensure best practice in dispute resolution, and that a quality service is provided
which is responsive to the needs of workers, employers and WorkCover agents or self-insurers.
17
Ministerial Guidelines as to the conduct of the parties at conciliation have also been issued
pursuant to section 52F of the AC Act.
18
10.19. The conciliation process may result in one of the following outcomes:
19
agreement between the parties on how to resolve the dispute;
direction
20
to the agent to make specified payments, either for weekly payments or medical
and like expenses, or to release specified information; this happens when the parties do not
agree, but the conciliator believes there is no geniune dispute (see below);
recommendation which the parties to the dispute may agree to accept; this happens when
the agent accepts the conciliation result, but does not necessarily admit liability
(for example, where a worker had a limited entitlement);
genuine dispute where the parties cannot reach an agreement and the conciliation officer
considers that the dispute is genuine; a certificate to this effect gives the parties the right to
take the dispute to Court;
21
or
Medical Panel referral where an appropriate medical question has been identified.
10.20. Conciliation Officers are not required to provide reasons for their decisions; however, it is
desirable that outcome certificates provide enough information to assist parties in
understanding their responsibilities pursuant to resolutions reached. Thus, Ministerial Guidelines
specify that the content of certificates be adequate to inform the parties and the Court of the
process or outcome of Conciliation.
22
or
10.21. The ACCS is a free service and workers do not risk adverse costs consequences by using it.
The AC Act stipulates that each party to a dispute is to bear the partys own costs incurred
at conciliation.
23
The costs incurred may involve a workers lost time from work and any legal
advice obtained before, or during, the conference. To assist with the settlement of disputes,
the VWA has reached agreement with the ACCS that the reasonable cost of medical reports
necessary to facilitate resolution will be paid by the agent.
Medical Panels
10.22. Medical Panels represent a second tier of alternative dispute resolution under the AC Act.
They are independent bodies constituted for the purposes of the AC Act and the Wrongs Act
1958 (Vic).
24
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17 Bob Cameron MP, Ministerial Guidelines for the arrangement of the Business of Conciliation Officers,
paragraph 5, undated.
18 Ministerial Guidelines as to Authorised Agent, Self-Insurer, Employer and Workers Assistant Conduct
at Conciliation Conference, John Lenders MP, Minister for WorkCover, 15 September 2005.
19 AC Act, ss 57, 59.
20 A direction is binding on the parties to the dispute but may be revoked upon application to the County
Court or Magistrates Court by the party liable to make payments.
21 Victorian WorkCover Authority Claims Manual, 17.2 Dispute Resolution, Conciliation Service, p 8.
22 Bob Cameron MP, Ministerial Guidelines for the arrangement of the Business of Conciliation Officers,
paragraph 15, undated.
23 AC Act, s 62.
24 AC Act, s 63(1).
10.23. A Conciliation Officer has the discretion to refer a medical question to a Medical Panel for an
opinion.
25
Alternatively the VWA, its agent, or a self-insurer may seek a referral of a medical
question with the workers consent
26
and the Conciliation Officer must then refer the medical
question to a Medical Panel only if the Conciliation Officer is satisfied that:
the medical question is in an appropriate form;
the worker has given informed and genuine consent;
the medical question is relevant and would assist in the consideration and management of
the workers claim; and
the VWA, its agent or the self-insurer and the worker have provided all relevant documents
and information.
27
10.24. In Magistrates Court and County Court proceedings, a referral to the Medical Panel must be
made by the Court if requested by either party, subject to limited exceptions and controls.
28
10.25. Under the AC Act, a Medical Panel has 60 days to form its opinion.
29
10.26. An individual Medical Panel is constituted to consider each case and consists of up to five
medical specialists appointed to the Panel by the Convenor after having considered the specific
requirements of the particular case.
30
Medical Panels are constituted from a list of medical
practitioner members appointed by the Governor in Council.
31
The Convenor and a Deputy
Convenor are also appointed from this list by the Minister.
32
10.27. The role of a Panel is to give its opinion on any medical questions in respect of injuries arising
out of, or in the course of or due to the nature of employment . . .
33
A worker may present with
multiple injuries, requiring examination by different specialists. Where additional panellists are
required, those panellists can only be appointed as consultants rather than members, which
mean that they cannot be involved in the Panels ultimate decision-making.
10.28. Medical Panel opinions may be judicially reviewed by the Supreme Court on the basis that the
Panel committed a legal error
34
in arriving at the opinion. Otherwise the opinions are final and
conclusive.
35
This reflects the original intention of Parliament, notably averse to the alternative
of dueling experts because they represent an obstacle to the resolution of disputes, which in
turn drives up costs unnecessarily.
36
10.29. The scope of the questions that can be referred to a Medical Panel was significantly broadened
as part of the general amendments to the AC Act introduced in 1992. The amendments
expanded the definition of a medical question to include questions relating to treatment and
incapacity.
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25 AC Act, s 56(6). Referrals to Medical Panels by a Conciliation Officer are typically done pursuant to this
provision.
26 AC Act, s 55A(2).
27 AC Act, s 55A(3).
28 AC Act, s 45(1B), (1C).
29 Ac Act, s 68(1).
30 AC Act, s 63(4).
31 AC Act, s 63(2).
32 AC Act, s 63(3).
33 AC Act, s 67(1).
34 Such as taking into account an irrelevant consideration, misconstruing the legislation under which the
Panel acts or denying procedural fairness to the worker.
35 AC Act, s 68(4).
36 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1080: Accident Compensation
(Miscellaneous Amendment) Bill 1997, Second Reading.
10.30. Currently, section 5 of the AC Act defines medical question and provides for 16 types of
medical question that can be referred for the opinion of a Medical Panel. These include:
the nature of a workers medical condition;
issues relating to capacity for work or suitable employment;
the adequacy, appropriateness or frequency of medical services;
whether work was a significant contributing factor or contributing factor to a workers injury;
issues relating to percentage impairment, including its permanence and level; and
medical questions relating to a workers serious injury application pursuant to section
134AB(16)(b).
The Courts
10.31. Court proceedings must not be commenced (in most matters) unless the dispute has been
referred for conciliation and the Conciliation Officer is satisfied that all reasonable steps have
been taken by the claimant to settle the dispute.
37
If either party to litigation requests referral
of a question to a Medical Panel, the Court must make such a referral, unless to do so would
constitute an abuse of process.
38
10.32. An appeal process exists from Court judgments or decisions to the Court of Appeal (from the
County Court) or the Supreme Court (from the Magistrates Court) on the basis of questions
of law.
39
10.33. Court processes typically require more demanding standards of procedural fairness than are
expected of quasi-judicial tribunals. Those standards can involve greater formality in decision-
making, and may have implications for expedition and legal costs.
Stakeholder views
10.34. VECCI submits that
The current dispute resolution system seems to work well. There is one fault with the
Conciliation system which occasionally comes to VECCIs attention. When an agreement is
made the precise terms of that agreement and in particular what happens if one of the parties
reneges on the agreement is rarely clear.
40
10.35. Ai Group notes that, generally, it
. . . supports the concept that a streamlined dispute resolution system is an appropriate way to
handle disagreements within the system. However, there are a number of difficulties
associated with the current legislation and processes.
41
10.36. The SIAV expressed a number of concerns about the performance of the ACCS but noted
that it
. . . generally supports the ACCS and is generally satisfied with the level of service and level of
expertise.
42
10.37. The VTHC submits that the time taken to finalise disputes through the ACCS has increased over
the years and says that
. . . the increase in time taken to finalise disputes relates primarily to the attitude of the agents
of the Authority and their failure to reconsider bad decision making or their refusal to be
flexible in resolving disputes through the process . . .
43
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37 AC Act, s 49.
38 AC Act, s 45(1B).
39 AC Act, s 52(1); Magistrates Court Act 1989, s 109.
40 VECCI, Submission, 8 February 2008, p 33.
41 Ai Group, Submission, May 2008, p 78.
42 SIAV, Submission, May 2008, p 27.
43 VTHC, Submission, 2 May 2008, p 51.
10.38. The ACCS comments that
The resolution rate for disputes at the ACCS in the 2006-07 financial year was 70.1% with a
high level of client satisfaction as indicated in the following table. The resolution rate in the
2007-08 financial year to 30 April is 72.6%
It is logical that the conciliation process remain at the ACCS.
Historical context
10.39. The WorkCover Conciliation Service and WorkCover Medical Panels were introduced on
1 December 1992, at the time of the establishment of the VWA.
44
When Medical Panels were
first introduced to the scheme in 1989, it was the Governments intention that they would be
used sparingly.
45
10.40. Before 1993, workers compensation in Victoria was covered under the WorkCare scheme,
introduced in 1985,
46
managed by the Accident Compensation Commission (the ACC); and
dispute resolution processes were provided by a tiered system of specialist tribunals. The
objectives of the WorkCare dispute resolution system were to provide a just, fair, economical
and quick review mechanism.
47
10.41. The Boston Consulting Group (BCG) was engaged in late 1992 to examine the ACCs activities
and, following a comprehensive examination of dispute resolution systems in Victoria and New
South Wales, found that Victorias legal costs were clearly out of line with other States and that
there were difficulties flowing from the underwriting of legal costs throughout the dispute
resolution process.
48
10.42. BCG identified a number of factors that contributed to the failure of the pre-1993 dispute
resolution process to achieve its objectives, including the following:
Parties were not brought together at an early stage in the dispute.
Adversarial positions were adopted from the outset, requiring expensive medical evidence
and fostering entrenched positions through the formal appeals process. There was no
opportunity for the worker to go back to the claims agent with further information for initial
review of the decision.
Restrictions were placed on employers and claims agents before the WorkCare Appeals
Board.
49
Early inclusion of expensive legal processes resulted in an undue burden of legal costs on the
scheme.
Referral to Medical Panels occurred at a late stage.
50
Workers Employers WorkCover Agents & self-insurers
82% 77% 88.5%
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44 Pursuant to the Accident Compensation (Workcover) Act 1992.
45 Accident Compensation (General Amendment) Bill, Second Reading, Legislative Council, Debates,
19 September 1989, p 449.
46 AC Act (as originally enacted).
47 Wallace, N & Hall, M, Best Practice Research Program Policy Research Paper No 4, Preventing
Disputes: Best Practice in workers compensation dispute resolution, Victorian WorkCover Authority,
1993, p 2.
48 The Boston Consulting Group Best Practice Research Program Policy Research Paper No 1,
Benchmarking Best Practice: Cost Drivers in Australian Workers Compensation Systems,
July 1992, p 16.
49 Employers, agents and self-insurers were not given the same opportunity as workers to be heard by
the WorkCare Appeals Board. Their input was limited to mandatory written submissions early in the
process: AC Act, s 71I (repealed in 1992 by the Accident Compensation (WorkCover) Act 1992).
50 Wallace, N & Hall, M, Best Practice Research Program Policy Research Paper No 4, Preventing
Disputes: Best Practice in workers compensation dispute resolution, Victorian WorkCover Authority,
1993, pp 5-6.
10.43. Those observations remain relevant to any consideration of the current processes for resolving
disputes under the AC Act. The review of the scheme in 1993 identified elements of a
best practice model, which included an ADR process that facilitated the early exchange of
information, a role for medical arbitrators to decide complex medical disputes and limiting the
involvement of lawyers in order to keep most disputes out of court.
51
10.44. With the establishment of the VWA as the regulatory body responsible for the scheme, the
ACC, the Victorian Accident Rehabilitation Council, the Accident Compensation Tribunal and the
Workcare Appeals Board were abolished.
52
10.45. Major changes to the scheme were introduced through the Accident Compensation
(Miscellaneous Amendment) Act 1997. The existing ADR processes were strengthened, to
improve the efficiency of the dispute resolution process,
53
by:
clarifying the binding character and finality of Medical Panel opinions; and
increasing the powers of Conciliation Officers;
to encourage the resolution of disputes without resorting to duelling experts, escalating
disputes and increasing legal costs.
54
10.46. It is useful to consider the review of the civil justice system recently completed by the Victorian
Law Reform Commission. In its report launched on 28 May 2008, the Commission made 177
recommendations aimed at reducing the cost, length and complexity of litigation.
55
Its
proposals recognise the importance of disclosing information and facilitating cooperation before
the commencement of proceedings, as well as encouraging the use of ADR options within the
context of the formal Court process.
56
Jurisdictional comparisons
10.47. Other Australian compensation schemes provide for combinations of specialist tribunals and
formal Court processes to resolve disputes.
Victorian Civil and Administrative Tribunal and the Transport Accident Commission
10.48. The Victorian Civil and Administrative Tribunal (VCAT) was created in 1998, as an amalgamation
of 15 boards and tribunals, to provide a one-stop shop dealing with a range of disputes,
providing Victorians with access to a civil justice system which is modern, accessible, efficient
and cost effective.
57
VCAT is the forum for external resolution of disputes over statutory
benefits involving the Transport Accident Commission (TAC), and aims to provide an informal
and efficient service, with an emphasis on resolving disputes at the compulsory conference
stage before the hearing and final determination of the dispute.
10.49. In 2006/2007, the VCAT General List resolved 84% of TAC disputes within 55 days.
58
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51 Wallace, N & Hall, M, Best Practice Research Program Policy Research Paper No 4, Preventing
Disputes: Best Practice in workers compensation dispute resolution, Victorian WorkCover Authority,
1993, p 22.
52 By the Accident Compensation (WorkCover) Act 1992 (Vic).
53 Legislative Assembly, Debates, 12 November 1997, p 1075: Accident Compensation (Miscellaneous
Amendment) Bill 1997, Second Reading.
54 Victoria, Legislative Assembly, Debates, 12 November 1997, p 1080: Accident Compensation
(Miscellaneous Amendment) Bill 1997, Second Reading.
55 http://www.lawreform.vic.gov.au/wps/wcm/connect/Law+Reform/Home/Completed+Projects/
Civil+Justice/ viewed 4 August 2008
56 Victorian Law Reform Commission, Civil Justice Review, Report 14, VLRC, Melbourne, 2008.
57 http://www.vcat.vic.gov.au/CA256DBB0022825D/page/About+VCAT?OpenDocument&1=10-
About+VCAT~&2=~&3=~
58 Victorian Civil and Administrative Tribunal, Annual Report, 2006-2007, p 24.
10.50. The TAC has developed a very different system for dispute resolution for statutory benefits to
the system administered by the VWA. The TAC review system contains three layers of review:
informal review by the TAC; pre-VCAT (pre-issue) review by the TAC; and VCAT review.
Significant features of the TAC system, which, arguably, can be compared favourably with the
VWA review system, are that:
the TAC review system appears to be clearer and easier to understand than the VWA review
system;
the TAC review system involves an authoritative and final resolution of disputes through
internal review of decisions made by decision-makers, while the VWA conciliation system
largely relies on agreement and does not always have certainty, consistency or finality of
outcome;
the allocation of legal costs at the pre-litigation stage of the TAC review system (according to
a legal costs schedule) encourages early settlement via the TAC protocols for pre-issue review
and conference; compared with the usual order for costs on County Court Scale A for VCAT
hearings, the TAC protocol payments are more generous even though less legal work may
have been done at the preliminary stage; and
the TAC review system does not rely principally on traditional court processes.
10.51. The TACs internal review process is enhanced by the co-location of claims staff and legal
advisers, enabling an arguably more considered and informed process at the outset.
10.52. Following the introduction of the pre-issue review dispute application protocols (which include
legal cost incentives), effective from 1 March 2005,
59
VCAT statistics show that the number of
TAC applications issued at VCAT decreased significantly. Lodgements at VCAT for review of TAC
decisions has decreased from 2002/2003
60
when 1509 applications were made, to 715
61
in
2004/2005 and to 569 in 2006/2007.
62
10.53. Anecdotal evidence suggests that the majority of applications to VCAT for review resolve early,
through negotiation at the compulsory conference stage, and that hearings are generally limited
to matters of strategic significance to the transport accident scheme.
Comcare
10.54. Comcare, the Commonwealth workers compensation scheme, is governed by the SRC Act,
which establishes a relatively simple system for resolving disputes.
10.55. Decisions about claims are made by Comcare delegates (officers employed by Comcare).
An employee or employer may seek internal reconsideration of those decisions by another
Comcare delegate (also an officer employed by Comcare, and known as a Review Officer).
63
The Review Officers decision is termed a reviewable decision.
64
10.56. An employee or employer may then apply to the Administrative Appeals Tribunal (the AAT) for
review of a reviewable decision.
65
The AAT then decides the matter by exercising all the powers
of the Review Officer: the AAT may confirm the decision; vary the decision; set aside the
decision and substitute a new decision; or set aside the decision and remit the matter to the
insurer with appropriate directions. Appeals from a decision of the AAT can be taken to the
Federal Court on a question of law.
66
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59 Transport Accident Act No Fault Dispute Resolution Protocols (TAC, ALA, LIV), amended from August
2007.
60 Victorian Civil and Administrative Tribunal, Annual Reports, 2002-2003.
61 Victorian Civil and Administrative Tribunal, Annual Reports, 2004-2005.
62 Victorian Civil and Administrative Tribunal, Annual Reports, 2006-2007.
63 SRC Act, s 62.
64 SRC Act, s 60(1).
65 SRC Act, s 64(1).
66 Administrative Appeals Tribunal Act 1975 (Cth), s 44(1).
10.57. Medical evidence may be provided to the AAT by either party, and an employee can therefore
produce evidence from her or his treating doctors and from other expert witnesses, and will
usually be required to attend medical appointments arranged for the purpose of assessment
by the respondents medical witnesses.
10.58. The AAT has published a Guide to the Workers Compensation Jurisdiction,
67
which sets out
the various steps followed in the AAT process. The AAT actively manages cases and there are
alternative dispute resolution steps built into the pre-hearing case management process, in
the form of pre-hearing conferences and conciliation conferences.
10.59. Although the merits review process in the AAT is well established and organised, dispute
resolution is relatively slow. This may be due in part to the formality and slowness of the
Comcare system itself, and a reflection of relatively high rates of dispute.
68
Several issues
have been identified that may contribute to slow outcomes in the AAT:
there is a lengthy delay between lodging of an application in the AAT and the first conference
(six weeks); the respondent is required to prepare Tribunal documents (T-documents) within
that period; however, there is generally no other progress in terms of communication
between the parties;
applicants solicitors receive no recompense for work done before an application is filed,
so there is no financial incentive to undertake work before then;
matters are delayed by the time required (up to three months) to obtain independent medical
appointments; and
matters may, arguably, be over-prepared because of the emphasis on preparation for hearing;
if so, this potentially wastes time, resources and money.
10.60. The Comcare dispute resolution process uses the adversarial format of the AAT, which appears
to result in delays and increased costs for both employers and workers. The lack of framework
or costs incentives to ensure parties engage with each other much earlier in the process,
together with the emphasis on preparation for hearing and its associated legal costs, do not
appear to reflect an appropriate emphasis on benefit delivery by focusing resources on early
settlement options.
Queensland
10.61. The Queensland system is governed by the Workers Compensation and Rehabilitation Act 2003
(Qld) (the WCR Act). In 2005/2006, Queensland had the lowest dispute rate of all Australian
jurisdictions.
69
10.62. Key features of the Queensland dispute resolution process, which compare favourably to the
AC Act, are:
a clear and easy-to-follow legislative framework;
a review system that involves the authoritative and final resolution of disputes, by
incorporating decisions made by decision-makers on internal review and then via
Q-Comp, the Queensland workers compensation regulatory authority; and
employer involvement in actively managing claims.
10.63. The insurer is first required to conduct an internal review of a proposed decision to reject an
application for compensation or to terminate compensation.
70
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67 March 2007.
68 8.3%: Workplace Relations Ministers Council, Comparative Performance Monitoring Report,
Comparison of occupational health and safety and workers compensation schemes in Australia and
New Zealand, February 2008, 9
th
ed, p 28.
69 3.8%: Workplace Relations Ministers Council, Comparative Performance Monitoring Report,
Comparison of occupational health and safety and workers compensation schemes in Australia and
New Zealand, February 2008, 9
th
ed, p 28.
70 WCR Act, s 538(1): Before an insurer makes a decision to reject an application for compensation or to
terminate compensation, the insurer must undertake an internal review of the proposed decision.
10.64. An application for administrative review of an insurers decision may be made to Q-Comp:
A claimant, worker or an employer aggrieved by a decision or the failure to make a decision
may apply for review.
71
An application for review must generally be made within 3 months of
notification of the insurers decision.
72
10.65. Q-Comp reviews the insurers decision, having regard to all information from the insurers file as
well as any other information provided to Q-Comp.
73
Q-Comp may confirm the decision; vary
the decision; set aside the decision and substitute a new decision; or set aside the decision
and remit the matter to the insurer with appropriate directions. Q-Comp is required to make a
decision within 25 days.
10.66. An appeal can be lodged with an Industrial Magistrate or the Industrial Relations Commission
from Q-Comps decision.
74
Further recourse lies with the Industrial Court.
75
10.67. Medical assessment tribunals (MATs) are used upon referral by the insurer for medical opinion
in specified circumstances.
76
10.68. Queenslands dispute resolution process is predicated on an effective internal review procedure
conducted by the schemes regulator. Of 2150 applications for review by Q-Comp in the
2006/2007 financial year, less than 16% were subject to further appeal.
77
That figure reflects
considerable confidence in a process that is non-adversarial and administered on a no-costs
basis.
10.69. Of the examples under discussion, Queensland has the most timely and efficient dispute
resolution process. In 2005/2006, over 93% of disputes in Queensland were resolved within
three months. By comparison, more than half of Comcares disputes took longer than nine
months to resolve.
78
The contrast is further confirmation of the effectiveness of the robust
review process undertaken by Q-Comp and reflects a scheme with effective decision-making
processes.
10.70. The Queensland system appears to be driven by cost savings and quick resolution of claims.
The extent to which the structure of the scheme results in costs savings is not clear (although
the authoritative nature of the dispute resolution scheme is evident in the legislation). However,
it appears that the design and operation of the scheme makes costs savings a focus.
10.71. The Workcover Queensland website promotes prompt resolution of claims and involves parties
who have a stake in the outcome in that resolution, including employers.
79
The AC Act, which
effectively excludes employers from the decision-making process and review of decisions,
currently precludes such an approach.
South Australia
10.72. A recent review of the South Australian workers compensation scheme
80
quickly resulted in
proposals for legislative change based on its recommendations.
81
The scheme is governed by
the Workers Rehabilitation and Compensation Act 1986 (SA) (the WRC Act).
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71 WCR Act, s 541.
72 WCR Act, s 542(1).
73 WCR Act, s 545(1).
74 WCR Act, s 558.
75 WCR Act, ss 561-562.
76 WCR Act, ss 500-508A.
77 Queensland Workers Compensation Scheme Statistics Report 20062007, p 48.
78 http://www.deir.qld.gov.au/workerscompensation/advertising/index.htm
79 http://www.workcover.qld.gov.au/employer/Employerhome/Accide773urance/Managi963mcosts.html
80 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Review of the South Australian
Workers Compensation System, Report, December 2007 (the Clayton-Walsh Report).
81 Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 (SA).
10.73. Currently, following lodgement with the Workers Compensation Tribunal of a notice of dispute
relating to a decision under the WRC Act, an internal review of the decision must take place.
82
If the matter remains unresolved, the Registrar of the Tribunal must refer the dispute to
compulsory conciliation, to be held within 28 days.
83
10.74. The remaining steps involve arbitration and then judicial determination, by way of rehearing
before a single presidential member of the Tribunal.
10.75. Limited appeal rights involve an appeal to the Full Bench of the Tribunal, with provision for
questions of law to be referred for the opinion of the Full Court of the Supreme Court.
10.76. The SA Review recommended enhancing the arbitration role of the dispute resolution process,
with a view to giving the scheme a fully developed conciliation-arbitration model, with
arbitrators being given sufficient powers, training and support to fully discharge this arbitration
function.
84
That would involve empowering arbitrators to take oral evidence from parties to
assist in clarifying issues and resolving disputes.
85
10.77. The strong and well supported arbitration process in New South Wales was endorsed, as
allowing only the most difficult and intractable cases to undergo judicial determination.
86
10.78. However, it is worth noting that, while the dispute rate in New South Wales was relatively low in
2005/2006 compared to Victoria,
87
resolution times in New South Wales are considered to be
negatively affected by a number of distinguishing features of the New South Wales Workers
Compensation Commission (the WCC): the mandatory, binding medical assessment process to
resolve disputes over permanent impairment entitlements; the appellate avenues in place in
relation to decisions of arbitrators and approved medical specialists; and the WCCs 10-week
information exchange period to obtain material via subpoena.
88
10.79. The SA Review also recognised the importance of establishing Medical Panels
. . . as a means of focusing decision making on medical issues at a more evidence-based level
and limiting the negative impact, in both social and economic terms, of a plethora of
unproductive medical reports.
89
10.80. In recognising the fast-track potential of Medical Panels, the SA Review recommended
adopting Victorias legislative framework with respect to the operations, functions and scope
of the Medical Panels. Drawing upon Queenslands selection process, which involves a
stakeholder selection committee nominated by the Minister, the proposed model again deferred
to Victoria in relation to appointments.
90
The strong leadership role of the Convenor in the
Victorian scheme was identified as a crucial element for the success of Medical Panels.
91
10.81. The Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 (SA)
92
(the Amendment Act) does not adopt the Reviews recommendations on arbitration, and has
removed arbitration from the dispute resolution process, consistent with SA WorkCovers initial
recommendation to the SA Review.
93
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82 WRC Act, s 91.
83 WRC Act, ss 91A and 92B.
84 SA Review, p 133.
85 SA Review, p 133.
86 SA Review, p 133.
87 9.3% in NSW and 14.1% in Victoria in 2005/2006: Workplace Relations Ministers Council, Comparative
Performance Monitoring Report, Comparison of occupational health and safety and workers
compensation schemes in Australia and New Zealand, February 2008, 9
th
ed (WRMC Report), p 28.
88 WRMC Report, p 30.
89 WRMC Report, p 136.
90 WRMC Report, pp 133-134.
91 WRMC Report, p 137.
92 Enacted on 19 June 2008 and commenced, in part, on 1 July 2008. Changes relating to the dispute
resolution structure and the implementation of Medical Panels are expected to come into effect from
January 2009 and April 2009 respectively.
93 SA Review, p 130.
10.82. Medical Panels are to be established, as envisaged by the SA Review. The Amendment Act
provides that Medical Panel opinions are to include a statement of reasons.
94
PERFORMANCE OF THE CURRENT DISPUTE RESOLUTION PROCESS
10.83. There is a comparatively high level of disputes in the Victorian WorkCover system. In 2006/2007,
there were 13,682
95
disputes about statutory benefits. That figure does not include disputes
about common law actions and other types of complaints made to the VWA, agents and self-
insurers. By comparison, in the same financial year, there were 8175 applications to the New
South Wales WCC to resolve disputes.
96
10.84. According to the Workplace Relations Ministers Councils Comparative Performance Monitoring
Report, Victoria had the highest dispute rate of all States in the financial year 2005/2006.
97
It records Victorias dispute rate as 14.1%, compared to New South Wales at 9.3% and an
Australian average of 8.6%. Queensland had the lowest dispute rate of 3.8%; its rate had been
no higher than 4.1% in the previous four years.
10.85. Comparisons with New South Wales in relation to the actual number of notices of dispute
lodged, as well as anecdotal information, indicate that Victorias level of disputes regarding
statutory benefits is disproportionately high.
10.86. Victorias high dispute rate, and its reliance on agent internal review and specific ADR
processes as a precursor to formal litigation, suggests that there are problems inherent with the
early stages of the process.
10.87. According to the Productivity Commission, statutory benefit disputes primarily involve
disagreements about:
the work-relatedness of the injury;
the extent of the injury; and
access to entitlements.
98
10.88. The Productivity Commission has also stated that dispute resolution systems are concerned
with ensuring integrity in the provision of workers compensation the objective being to
resolve disputes in an equitable and cost-effective manner.
99
10.89. The 28-day time limit on agent decision-making
100
can contribute to disputes and ultimately to
delays. For example, if it is not possible for the VWA or an agent to obtain a medical report
within 28 days because the worker or specialist medical practitioners are unavailable, the claim
may be rejected.
10.90. Nonetheless, the lack of a robust agent internal review process is reflected in the number of
disputes that proceed to conciliation. Issues with the quality of decision-making early in the
process are further indicated by the fact that approximately one third of disputes referred to the
ACCS are resolved without a conference being convened.
101
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94 Section 70 of the Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008
(SA) adds a new Part 6C Medical Panels to the WRC Act; and the newly added s 98H(3) will require a
Medical Panels opinion to include a statement setting out the reason or reasons for the opinion
provided by the Medical Panel.
95 ACCS Annual Report 2006/2007, p 4.
96 WCC, Annual Review 2007, WCC, Sydney, 2007, p 9.
97 WRMC Report, p 28.
98 Productivity Commission, National Workers Compensation and Occupational Health and Safety
Frameworks, Inquiry Report No. 27, 6 March 2004, p 365.
99 Productivity Commission, National Workers Compensation and Occupational Health and Safety
Frameworks, Inquiry Report No. 27, 6 March 2004, p 365.
100 Agents are required to accept or reject a claim for weekly benefits within 28 days, AC Act s109(1).
101 34%: ACCS Annual Report 2006/2007, p 5.
10.91. In 2006/2007, 13,682
102
matters were referred to the ACCS and, of those matters, 1363 matters
were referred to a Medical Panel
103
for the determination of a medical question.
104
The breakdown
of outcomes for the ACCS was as follows:
resolved by agreement 5543;
resolved by recommendation 2535;
withdrawals 633;
directions 166;
unresolved 3793;
matters not proceeding 1006; and
no jurisdiction 6.
10.92. In the 2006/2007 financial year, almost 60% of disputes were resolved within 60 days of
lodgement with the ACCS.
105
That timeframe is unlikely to accommodate a Medical Panel
referral, given the average time for return of a Medical Panel opinion of 55 days.
106
10.93. Just over 70% of conciliation requests in the 2006/2007 financial year were disposed of within
80 days.
107
That time for disposal figure was affected by the average turn-around time for
Medical Panel opinions. A more detailed breakdown of the figures is provided in Table 10.1.
TABLE 10.1: BREAKDOWN OF OUTCOMES FOR THE ACCS
10.94. Conciliations cost, on average, $830 for each dispute.
108
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102 ACCS Annual Report 2006/2007, p 4.
103 This represents 34% of the total number of medical questions considered by Medical Panels in the
2006/2007 financial year.
104 ACCS Annual Report 2006/2007, pp 4-5.
105 59.7%: ACCS Annual Report 2006/2007, p 5.
106 Medical Panels Annual Report, June 2007.
Outcomes
2006/2007 2005/2006
No
% of total
completed
% of
outcomes No
% of total
completed
% of
outcomes
Resolved by agreement
no variation to original decision
1135 9.0 8.3 1192 8.2 7.7
Resolved by agreement
variation to original decision
4408 34.8 32.2 5095 35.2 32.9
Resolved by agreement to a
recommendation
2535 20.0 18.5 2817 19.5 18.2
Withdrawn 633 5.0 4.6 651 4.5 4.2
Direction 166 1.3 1.2 137 0.9 0.9
Resolved subtotal 8877 70.1 64.9 9892 68.4 63.9
Unresolved 3793 29.9 27.7 4562 31.6 29.5
Total completed 12,670 100.0 92.6 14,454 100.0 93.3
Not Proceeding 1006 7.4 1012 6.5
No Jurisdiction 6 0.0 23 0.1
Total 13,682 100.0 15,489 100.0
10.95. The number of decisions by agents (on behalf of the VWA) that are subsequently varied
suggests that many disputes could be prevented by changes to decision-making processes
or better access to information about the claim. Currently, around 15% of claims are initially
rejected, but only around 60% of those rejected claims remain rejected after 6 months.
109
10.96. Of the claims that were disputed in 2005/2006, only 3.5% were resolved within one month,
around 55% were resolved within three months and 75% within six months. Around 12% of
disputed claims were not resolved within nine months.
110
10.97. By comparison, VWA data for the 12 months to 30 June 2008 indicates that 1032 disputes
about statutory benefits were resolved in the County and Magistrates Courts and the median
time taken for the resolution of those disputes was 273 days.
10.98. Improvement in the quality of decision-making in the early stages of the dispute resolution
process could reduce the number of disputes requiring more formal determination and facilitate
faster and more efficient access to benefits for injured workers.
Medical questions
10.99. In the last financial year, 3628 matters arising under the AC Act were referred to the Medical
Panel for opinion.
111
10.100. Medical Panels currently play an important role in the resolution of disputes in workers
compensation jurisdictions in Australia. Over the past decade, most jurisdictions have moved
away from reliance on participant provision of expert testimony before courts or tribunals to
using panels of medical experts to rule on medical matters.
112
10.101. The move has had the effect of reducing expert testimony disputes; and medical panels have
become valued for their independence, as well as the savings in time and costs that they can
deliver.
113
10.102. Nonetheless, the current average time of 56 days for return of an opinion
114
is a key obstacle to
early resolution of many disputes.
10.103. A number of factors may contribute to the time taken to return a medical opinion, including:
the availability of medical specialists; and
the complexity of the questions referred.
10.104. However, issues about the ambit of questions to be properly considered by a Medical Panel
remain paramount, hinging on the overlap between medical and legal aspects; and those issues
have been the focus of stakeholder submissions to the Review.
10.105. The referral of medical questions late in the dispute resolution process also may contribute to
delays in resolution of disputes. Ideally, determination of medical questions should be facilitated
early in the process.
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107 ACCS Annual Report 2006/2007, p 5.
108 Victorian WorkCover Authority Annual Report 2007, p 63: $11,358,000 was paid by the VWA to the
ACCS in the relevant financial year (divided by 13,682 lodgements). This average amount increases
to $962 if the total of WorkCover Assist and Union Assist expenses ($1,806,000) are incorporated.
109 Source: advice from the Reviews Independent actuaries.
110 WRMC Report, p 23.
111 Medical Panels Annual Report, June 2008.
112 National Workers Compensation and Occupational Health and Safety Frameworks, Australian
Government Productivity Commission Inquiry Report, No 27, 6 March 2004 (Productivity Commission
Report), p 382.
113 Productivity Commission Report, p 382.
114 Medical Panels Annual Report, June 2008.
Cost
10.106. The median time taken to resolve statutory benefit disputes through the County Court is
344 days; and in the Magistrates Court (where most proceedings are issued) the median time
taken is 261 days. The average legal costs for a dispute in both courts are $22,170, or $17,008
excluding disbursements other than fees paid to counsel.
10.107. Legal representatives of parties to a dispute are paid for their services according to how much
time they spend on a matter and by reference to certain identifiable steps. The representatives
may have little incentive to resolve disputes quickly and efficiently if early resolution is not
adequately remunerated.
10.108. Settling at the door of the court is a well-known phenomenon, in part because of the system
used for rewarding legal representatives. Late settlement also occurs because it sometimes
requires the Court process to initiate face-to-face meetings and opportunities to negotiate.
Often the effort (and cost) involved in participating in such a meeting contributes to the desire
to settle hence the increased efforts of Courts in recent years to encourage ADR.
10.109. Parties pushing for the issue of a Genuine Dispute Certificate at the ACCS, to allow formal court
proceedings to be issued, or for late referral of a medical question to the Medical Panel, may
represent similar examples of legal cost incentives contributing to a protracted dispute
resolution process.
10.110. An efficient and effective system of dispute resolution should aim to reduce the number of
disputes that proceed to Court.
Review of agent decisions by employers
10.111. When a worker is notified that a claim for payments has been rejected, the VWA (through the
agent) must include a statement of the reasons for the rejection.
115
There is no corresponding
requirement for employers to be provided with reasons for the agents or VWAs decision to
accept a claim. The lack of communication with an employer could lead to difficulties for the
employer in understanding why a claim has been accepted, and create a perception of a lack
of accountability.
10.112. The premium paid by an employer is partly determined by the employers claims history,
including the number of claims made by the employers workers and the estimated cost of
those claims. Therefore the agents decision-making can affect an employers premiums.
10.113. A former provision in the AC Act
116
enabled an employer to lodge an objection with the VWAs
predecessor, the ACC, to some agent actions that could have an adverse financial impact on the
employer.
117
The section was removed in the move towards a private insurance model for the
scheme. The Governments intention to replicate commercial insurance arrangements was
never fully realised. There is currently no equivalent provision in the AC Act to give the employer
a right to object to an agents decision.
10.114. In compliance with the Australian Standards and the Australian Securities and Investments
Commission policy statement regarding complaints handling procedures, the VWA has a
complaints handling process.
118
Complaints can be made by any external stakeholder including
employers, workers, union officials and employer bodies regarding any decisions or conduct of
the VWA, the agents or other service providers, either in writing or orally. All complaints are
managed by the VWAs Complaints Resolution Branch. Complaints concerning insurance issues
are referred to the VWAs Premium Division for investigation.
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115 In relation to weekly payments, see AC Act, s 109(2).
116 The provision was in operation from 1989 to 1993.
117 The now deleted s 120(1) of the AC Act provided that an employer could lodge an application where
the employer considered the agent had no grounds on which or power to make a decision, or omitted
to make a decision, or accepted a claim for compensation that should not have been accepted.
118 VWA Complaints Policy, version 2.2, 30 June 2006.
10.115. Where a complaint cannot be resolved satisfactorily through initial investigation, the
complainant can request a review. If the complainant is not satisfied with the review, the
complainant will be advised of the external independent paths for resolving the complaint,
including the Ombudsman and the Courts.
10.116. Administrative actions by an agent can be investigated by the Ombudsman.
119
The actions that
can be investigated include a refusal or failure by an agent to make a decision or to perform an
act.
120
There is a specialised unit within the Ombudsmans office for the investigation of
complaints relating to the TAC and the VWA.
10.117. If an agent fails to comply with any of the directions given to the agent by the VWA, or the
terms and conditions of its contract with the VWA, the agent can be penalised 50 penalty units
($5671) for a first offence and 100 penalty units ($11,342) for a second offence.
121
10.118. Employers can choose which of the (currently, six) agents is to manage their claims. Employers
may also elect to change agents but are only permitted to do so once a year at the end of any
calendar month in that year. Comparative data relating to the agents performance is published
in the VWAs annual report.
10.119. Research suggests that a relatively large proportion of employers (around 82.3% in 2006/2007
surveys) are satisfied with the service provided by the employers agent.
122
10.120. Several submissions made to the Review relate to the current exclusion of employers from the
dispute resolution process. There is an apparent need to improve communication by agents,
and there is considerable scope for educating employers about processes and expectations
relating to the employers involvement in the scheme.
A MODIFIED APPROACH TO DISPUTE RESOLUTION
10.121. Disputes about claims clearly create delays in accessing benefits. Those disputes are also likely
to create an early unfavourable impression on the part of the workers involved and can
adversely affect their recovery and return to work.
10.122. Given the high level of disputes in Victoria, the percentage of disputed agents decisions that
are overturned, the resulting delays in injured workers accessing benefits and the costs incurred
for those matters that proceed to Court, I consider that changes to the current model for
resolution of disputes are warranted.
10.123. Consistent with the current system and the views of the Victorian Law Reform Commissions
Civil Justice Review,
123
I consider that ADR approaches (aimed at reducing the cost, length and
complexity of litigation) have a key role to play in resolving disputes about statutory benefits.
10.124. An effective decision-making and dispute resolution process should be designed to operate in
an integrated fashion, with a view to improving the quality of decision making and, where
disputes arise, streamlining and expediting outcomes.
10.125. Thus, I recommend that the ACCS continue to play a central role in facilitating the dispute
resolution process. That central role would retain a single point of contact for parties to a
dispute.
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119 AC Act, s 23AA.
120 Definition of administrative action in s 2 of the Ombudsman Act 1973 (Vic).
121 AC Act, s 23(4)(b).
122 WorkSafe Today Service Results for 2006/2007, September 2007 survey of 1500 employers who
had made any claim-related payment for a period within 6 months of the survey.
123 http://www.lawreform.vic.gov.au/wps/wcm/connect/Law+Reform/Home/Newsroom/LAWREFORM+-
+Civil+Justice+Review+delivered+to+Attorney-General+%28news%29
10.126. I propose that a form of internal review be introduced for the early stages of the dispute
resolution process, aimed at:
reducing the number of disputes requiring more formal determination;
providing an effective mechanism to monitor agents decisions, enabling feedback and
continuous improvement of decision-making; and
delivering faster and more efficient access to benefits for injured workers.
The internal review would replace the current system of agent review.
10.127. I propose that the role of the ACCS be focussed on efficiently moving parties towards an
agreement, which is the ideal outcome at a relatively early stage of the dispute.
10.128. I also recommend changes to the governance arrangements for the ACCS, to engender greater
transparency of process and accountability. Those arrangements should enable effective
monitoring of outcomes and, in turn, continuous improvement of the ACCS.
10.129. Final determination of unresolved disputes should rest with the Magistrates Court of Victoria.
Appeals to the Supreme Court will remain limited to questions of law.
10.130. The role of a Medical Panel should continue to be to give its opinion on medical questions.
124
LODGING A DISPUTE
10.131. The AC Act requires referral of a disputed decision to the ACCS within 60 days of the disputed
decision.
125
Referrals are accepted outside this time if the Senior Conciliation Officer considers
it appropriate.
126
Any party to a dispute may refer the dispute for conciliation.
127
10.132. Given the broad stakeholder support for maintaining the ACCS, albeit with reservations about its
functions and powers, I recommend that the ACCS remain the point of entry for management
of disputes under the scheme. It is a forum with which stakeholders have become familiar since
its establishment over 15 years ago.
10.133. A continued role for the ACCS in managing the lodgement of disputes and their progression
through the dispute resolution system will build on existing confidence in the Service and
provide a single point of contact for parties.
10.134. I recommend that the AC Act continue to require that parties lodge a request for conciliation
form within 60 days of the disputed decision.
128
As currently provided,
129
this time frame should
be strictly enforced by the Senior Conciliation Officer with extensions of time only available at
that Officers discretion.
10.135. As at present, there should be no fee associated with lodging a dispute with the ACCS,
consistent with the aim of minimising cost and ensuring accessibility to the dispute resolution
process.
10.136. The definition of dispute to include all matters associated with a claim for compensation
between the person who has made the claim and the employer, the self-insurer and/or the
Authority
130
should be maintained.
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124 AC Act, s 67(1).
125 AC Act, s 55(1), (2).
126 AC Act, s 55(3).
127 AC Act, s 55(1). Employers are represented by claims agents; they are not treated as parties in their
own right for the purposes of disputes under the AC Act.
128 AC Act, s 55(1), (2).
129 AC Act, s 55(3).
130 AC Act, s 53.
INTERNAL REVIEW OF STATUTORY BENEFIT DECISIONS
10.137. There is no statutory basis for the current system of internal review of decisions by agents
about statutory benefits; and such a review is not a precondition to entering conciliation.
10.138. Anecdotal evidence suggests that requests for conciliation are frequently lodged by a worker at
the same time as the worker asks the agent to review the decision, suggesting a lack of faith in
the process of review by the initial decision-maker.
10.139. In his review of the Occupational Health and Safety Act 1985 (Vic), Mr Chris Maxwell QC (as his
Honour was then) described a strong and efficient system of internal review in the OHS area as
one that included the following characteristics:
It must be transparent. The procedures and time lines must be set out in the Act, and there
must be publication of the names of the persons appointed to manage the internal review
process and their contact details, and of the procedures to be followed.
It must be quick. Of course, the degree of urgency will vary from case to case, but there must
be a capacity within the Authority to deal with urgent matters urgently.
The reviewing officer/body should give reasons for the decision arrived at on the review.
131
10.140. Following the Maxwell Reports recommendations in June 2004,
132
an Internal Review Unit
(the IRU) was established in 2005 to perform the VWAs statutory review function under the
Occupational Health & Safety Act 2004 (the OHS Act), the Dangerous Goods Act 1985 and the
Equipment (Public Safety) Act 1994. The work of the IRU was further extended from July 2007
to review licensing decisions under the Occupational Health and Safety Regulations 2007.
10.141. The IRU is required to undertake a merits review and to make its decision on all the information
available at the time of the review.
10.142. In the 2006/2007 year, the IRU processed 678 applications for internal review. Of the 678
completed matters, only seven were the subject of applications to VCAT (the external review
stage) by persons who disagreed with the outcome. Those seven applications represented a
50% reduction in the number of external reviews to VCAT compared with the previous year.
133
In all, the IRU has received about 1800 applications since it began.
10.143. The IRU provides a written decision to the applicant in every case within the statutory time
frame, setting out the findings of fact and evidence on which findings are based.
10.144. Timeframes for internal review are tight and there is no flexibility to extend time, the IRU
completed 100% of internal review applications within the legislated timeframes.
134
10.145. To establish in practice as much independence as possible for a body that is not created as a
statutory body independent of the VWA, the Senior Internal Review Officer of the IRU reports
directly to the Chief Executive of the VWA, and the IRU is as operationally separate from the
inspectorate and licensing officers as possible. There is no reporting by the IRU to the
operational arm of the business.
10.146. The Stensholt Report in December 2007 confirmed a high rate of satisfaction with the IRUs
process, based on a rolling survey of all applicants, undertaken every two months and using the
measures of professionalism, impartiality, appropriateness and transparency. Ninety-six per cent
of respondents answered that they were satisfied or very satisfied with the way in which their
application had been handled.
135
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131 C Maxwell, Occupational Health and Safety Act Review, March 2004 (Maxwell Review), pp 394-395.
132 Maxwell Review, March 2004.
133 Victorian WorkCover Authority Annual Report 2007, p 98.
134 Stensholt Report, p 88.
135 Stensholt Report, p 89.
10.147. The benefits of a strong and efficient system of internal review, as envisaged by the Maxwell
Report, appear to have been realised.
136
In particular, the commitment to transparency and
improvement in the quality of decision-making (perhaps reflected in reducing numbers of
applications to VCAT following internal review), are aspirations equally relevant to decisions
made under the AC Act.
Stakeholder views
10.148. The VTHC submits that the time taken to finalise disputes through the ACCS has increased over
the years and says that
. . . the increase in time taken to finalise disputes relates primarily to the attitude of the agents
of the Authority and their failure to reconsider bad decision making or their refusal to be
flexible in resolving disputes through the process.
137
10.149. In this regard, the VTHC submits
That the powers of the Conciliation Officers at the ACCS be amended to provide for a full
Administrative Review of any dispute relating to a claim for compensation with the right to
appeal to the Court . . .
138
10.150. The Australian Education Union contends
That the processes of the ACCS must change if there is to be a fair and just process of dispute
resolution in Victoria, this must include Legislation to amend the powers of the ACCS to
provide for a full Administrative Review of any dispute relating to a claim for compensation
with the right to appeal to the court. The AC Act should provide that Conciliation Officers can
affirm, amend or replace a decision of an agent/employer that has created the dispute.
139
10.151. Freehills states that a system of internal review should be established, that the system should
be consistent with the VWAs current internal review process in relation to safety and
recommends that the review unit be empowered to
confirm, set-aside or modify a decision made by an insurer that affects a party;
in doing so substitute its own decision, if it has sufficient evidence to do so and has afforded
all parties to the matter natural justice;
where suitable, make decisions where an insurer has failed to make a decision regarding a
claim or an entitlement to compensation (for instance, where an insurer has failed to
determine liability within a stipulated timeframe);
direct an insurer to undertake further investigations in order to determine a claim or to make
a decision that may prejudicially affect a persons rights (e.g. failure to properly investigate a
claim, direct an insurer to consider or investigate further suitable treatments for an injured
worker).
140
10.152. VECCI submits that
Currently as well as an Internal Review performed by the Agent at the workers request a
worker may currently have a review performed by the Victorian WorkCover Authority. Workers
access this through the Victorian WorkCover Authority complaints system . . .
If a formal IRU is established it will formalise what has occurred anyway but also make the
process far more transparent and accountable.
141
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136 Maxwell Review, p 396.
137 VTHC, Submission, 2 May 2008, p 51.
138 VTHC, Submission, 2 May 2008, p 52.
139 AEU, Submission, 2 May 2008, p 6.
140 Freehills, Submission, 11 February 2008, p 13.
141 VECCI, Submission, 28 July 2008, p 2.
10.153. However, VECCI notes that
Currently if an Agent decision to reject liability for a claim is subject to a conciliation
conference the employer is invited to attend and given an opportunity to provide their version
and state their case. It is critical that Internal Review does not come to and announce a
conclusion to not confirm a decision without giving the employer a chance to have their
say.
142
10.154. Ai Group comments that
If internal Review is introduced, it is crucial that the employer have an opportunity to comment
on any information that is available to the parties, particularly if this includes information that
the employer has not previously been able to challenge.
143
10.155. The SIAV notes that its members
. . . generate some 500 disputes per annum of the more than 13,600 disputes seen by the
ACCS well under the expected 10% of the market that the share of employees would
indicate. This is in part due to the fact that the disputes that do end with ACCS are actual
disputes with routine disputes directly resolved with the injured worker and at times through
local union and human resource management negotiations.
144
10.156. There is persuasive evidence that implementing changes to the current agent review stage of
the dispute resolution process, to emulate aspects of the model of internal review for OHS,
could dispose of a considerable number of disputes and improve benefit delivery within the
scheme.
10.157. In particular, problems with the quality of decision-making early in the process are indicated by
the fact that approximately one-third of disputes referred to the ACCS are resolved without a
conference being convened.
145
10.158. However, for the following reasons I do not believe that the introduction of an identical system
of internal merits-based review for disputes about statutory benefits is warranted:
disputes about statutory benefits are multifaceted and frequently require input from medical
and other experts;
there is a much greater tendency towards litigation of disputes about compensation; and
there is an existing statutory framework for resolution of disputes, in which stakeholders have
some confidence.
10.159. Instead, I propose that the AC Act provide that internal review of agents decisions be a
mandatory step following lodgement of a dispute with the ACCS. Immediately after lodgement,
disputes will be referred by the ACCS for review by a VWA internal review unit, or to the
relevant self-insurer.
10.160. I recommend that the review be completed within 14 days and be limited to the evidence
available to the original decision-maker (including the entire claim file). The review could involve
steps to clarify the available information with all parties but reviewers would not have power to
seek or receive additional information.
10.161. The task of internal review will be to consider whether the original decision was the correct or
preferable decision, having regard to the material that was available to the original decision-
maker, the relevant provisions of the AC Act and the VWAs policies.
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142 VECCI, Submission, 28 July 2008, p 3.
143 Ai Group Submission, 28 July 2008, p 2.
144 SIAV, Submission, May 2008, p 27.
145 34%: ACCS Annual Report 2006/2007, p 5.
10.162. The review unit will not have the power to substitute a new decision but, at the conclusion of
the review, the review unit will report the outcome to the ACCS, with a brief statement of
reasons, as one of the following alternatives:
the original decision is confirmed because, on the material before the original decision-maker
and having regard to the legislation and the VWAs policies, the decision was the correct or
preferable decision;
the original decision is not confirmed because the material before the original decision-maker
is insufficient to enable any decision to be made, having regard to the legislation and the
VWAs policies; or
the original decision is not confirmed because, on the material before the original decision-
maker and having regard to the legislation and the VWAs policies, the decision was not the
correct or preferable decision.
10.163. If the ACCS has not been notified of the review outcome within 14 days, the decision should be
taken to be confirmed.
146
10.164. Where the review unit finds that the material before the original decision-maker is insufficient to
enable any decision to be made, the review unit will be required as part of its reasons, to
specify any additional information that the review unit considers necessary to resolve the
dispute, including the opinion of a Medical Panel.
10.165. I recommend that the outcome of the internal review should be communicated to the worker
(and in the case of a scheme-insured employer, the agent) through the ACCS, and the worker
and the agent (or the self-insurer) should be informed of the options available for resolving the
dispute.
10.166. In the interests of transparency and of maintaining communication between the parties, the
review units conclusion and the statement of its reasons should be provided to the injured
worker, the employer, the VWA and its agent.
10.167. Ministerial guidelines should be developed, which set out the procedures to be followed on
internal review, and those guidelines will assist self-insurers to perform an equivalent review
function.
Benefits and design considerations
10.168. The requirement for the review unit to provide a brief statement of reasons for the outcome is
intended to contribute to improvement in the decision-making process at first instance. The
feedback should be used as a fundamental tool for managing the agent relationship and
operate to reduce disputes in the scheme, by improving the quality of primary decisions.
10.169. Internal review and the feedback process should develop into a central tool for informing the
VWAs expectations of agents and for managing the relationship, through appropriate financial
incentives.
10.170. In terms of resolving the particular dispute, the review units conclusion and its reasons are
intended to be of immediate value to the ACCS, in its management of the issues in dispute
for example, in identifying that the dispute hinges on an unresolved medical question.
10.171. As with the current IRU under the OHS Act, the AC Act internal review unit should be
operationally separate from the VWA and report directly to the CEO: see paragraph 10.145
above.
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146 Similar to OHS Act, s128(5).
A MODIFIED ROLE FOR THE ACCS
10.172. The function of the ACCS is to provide conciliation services to resolve disputes efficiently and
fairly for the purposes of the AC Act. In most cases, the ACCS represents a compulsory step
before court proceedings can be issued.
147
Efficiency
10.173. With the exception of the requirement that a party to a dispute refer the dispute for conciliation
within 60 days after receipt of the notice of decision,
148
no statutory timeframes apply to the
conciliation of disputes.
10.174. The VTHC submits that
The time to finalise disputes through the ACCS has increased over the years seeing only 34.1%
concluded within 40 days or less, with 22.35% taking over 100 days to finalise.
149
10.175. The VTHC considers that, in part, the increase in time to finalise disputes
. . . reflects the lack of any determinative power invested in the ACCS Conciliation Officers.
150
10.176. The VTHC comments on a lack of transparency and openness in ACCS processes as follows
. . . the ACCS is not a transparent process and is beyond scrutiny. The ACCS annual report
recorded a resolution rate of 70.1% in the year 2006/07, however this figure is unable to
verified as only the parties to the actual dispute are aware of the specifics of the outcome, and
bearing in mind that recommendations do not need to be consistent with a workers lawful
entitlements.
151
10.177. The Conciliation Assistants Representing Employees (CARE) Group submits
It should be noted that the ACCS is not a transparent or open process and outcomes can not
be verified. The CARE Group is not sure what the terminology utilised by the ACCS such as
Resolved by Agreement really means.
The reviewer should note that the CARE Group in 2004 sought from the ACCS specific detail
as to the exact outcome of all ACCS conciliated disputes and the Conciliation Officers involved
. . . in accordance with the Freedom of Information Act 1982. The ACCS denied this request
and the matter proceeded to the Victorian Civil and Administrative Appeals Tribunal . . .
The VCAT heard the matter over two sitting days and finally the ACCS conceded and agreed to
provide raw data excluding the name of the Conciliation Officer involved. The CARE Group
offers the opinion that this is the lengths the ACCS will go to ensuring that the service is not
the subject of assessment or criticism and remains a closed process.
152
10.178. VECCI cautions that
. . . a situation cannot be allowed to develop where information is not provided to conciliation
officers for the purpose of encouraging a Genuine Dispute and the prospect of legal fees
being generated by an application to a court. Perhaps the permission of the court should be
sought before information not provided at Conciliation is permitted.
153
10.179. Consistent with the ACCSs objective of resolving disputes efficiently and in the interests of
faster delivery of benefits to injured workers, I recommend that statutory timeframes be
introduced to expedite its administrative processes.
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147 AC Act, s 49(1); claims relating to ss 92, 92A, 92B, 98 and 98A are excluded.
148 AC Act, ss 55(1), (2).
149 VTHC, Submission, 2 May 2008, p 51.
150 VTHC, Submission, 2 May 2008, p 51.
151 VTHC, Submission, 2 May 2008, p 52.
152 CARE, Submission, 2 May 2008, p 6.
153 VECCI, Submission, 28 July 2008, p 4.
10.180. Following the notification of the outcome of internal review by the VWA or self-insurer,
154
the
ACCS will be required to notify the parties of that outcome within seven days, together with
information setting out the next steps for the injured worker.
10.181. I recommend that workers be required to request continuation of the conciliation process within
14 days of that notification (although an extension of time should be possible in exceptional
circumstances).
10.182. The internal review units recommendations about the information required to resolve the
dispute will inform the Conciliation Officer, who would be required to request within seven days
that the parties produce specified information necessary for conciliation to proceed.
155
10.183. The AC Act currently prohibits (or purports to prohibit) a party, who refuses or fails to produce
any document or provide any information requested by the conciliation officer, from tendering
the document or information as evidence in any proceedings that relate to the dispute before
the ACCS.
156
10.184. However, it is unlikely that the prohibition could be effective, given the prohibition on giving
evidence of anything said during conciliation (apart from some irrelevant exceptions).
157
10.185. As a matter of policy, I doubt that it is sensible to attempt to shut a party out from tendering
evidence that may be seen by a court as essential to a fair hearing of the partys case,
especially where the party has a reasonable explanation for the omission to provide the
evidence to the conciliation officer.
10.186. For the above reasons, I recommend that s 56(9A) of the AC Act be repealed.
10.187. Nonetheless, as a matter of principle, early and full disclosure of all relevant information will
assist in achieving sustainable conciliation outcomes. I propose that this principle be enshrined
in protocols for the conduct of conciliation, discussed further in relation to the powers of the
senior conciliation officer in paragraph 10.260 below.
10.188. An outcome certificate should be provided within seven days of conclusion of the conference.
Certainty of conciliation outcome
10.189. The VTHC is concerned that
. . . recommendations of a Conciliation Officer are not binding on the employer, VWA or its
agents. Although directions require the VWA, its agents, employers or self insurers to make
weekly payments, in cases where application to the Court for revocation of a direction has
been made, the VWA has been successful in the overwhelming majority of cases because it
appears the Court considers that if a mere disagreement exists then so does a genuine
dispute and therefore a direction should not have been issued . . .
158
10.190. The CARE Group adds that
Whilst the vast majority of directions that have been considered by the Court have been
revoked, once the substantive matter is considered and determined by the Court the matter
has been determined in the workers favour.
159
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154 See paragraph 10.165 above.
155 Compare the current power of a conciliation officer to request the provision of information: AC Act,
s 56(9).
156 AC Act, s 56(9A).
157 AC Act, s 61A.
158 VTHC, Submission, 2 May 2008, p 52.
159 CARE Group, Submission, 2 May 2008, p 8.
10.191. The CARE Group says that there should be a disputes process similar to that in New South
Wales that
. . . has full administrative determinative powers to place a worker on weekly payments and/or
medical and like service expenses etc. The process to have the power to affirm, replace or
amend the original decision.
160
10.192. The Magistrates Court submits
If Conciliators are empowered to make Directions on the balance of probabilities, the Court
believes that there would be a larger number of Revocation Applications issued. Of course, if a
Direction is revoked the court must necessarily consider the case again on the merits as well
later after the issue of separate proceedings.
161
10.193. Ai Group submits that employers enter the conciliation process expecting that the result will be
binding on all parties
Employers are subsequently surprised when a claimant who has accepted an offer to receive
12 weeks compensation without acceptance of liability lodges a subsequent application for
conciliation . . .
Agreements that include a commitment by the employee to return to work become
unenforceable when the worker, having received weekly payments, presents with a further
certificate stating they have no current work capacity.
162
10.194. The Department of Education and Early Childhood Development (DEECD) submits that the
powers of conciliation officers to make directions and recommendations should not be
extended or strengthened because
Any extension of conciliation officers powers beyond a mediation role into an arbitration role
presents the risk that the conciliation process would become more adversarial with increased
involvement by legal representatives.
163
10.195. The VACC does not support extending or strengthening the powers of conciliation officers and
submits
If the powers of conciliation officers were extended beyond the mediation role that was
intended by the ACCS when it was introduced, parties would be more likely to need or
request representation by legal representatives leading to a more costly conciliation process.
This would in turn defeat the rationale and purpose of setting up the conciliation process,
namely, to reduce costs and time involved with resolving a dispute.
164
10.196. The ALA submits that:
. . . there are many disputes relating to weekly payments and medical and like expenses that
could and should be resolved at conciliation without the need for the worker to go to court
. . . this could be achieved by making the definition of no genuine disputes less strict
. . . the period for which a Conciliator may direct that weekly payments be paid for both arrears
and into the future and the limit for medical and like expenses should be increased.
165
10.197. In relation to certificates issued by the ACCS, VECCI believes that
To change [the conciliation system] to an arbitration system would increase the adversarial
nature and make resolution and return to work less likely.
. . . certificates need to be more detailed and clearer but not binding.
166
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160 CARE Group, Submission, 2 May 2008, p 15.
161 Magistrates Court, Submission, 2 May 2008, p 4.
162 Ai Group, Submission, May 2008, p 80.
163 DEECD, Submission, 2 May 2008, p 5.
164 VACC, Submission, 1 May 2008, p 13.
165 ALA, Submission, 8 February 2008, p 15.
166 VECCI, Submission, April 2008, p 71.
10.198. VECCI further submits that
. . . consideration should be given to the fact that removing the threat of a direction may reduce
the parties motivation to reach an agreement. It may lessen the pressure on the agent to put
the best case forward at that time given the absence of consequences of not doing so.
167
10.199. The SIAV considers that
. . . removal of the direction power from the ACCS due to the small numbers shows a
misunderstanding of the underlying behavioral [sic] drivers evidenced in these systems. If the
prospect of a decision is negated, parties are more likely to move cases through the system
until there is a decision point in this case the Magistrates court. The problem with this is that
the cost of disputation for self-insurers will increase . . .
The certificate provisions that are recommended to counter this effect are likely to be open to
challenge. In time, they may become largely ineffective.
168
10.200. The ACCS submits that
Conciliation is a confidential, informal process where discussions are facilitated to assist the
parties to resolve the dispute. The strength of the process is that the parties are able to discuss
all issues freely. If Conciliation Officers were to make findings, I anticipate that parties would
not negotiate freely.
169
10.201. The existing power of a conciliation officer to direct an outcome where the officer believes
there is no genuine dispute with respect to liability to make or continue weekly payments,
170
although limited, is inconsistent with a conciliation process that is focused on negotiation and
facilitating communication between the parties.
10.202. Directions are rarely used by conciliation officers. In 2006/2007, only 1.3% of completed cases
were resolved by directions.
171
10.203. In addition, VWA data suggests that 21% of directions made by the ACCS in the 2006/2007
financial year were subject to a revocation application and 80% of those applications were
upheld by the court (that is, the direction was set aside).
10.204. The value of conciliation lies in preserving relationships as well as in reaching agreed outcomes.
Return to work outcomes are directly affected, for both workers and employers, by factors such
as the quality of interactions throughout the dispute resolution process, opportunities to
influence outcomes, perceived consistency of approach and the accuracy of information
given.
172
10.205. I therefore recommend that the role of conciliation officers be limited to bringing the parties to
agreement. Their power to make directions should be removed.
10.206. Stakeholders have also raised the issue of whether agreed outcomes of conciliation are
binding and enforceable.
10.207. The AC Act provides that evidence of anything said at, or any document prepared for,
conciliation is admissible in court or tribunal proceedings for the enforcement of an agreement
reached at or during conciliation.
173
It is clear that Parliament contemplated that agreements
reached at conciliation would be observed by the parties and would be enforceable. I can see
no good reason why those agreements should not be enforceable.
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167 VECCI, Submission, 28 July 2008, p 5.
168 SIAV, Submission, 28 July 2008, p 1.
169 ACCS, Submission, 29 April 2008, p 2.
170 AC Act, s 59(3).
171 ACCS Annual Report 2006-2007.
172 Procedural Fairness, Return to work, and the Decision to Dispute in Workers Compensation,
Employee Responsibilities and Rights Journal, Vol 10, No 3, 1997, pp 193-212 at 196.
173 AC Act, s 61A. The general rule, also expressed in s 61A, is that evidence of those matters is not
admissible in any court or tribunal.
10.208. In any proceedings to enforce an agreement reached during conciliation, a key issue will be
whether the parties intended to be bound by the agreement. It would assist in resolving that
issue if the parties intentions were recorded in the outcome certificate.
10.209. To that end, I recommend that the AC Act require that an outcome certificate be issued by the
ACCS setting out any terms on which the dispute was resolved and certifying that the parties
acknowledged their intention to be bound by the result. The AC Act should provide that the
certificate be treated as conclusive.
10.210. I recommend that, where matters remain unresolved, the AC Act require the outcome certificate
to set out any bases for agreement and identify the issues that remain in dispute and that
require determination.
Expertise of Conciliation Officers to refer medical questions
10.211. The SIAV submits that
. . . self insurers are concerned that there should be an opportunity to ensure that the medical
questions posed by the Conciliation Officer are accurate and that the parties should have such
an opportunity. This needs to be addressed to make this power effective in cutting the
incidence of poorly constructed questions and the subsequent inadequate decisions from the
Medical Panel.
174
10.212. The DEECD submits
Conciliation officers lack the expertise to formulate complex medical questions for the
consideration of medical panels.
175
10.213. The Magistrates Court submits
The Court has seen a number of cases where inadequate medical panel referrals have been
made by Conciliation Officers, many of whom are not legal practitioners. There have been
problems caused by unsatisfactory drafting of medical questions, inadequate statements of
facts and issues and often a simple misunderstanding of the real issues involved.
. . .
Conciliators should only be allowed to refer simple matters, such as percentage impairment
assessments, to a medical panel.
176
10.214. The ACCS submits
. . . Conciliation Officers have been appointed, by various Ministers of respective Governments,
over a long period . . . Conciliation Officers receive training at the outset prior to conducting
conferences and this training is reinforced through further Professional Development seminars.
Without the ability to seek a resolution to a medical dispute via the Medical Panels the process
of conciliation in some matters would become potentially unworkable and place a greater
burden on the Court system, thereby increasing costs to the scheme.
177
10.215. I acknowledge the concerns raised by stakeholders about the expertise needed to frame
medical questions that will allow the Medical Panel to provide a relevant and helpful opinion.
However, for the following reasons, I consider that Conciliation Officers should retain the power
to refer medical questions to a Medical Panel.
10.216. Resolution of medical questions during conciliation supports the early non-adversarial resolution
of disputes; and, even if the underlying dispute about entitlements is not resolved, the
resolution of medical questions should reduce the need for a Court later to refer those
questions to a Medical Panel, saving time and legal costs.
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174 SIAV, Submission, May 2008, p 31.
175 DEECD, Submission, 2 May 2008, p 5.
176 Magistrates Court, Submission, 2 May 2008, p 6.
177 ACCS, Submission, 29 April 2008, pp 4-5.
10.217. I acknowledge that an effective dispute resolution system must ensure that the questions
referred to Medical Panels are appropriate. To ensure that opinions are relevant and properly
address the matter in dispute, I recommend that the AC Act be amended to clarify the power of
a Medical Panel to return a referral to the referring body where the referral is unclear or
otherwise inadequate (see paragraph 10.301 below).
10.218. That power should be in addition to the Panels power to return questions that relate to non-
medical matters.
Representation
10.219. Legal representation of a party is only permitted at a conciliation conference where the
conciliation officer and each party to the dispute agree.
178
10.220. The limitation on legal representation is intended to preserve an informal, non-adversarial
exchange during conciliation, with the objective of achieving an agreement that is fair and
mutually acceptable.
179
10.221. Data provided by the ACCS indicates that, of the 1675 matters referred to a Medical Panel in
2007, workers were legally represented in 48.7% of cases.
10.222. The AC Act only limits legal representation at conciliation conferences. Legal representation
outside the conference process is not only possible but encouraged by the ACCS in appropriate
cases.
10.223. The VTHC recommends that the AC Act be amended to
. . . unequivocally provide that a worker may be represented throughout the dispute
process.
180
10.224. The CARE Group submits
The process is fundamentally flawed in so much as the Agent of the Authority is not only
representing the Victorian WorkCover Authority but also is the representative of the employer
. . . A worker is unable to have a representative as the Ministerial Guidelines . . . preclude such
representation. A worker may have an Assistant but that person may not subsume the prime
responsibility of the worker to the dispute to be a principal participant in the conference.
181
10.225. On the question of representation during the conciliation process, the ACCS comments
. . . most parties are legally represented at the ACCS. For instance each agent has a Senior
Legal Manager to deal with Medical Panel referrals from the ACCS. They also readily seek
advice from the respective WorkSafe panel firms. Self-insurers are usually legally represented.
Injured workers also have access to representation through at representative body at the
ACCS. WorkCover Assist refers workers for legal advice. Union Assist refers injured workers to
respective law firm who act on behalf of the union involved in the dispute.
Many workers have already sought legal advice prior to the ACCS process and the respective
solicitors are kept involved in the ACCS process. Although the solicitors are not usually in
attendance at the conference they do telephone and/or make further appointments to provide
further advice and are sent details of the conference and any Progress Certificates and draft
Medical Panel referral when on record. Some solicitors provide written submissions to the
ACCS and file medical information.
Unrepresented workers are encouraged to seek legal advice, particularly if a matter is to be
referred to a Medical Panel.
182
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178 AC Act, s 56(3), (4).
179 ACCS Annual Report 2006/2007, p 1.
180 VTHC, Submission, 2 May 2008, p 52.
181 CARE Group, Submission, 2 May 2008, p 7.
182 ACCS, Submission, 29 April 2008, p 4.
10.226. Although the AC Act is explicit in stating that parties to a dispute cannot be represented by a
legal practitioner at any conciliation conference unless the conciliation officer and each party
agree,
183
a confidential submission to the Review maintains that the prohibition is being
abused.
184
10.227. A confidential submission contends that
. . . unions, large law firms, WorkCover Assist, Union Assist, and VWA Agents are all now
sending in solicitors to conciliations, solicitors who are either doing articles or have hung up
[their] certificates . . . [Its] clear conciliation is becoming a solicitor fest by stealth.
The secrecy of the opposition bringing in qualified solicitors under the radar by them hanging
up their certificate takes away the injured [persons] right to say no[.] I do not want solicitors in
my conciliation as I am here alone.
185
10.228. Promoting greater levels of legal representation at conciliation conferences is likely to lead a
more adversarial approach to conferences and may create obstacles to settling disputes. There
does not appear to be a compelling case to change the current representation arrangements.
10.229. Nonetheless, stakeholders have raised the concern that, because the current provisions
186
only prohibit representation by a legal practitioner, a party may be represented by a former
practitioner or another legally qualified advocate without the knowledge of other participants.
10.230. Thus, I recommend that the AC Act be amended to clarify the intent of section 56(3) and (4),
so that that parties may not be represented by a person who
is a legal practitioner; or
holds a tertiary degree in law or legal studies; or
is otherwise eligible to be admitted to practice;
187
unless the conciliation officer and each party to the dispute agree.
10.231. I acknowledge that legal advisors will remain influential outside the conference process. For that
reason, it is imperative that support continued to be provided to workers through WorkCover
Assist and Union Assist and that conciliation officers effectively manage the process to ensure
fair outcomes and satisfaction with the process.
Costs
10.232. The AC Act provides that each party to a dispute is to bear that partys own costs incurred at
conciliation.
188
10.233. For a worker, the costs incurred may include time off work, any legal advice obtained before or
during the conference, travel to and from a conference and the costs of any reports required to
support the workers claim. Unions have submitted that workers should be able to recover
reasonable costs, even where conciliation results in an adverse outcome.
10.234. To assist with the settlement of disputes, the VWA has reached agreement with the ACCS that
the reasonable cost of medical reports necessary to facilitate resolution will be paid by the
agent.
10.235. The VTHC submits that
. . . the AC Act be amended to provide that workers are entitled to recover a prescribed level
of costs even if the dispute is ultimately resolved against the worker, unless the worker acted
unreasonably, frivolously or vexatiously in relation to the dispute.
189
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183 AC Act, s 56(3), (4).
184 Confidential submission, 9 July 2008.
185 Confidential submission, 9 July 2008.
186 AC Act, s 56(3), (4).
187 Compare the Veterans Entitlements Act 1986 (Cth), s 147(2), (3).
188 AC Act, s 62.
189 VTHC, Submission, 2 May 2008, p 50.
10.236. In its submission, the ACCS notes that
WorkSafe requires its Authorised Agents to pay the reasonable cost of medical reports
obtained for the purposes of conciliation. In the past most self-insurers have paid for these
reports. However, there appears to be a recent trend for self-insurers to refuse to pay for
reports requested by workers including reports from treating medical practitioners. Those self
insurers are relying on section 62 of the Act to support this refusal.
The failure of an agent or self-insurer to pay the reasonable cost of a medical report from a
treating medical practitioner, which the worker seeks as apart of the ACCS process, greatly
hinders ACCS ability to resolve disputes. There is also a concern that people who work for
these self-insurers are disadvantaged if they come to the conciliation as they will not be able to
obtain all of the information required to support their claim.
190
10.237. The ACCS goes on to suggest that
. . . an amendment to the AC Act could provide that WorkSafe of self-insurers are to pay the
reasonable cost of medical reports or reports from treating medical practitioners.
191
10.238. VECCI
. . . does not support covering [workers] costs. Doing so will encourage workers to obtain
multiple specialist reports and the discarding of unfavourable reports. It would change the
focus of conciliation from seeking an agreement and resolution to contesting the opinions of
expert third parties.
192
10.239. Similarly, Ai Group submits that
The conciliation service is designed as a low cost option for workers to access. For this reason
it is not appropriate or necessary to introduce a system of cost reimbursement.
193
10.240. The VACC opposes any amendment to existing arrangements for costs, stating that
Providing costs to an employee, irrespective of the outcome of a conciliation process has the
undesirable side effect of encouraging employees to appeal a worker compensation issue to
conciliation, irrespective of merit of the claim.
194
10.241. The SIAV
. . . opposes this proposal on the basis that it may encourage unnecessary referrals for
conciliation rather than direct contact of the self insurer with regard to, for example payment of
a medical account.
SIAV submits that:
self insurers should not be called upon to meet the costs of workers who have no
entitlement;
that each party should bear its own costs until any later court activity, and that
disincentives to unnecessarily pushing cases through the ACCS to the courts system should
be provided via offer of compromise rules.
195
10.242. Given that workers are required to attend conciliation conferences, I consider that it is
appropriate that their reasonable costs of attendance should be reimbursed by the agent or
self-insurer. The AC Act should be amended to make provision for reimbursement, with
reasonable costs limited to reasonable travel expenses and related time lost from work.
10.243. Some stakeholders have raised the specific issue of payment of the reasonable costs of a
medical report which is obtained by a worker as part of the conciliation process.
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190 ACCS submission 29 April 2008, p 1.
191 ACCS submission 29 April 2008, p 1.
192 VECCI, Submission, April 2008, p 71.
193 Ai Group, Submission, May 2008, p 81.
194 VACC, Submission, 1 May 2008, p 13.
195 SIAV, Submission, May 2008, p 28.
10.244. Section 56(5) of the AC Act provides that:
A provider of a medical service or a provider of a service under section 99 or 99A who has
examined a worker may, with the consent of the worker and at the request of the Conciliation
Officer
(a) meet with the Conciliation Officer and answer questions; and
(b) supply relevant documents to the Conciliation Officer.
The provision does not expressly authorise the provision of a medical report but the intent is
clearly to enable the ACCS to obtain relevant medical information for the purposes of
conciliation.
10.245. As a matter of policy, the VWA takes the position that the ACCS may ask for a report from the
treating doctor or specialist if one or more of the following applies:
medical issues are central to the dispute;
the information would help resolve the dispute; or
the information was not available when the original decision was made.
196
10.246. The policy goes on to state that, in those circumstances, the agent must pay reasonable costs
for obtaining the report. (The policy is not binding on self-insurers.)
10.247. It is worth noting that, where no dispute has arisen and liability has been accepted, the VWA or
self-insurer would ordinarily be liable to pay for medical reports as a reasonable medical and like
expense under section 99 of the AC Act.
197
10.248. Given that a lack of information can hinder the effective conciliation of a dispute and the
obvious inequity arising from the policy position taken by the VWA and that of some self-
insurers, I believe the AC Act should be amended to require the VWA and self-insurers to pay
the reasonable costs of medical reports obtained and used for the purposes of conciliation.
10.249. To minimise the potential for abuse, the provision should require that medical reports be
obtained both with the consent of the worker and at the request of the Conciliation Officer.
Governance and accountability
10.250. The status of the ACCS as an independent body corporate is atypical. Most comparable
conciliation services are part of a government department or statutory authority. Consumer
Affairs Victoria, for example, provides a conciliation service for the Building Commission of
Victoria. In New South Wales, Queensland, South Australia and Western Australia, conciliation
services are effectively contained within the broader umbrella of other workers compensation
services.
10.251. The ACCS consists of the Senior Conciliation Officer and one or more other Conciliation
Officers, appointed by the Governor in Council.
198
The officers are engaged on terms and
conditions specified by the Minister.
199
The ACCS is also authorised to engage other
Conciliation Officers to assist with its functions;
200
and they too are engaged on terms and
conditions specified by the Minister.
201
10.252. Independence from the VWA is important in maintaining stakeholder confidence in the ACCS
and that independence is underlined by Governor in Council appointment of conciliation
officers, which should be maintained.
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196 VWA Online Claims Manual, 17.4.1.
197 See definition of medical service AC Act, s 5(1).
198 AC Act, s 52D(1).
199 AC Act, s 52D(2), (3). and 52E(2), the latter subject to an approved variation s 52E(3A).
200 AC Act, s 52E(1).
201 AC Act, s 52E(2), subject to Minister approving a variation in their terms and conditions under
s 52E(3A).
10.253. I do not consider it appropriate to attach the ACCS to the VWA or a government department,
because that attachment would compromise its credibility. Nevertheless, a degree of
accountability is necessary to ensure that the ACCS meets the needs of its stakeholders.
10.254. The AC Act provides that the Senior Conciliation Officer must observe any guidelines issued by
the Minister.
202
10.255. Two sets of guidelines have been issued;
203
and, among other things, both contain directions
on data collection by the ACCS and reporting arrangements that apply to the ACCS. Although
not all of the information contemplated by the guidelines is publicly available, accountability and
transparency is clearly contemplated.
10.256. The governance structure of Queenslands Q-COMP differs from that of the ACCS: its members
report to a Board, providing a more formal mechanism for accountability, transparency and
greater opportunities for stakeholder input.
10.257. In my view, the establishment of a Board, to which the Senior Conciliation Officer would report,
would address concerns about the accountability and transparency of the ACCS without
diminishing its independence or credibility. I recommend therefore that the AC Act be amended
to revise the ACCSs governance structure, including the establishment of a Board.
10.258. I envisage that the Board would comprise three representatives, including a Chair, appointed on
a similar basis to the VWA Board that is, the Boards members would be appointed by the
Governor in Council.
204
The Senior Conciliation Officer would report to the Board, which in turn
would report to the Minister.
10.259. The functions of the Board would include:
giving general directions on the pursuit of the objectives, and the carrying out of the
functions, of the ACCS;
establishing and monitoring practices and standards relevant to the operation and functions
of the ACCS;
monitoring the performance of the ACCS;
advising, making recommendations and reporting to the Minister on the operation of the
ACCS; and
encouraging and facilitating cooperation between stakeholders and users of the ACCS to
ensure effective utilisation of the service.
10.260. In tandem with the recommendation in paragraph 10.257 above, the AC Act should confer
increased powers on the Senior Conciliation Officer to direct and manage the conciliation
process. The power should not extend to directing the outcomes of particular disputes but
should include ensuring that
conciliations are conducted expeditiously and consistently;
conciliation officers comply with appropriate protocols; and
transparency and accountability measures are introduced.
The transparency measures should include criteria for appointment of conciliation officers,
including minimum standards of skills and expertise, and key performance indicators for the
ACCS and those engaged by it.
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202 AC Act, ss 52F(1).
203 Ministerial Guidelines as to authorised agent, self-insurer, employer and workers assistant conduct at
conciliation conference, 15 September 2005; and Ministerial Guidelines for the arrangement of the
business of conciliation officers, undated.
204 AC Act, s 24(2).
ARBITRATION
10.261. If conciliation fails to resolve a dispute (either through agreement, recommendation, abandonment
or direction), proceedings may be commenced in the Magistrates Court or the County Court.
There is no intermediate decision-making process prior to determination by a Court. Currently,
approximately 27% of disputes unresolved at conciliation lead on to Court proceedings.
205
Stakeholder views
10.262. Unions strongly support the introduction of a system of arbitration or administrative decision-
making to follow or replace the conciliation process as an intermediate step before Court
proceedings. The VTHC submits
That the powers of the Conciliation Officers at the ACCS be amended to provide for a full
Administrative Review of any dispute relating to a claim for compensation with the right to
appeal to the Court. The AC Act should provide that Conciliation Officers can affirm, amend or
replace a decision of an agent/employer that has created the dispute.
206
10.263. The AEU and the Victorian Independent Education Union support the VTHC view.
207
10.264. The CARE Group similarly recommends that the AC Act should be amended to
. . . provide a disputes process similar to NSW that has full administrative determinative powers
to place a worker on weekly payments and/or medical and like service expenses etc. The
process to have the power to affirm, replace or amend the original decision.
208
10.265. The CARE Group contends
. . . that the Accident Compensation Conciliation Service . . . is not an effective disputes
resolution process. Conciliation of WorkCover disputes whilst having a role in the overall
disputes process should not be the only stop-off for a worker prior to the Court.
209
10.266. On the contrary, VECCI submits
. . . the Conciliation system is working well. Most matters are resolved. To change it to an
arbitration system would increase the adversarial nature and make resolution and return to
work less likely.
210
10.267. VECCI submits
There have been suggestions in the past that Conciliation should become Arbitration. There is
no evidence that would resolve more disputes than currently occurs. In fact it is likely to lead
to more steps of the court deals from which workers and employers are excluded from
having their say. Currently both parties have a high satisfaction rating of conciliation.
211
10.268. The SIAV does not support strengthening the powers of conciliators or the introduction of an
arbitration system, but submits
. . . new arbitration style powers will attract costs, increased legal involvement and delays. . .
This would require a decision based on opinion more the domain of judges and magistrates
with specific experience, training and support. Conciliators do not have such support and are
not perceived to be qualified or to be sufficiently impartial to give decisions that would be
binding of the basis of opinion.
212
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205 3793 unresolved disputes and 1022 statutory benefits dispute proceedings issued: ACCS, Annual
Report 2006/2007, p 4.
206 VTHC, Submission, May 2008, p 52.
207 Australian Education Union Victorian Branch, Submission, p 6; Victorian Independent Education Union,
Submission, p 4.
208 CARE Group, Submission, 2 May 2008, p 15.
209 CARE Group, Submission, 2 May 2008, pp 8-9.
210 VECCI, Submission, April 2008, p 71.
211 VECCI, Submission, 8 February 2008, p 34.
212 SIAV, Submission, May 2008, pp 28-29.
10.269. It is the SIAVs view that
. . . a properly functioning conciliation process is more than adequate to deal with the type of
matters that are brought before it. The current system should be retained with greater
emphasis on the training and quality of Conciliators.
213
10.270. The absence of an intermediate decision-making mechanism, either through external
administrative review or arbitration, stands in contrast with the TAC, New South Wales and
Comcare schemes.
10.271. Although, as noted in paragraph 10.262 above, unions strongly advocate the introduction of an
intermediate decision-making mechanism, I am not convinced that such a structural reform is
needed, especially given the risks (financial and operational) that would be associated with
introducing a significant new step in the dispute resolution process.
10.272. Although comparisons with New South Wales, TAC and the Commonwealth scheme (Comcare)
might be thought to suggest a gap in the current Victorian scheme, those comparisons can be
misleading and unhelpful. As Alan Clayton observed
It is perhaps not particularly useful to list the varying frameworks that exist across Australia
because the important feature for successful dispute resolution is not the nature of one
particular framework as against another, but the dynamics of the dispute resolution process
and how these dynamics can lead to expeditious and quality outcomes. This is not to say that
institutional issues are not important. Institutions such as medical panels can make a significant
difference to both the speed and quality of dispute determination. However, non-structural
aspects of a dispute resolution scheme, such as the experience and calibre of conciliation,
arbitration, and even judicial, officers are usually more important to expeditious and efficacious
outcomes than the nature of the formal structure of the dispute resolution process.
214
10.273. Although I do not consider that arbitration should be introduced, it is imperative that measures
be taken to ensure a high level of stakeholder confidence in and satisfaction with the dispute
resolution process. The following significant concerns raised by the VTHC, if not addressed,
may erode that confidence and lead to greater pressure for more dramatic institutional reform.
10.274. The VTHC has raised the following concerns
The time taken to finalise disputes through the ACCS has increased over the years seeing only
34.1% conducted within 40 days or less, with 22.35% taking over 100 days to finalise.
. . . the increase in time taken to finalise disputes relates primarily to the attitude of the agents
of the Authority and their failure to reconsider bad decision making or their refusal to be
flexible in resolving disputes through the process. It also reflects the lack of any determinative
power invested in the ACCS Conciliation Officers.
. . . the non-determinative nature of the ACCS conciliation process is one of the significant
reasons for initial bad decision-making by the VWAs agents, as the only gatekeeper on
whether or not an agent has made a decision consistent with the law is if the worker proceeds
to Court after the ACCS process is finalised.
Further, the ACCS is not a transparent process and is beyond scrutiny. The ACCS annual report
recorded a resolution rate of 70.1% in the year 2006/07, however this figure is unable to be
verified as only the parties to the actual dispute are aware of the specifics of the outcome, and
bearing in mind the recommendations do not need to be consistent with a workers lawful
entitlements.
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213 Letter from SIAV to the Review, 12 June 2008, p 3.
214 The Clayton-Walsh Report, p 131.
The VTHC and affiliates are of the opinion that the AC Act regarding representation places the
injured worker in an unfair position. The AC Act provides for the Authority and employer to be
represented through the process by an agent, and the employer is able to attend in their own
right as a party to the dispute, the injured worker is unable to be represented through the
process by a solicitor unless all parties to the dispute agree . . .
The VTHC submits that the failure to allow a worker representation during the conciliation
process creates unfairness and is unique because other jurisdictions allow such
representation.
215
10.275. I believe my recommendations for the introduction of a system of internal review
(see paragraphs 10.15610.171 above), improved governance and accountability at the
ACCS (see paragraphs 10.25010.260 above), and representation at conciliation conferences
(see paragraphs 10.21910.231 above) are appropriate measures to deal with the VTHCs
concerns, and are preferable to the introduction of a system of arbitration.
10.276. I deal with the Court process that follows conciliation in paragraphs 10.34510.355 below.
MEDICAL QUESTIONS
10.277. A medical question may be referred to the Medical Panels by the ACCS, the County Court,
the Magistrates Court, the VWA or a self-insurer.
216
The AC Act defines medical question
in section 5(1).
10.278. The defined medical questions include a number of legal and factual issues such as work
capacity, and whether work was a significant contributing factor to an injury.
10.279. Arguably, Medical Panels do not have the expertise to determine legal issues or embark on
wider fact-finding missions. However, any restriction on the matters that can be referred to the
Medical Panel would lead to more matters being resolved through the Courts, which could
impact on the efficiency of benefit delivery, and cause associated delays and additional costs.
10.280. In its report to the Labour Ministers Council in 1996, the HWCA expressed the view that
Australian and overseas experience shows that medical panels are most successful where
there is screening of cases so that the issues considered are narrowly stated and clearly
confined to purely medical issues.
217
Stakeholder views
10.281. The VTHC submits
. . . the definition of medical question should be altered to ensure that the questions are
restricted only to questions of genuine medical nature.
218
10.282. VECCI is concerned that
. . . some questions seek a panel opinion on the probability of whether work was a significant
contributing factor to an injury or whether suitable employment was in fact suitable. These
questions are determined in isolation from the workplace and contain components not
discoverable through medical means. Employers are concerned with this power being exercised
in isolation. The panel gives an opinion on the probability which then cannot be challenged.
If an occupational therapist or ergonomist was sent out to the workplace to assess the facts
and report back to the panel or even bring back video for the panel to view employers would
be more comfortable with these questions being answered by the panel.
219
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215 VECCI, submission, April 2008, pp 51-52.
216 AC Act, s 67(1).
217 HWCA, Promoting Excellence: National Consistency in Australian Workers Compensation Interim
Report, May 2008, p 152.
218 VTHC, Submission, 2 May 2008, p 53.
219 VECCI, Submission, April 2008, p 72.
10.283. The Compensation Law Bar Association submits
Medical Panels should not decide questions that are distinctly non-medical questions. For
example, a non-medical question whether employment was a significant contributing factor
involves questions of mixed fact and law for which Medical Panels are inexpert or poorly
equipped.
220
10.284. The SIAV agrees that non-medical questions should not be dealt with by the Medical Panel, and
submits
Various issues around procedural fairness have been identified in case law and by SIAV
members. However, overall the Medical Panel provides an inexpensive arbitration process for
matters that would otherwise be costly to resolve.
Members have suggested that the Medical Panels role be reasserted as determining areas
within its expertise but only after the facts have been agreed and all investigations have been
concluded. Decisions then could be binding in respect of their expertise only. The combination
of both factual findings and binding medical findings may then allow the Conciliation Officer or
Magistrate or Judge to respectively resolve the matter or properly make determinations as to
fact and law.
221
10.285. The AMIEU submits that the AC Act should be amended to redefine medical question so
that Medical Panels are confined to determining matters within their expertise. The AMIEU
submits
According to section 5(aba) Medical Panels currently have the power to give the answer to the
question what employment would or would not constitute suitable employment
. . .
This requires an understanding of the current labour market. What training do doctors have to
give them the skill to assess this?
222
10.286. The Magistrates Court submits
. . . the definition of medical questions includes a number of non medical issues such as
work capacity. The Supreme Court has pointed out that work capacity is not a pure medical
issue and other criteria should be taken into account such as suitable employment and
variations in different occupations and jobs. These issues must be considered though they fall
outside the expertise of medical panels. These problems are compounded in considering
questions as whether a worker is likely to continue indefinitely to have no current work
capacity pursuant to s.93CC of the Act having regard to such concepts as the odd lot
principle which has developed over almost a century of case law and statute.
223
10.287. The LIV submits
. . . the Review should consider the quality of the referrals, the need for a screening
mechanism and the Panels role in relation to evidence testing and/or expert determination.
For example, whether certain evidence before the Panel should be excluded or dealt with in
alternative forums, whether the expert determination should be made after all the evidence is
in and whether the role of the Panel should be expanded to reduce the number of expert
witnesses appearing before the courts.
224
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220 Compensation Law Bar Association, Submission, 2 May 2008, pp 23-24.
221 SIAV, Submission, May 2008, pp 29-30.
222 AMIEU, Submission, 2 May 2008, p 20.
223 Magistrates Court of Victoria, Submission, 2 May 2008, p 4.
224 LIV, Submission, 8 February 2008, p 2.
10.288. The Magistrates Court submits
The Court should have a general discretion to refuse referrals apart from any finding of abuse
of process . . . a number of issues are not really suitable for medical panel referral such as
factual disputes whether an incident (such as a fall) took place at all. A workers untested
history and materials, the limitations on involvement by an employer or the VWA as well as the
difficulty of raising credibility issues also make some cases unsuitable for medical panel
referral.
225
10.289. The AMA believes that the definition of medical question does not need to be changed
. . . especially as medical questions are generally put in the context of consultation between
the parties. If a medical panel in its reasoning has taken into account matters outside the
medical question that may be remedied if it constitutes an error in law. Conversely, if the panel
has been excluded from considering some circumstances surrounding a claim, there is a
danger their conclusion may be incorrect Narrowing the definition would disadvantage in
particular patients suffering from industrial diseases, where a number of lifestyle factors may
need to be assessed in considering the nature and cause of the illness. Any problems which
have arisen in relation to medical questions and the use of medical panels may derive from
inadequately worded questions.
226
10.290. The Magistrates Court submits
. . . delays are increasingly being caused by appeals to the Supreme Court from the decisions
of a medical panel, including inadequate Reasons, non-responsive Opinions and medical
examination issues. With respect to the Medical Panel, many of these problems are caused by
the fact that it must make decisions of mixed law and fact. Almost all medical practitioners do
not have appropriate qualifications and training (and often sufficient [sic] information) to
determine factual and legal issues. For example, it is obvious the Medical Panels have
difficulty in deciding such pure factual issues as whether a worker fell at work although this
can constitute a medical question as defined.
227
10.291. The Convenor of Medical Panels submits
Due to the nature of the Panel and its function, it will need to deal with issues of fact and
medicine. To assist the Panel in its function, I submit it would be of benefit if Courts were
more active in vetting the questions referred to the Panel and ensuring that S.65(6A)
statements of agreed facts were more detailed and contained an agreed statement as to the
exact nature of pre-injury duties where appropriate.
228
10.292. The Magistrates Court submits
. . . the Court has had some instances of medical panels refusing to answer questions referred
by the court on the basis that they do not believe that a medical question is a proper one. It is
not disputed that a medical panel should attempt to clarify any ambiguity or uncertainty on a
medical question with a court. However, the Act should be amended to emphasise that it is
ultimately for a court to rule on the appropriateness or validity of a medical question and that a
panel is required to consider all such medical questions.
229
10.293. Stakeholders have also identified a number of technical deficiencies with the drafting of the
definition of medical question.
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225 Magistrates Court of Victoria, Submission, 2 May 2008, p 5.
226 AMA, Submission, 9 May 2008, pp 3-4.
227 Magistrates Court of Victoria, Submission, 2 May 2008, pp 4-5.
228 Convenor of Medical Panels, Submission, 17 April 2008, p 2.
229 Magistrates Court of Victoria, Submission, 2 May 2008, p 8.
10.294. The Convenor of Medical Panels submits
To clarify an issue with the Courts as to whether a question concerning the adequacy,
appropriateness or frequency of a para-medical service, such as home-help, provision of a
personal carer etc., fits within the definition of medical services [refer to Section 5 of the Act
relating to the definition of medical service and paragraph (ac) of medical question] . . . the
definition of the medical question (ac) should be expanded to include personal and
household service as defined in section 5.
230
10.295. The Magistrates Court submits that the definition of medical question
. . . should be amended to widen the nature of services capable of being the subject of a
medical panel referral. The existing para. (ac) of the definition of medical question only refers
to medical services and not such matters as personal and household services and
occupational rehabilitation services.
A large number of proceedings are issue in the Court as to disputes over such non-medical
issues as home help, assistance with gardening and orthopaedic mattresses for injured
workers.
A strict reading of the definition of medical question excludes such disputes from referral to
a medical panel. However, there is legal authority that such disputes form part of a workers
medical treatment and are thus medical services if recommended by a treating doctor (e.g.
Kaye and Johns v. Town of St. Arnaud (1961) 3 WBCD (Vic.) 324.).
Such disputes are ideally suited for a medical panel referral as in almost all cases the issues
are limited in scope and the legal costs of proceeding to trial far outweigh the actual monetary
amounts involved.
231
10.296. The Magistrates Court submits that
. . . the very tight definition as to what constitutes a medical question causes delay and
uncertainty. For example, definitions refer to the past tense on issues of causation and present
tense on work capacity. There seems no reason why those concepts should be so restricted in
tense.
232
10.297. On a question of process, Mr M OLoghlen QC submits that
. . . a person under a disability should be treated under the Accident Compensation Act 1985
in the same way as treated under the corresponding provisions of the Wrongs Act 1958. In
particular . . . s.26LZD(2) and (3) of the Wrongs Act 1958 should be mirrored in the
corresponding provision (s. 65) of the Accident Compensation Act 1985 . . .
There seems no good reason why every person under a disability (including minors) should
not have the assistance of a representative, when attending a Medical Panel for WorkCover
purposes.
233
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230 Convenor of Medical Panels, Submission, 17 April 2008, p 1.
231 Magistrates Court of Victoria, Submission, 2 May 2008, p 7.
232 Magistrates Court of Victoria, Submission, 2 May 2008, p 4.
233 M OLoghlen QC, Submission, 14 April 2008.
Fix the anomolies, but no further change to medical questions
10.298. If not addressed, the concerns raised by stakeholders (the courts, lawyers, and employer and
worker representatives) about Medical Panels giving opinions on matters that involve non-
medical considerations could, over time, erode confidence in Medical Panels, undermining the
important role they play in the scheme and the attractiveness of Medical Panel membership
amongst the medical profession. As Alan Clayton observed in his recent review of the South
Australian workers compensation scheme, the support of the medical profession and other
scheme participants is essential to the ongoing viability of the Medical Panels system
The experience of the Victorian system has been that, in its early days, it was difficult to
convince many eminent practitioners to serve. However, as the Victorian Medical Panels have
gained widespread respect and support, membership has attained a certain professional
cachet and there is now competition within specialities to be considered for membership.
234
10.299. However, I am not convinced the concerns raised about Medical Panels determining non-
medical or mixed medical and non-medical matters should be addressed by further defining
or narrowing the questions that may be the subject of a referral to a Medical Panel. Nor am I
convinced that it would be feasible to construct a workable set of rules drawing the line
between medical and non-medical issues. Any efforts to do so would undoubtedly add a further
layer of complexity to the definition of medical question and possibly make the system prone
to greater levels of dispute, uncertainty and delays.
10.300. It must be accepted that, in many cases, the questions referred to Medical Panels will involve
medical and non-medical considerations. For example, a common (and proper) question will ask
whether a worker has a continuing incapacity for work as a result of the workers compensable
injury; but the answer to that question will depend, not only on the medical effects of the injury,
but also on the kinds of work available in the labour market to a person with the workers
experience and skills.
10.301. However, the system must ensure that the questions referred to Medical Panels are appropriate
and that Medical Panels confine their opinions to the area of their expertise. I therefore
recommend that the Courts have a wider discretion to refuse to refer a particular question
to a Medical Panel. I set out further reasons why this change is required in paragraphs
10.31210.314 below.
10.302. I also consider that a Medical Panel should be able, if the Medical Panel considers that a
question referred to it involves non-medical matters, to refer the non-medical matters back
to the referrer. I have in mind a provision similar to section 514 of the Workers Compensation
and Rehabilitation Act 2003 (Qld), which relates to the Queensland equivalent of Medical Panels,
the MATs.
10.303. I agree that the anomalies identified by stakeholders in relation to the definition of medical
question must be addressed to provide greater clarity and certainty about the matters which
may properly be the subject of a referral to a Medical Panel. Lack of clarity undoubtedly
promotes greater potential for disputes, inconsistency in approach and delays in resolving
disputes.
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234 The Clayton-Walsh Report, p 136.
10.304. I therefore recommend that the definition of medical question in the AC Act be amended as
follows
by expanding paragraph (ac) of the definition to provide that the need for a personal or
household service can be considered by a Panel;
by providing that a question whether an injury or alleged injury had the requisite connection
with employment is available for all alleged injuries, not only aggravation injuries and
diseases;
to provide that all medical questions, in particular a question as to incapacity/suitable
employment, can be properly asked about past periods or points in time; for example,
paragraph (aba) of the definition would be amended to read . . . whether a worker has or has
had a current work capacity . . . and
to clarify and extend paragraph (c) of the definition to read . . . the extent to which any
physical or mental condition, including any impairment, or incapacity for employment, is, or
was, or continues to be, materially contributed to by the injury.
10.305. I also agree with Mr M OLoghlen QC that there is no sound basis for providing rights to
assistance to persons with a disability (including minors) when attending a Medical Panel for
Wrongs Act 1958 purposes and not affording the same rights when attending for AC Act
purposes. I therefore recommend that provisions comparable to sections 26LZD(2) and (3) of
the Wrongs Act 1958 be included in the AC Act.
MEDICAL PANEL REFERRALS BY COURTS
10.306. Section 45 of the AC Act gives the County Court a discretion to refer medical questions to a
Medical Panel, but requires the Court to refer a medical question if a party to proceeding
requests the referral. The power is available not only where the Court is hearing a matter
relating to statutory compensation entitlements, but also where the Court is hearing a serious
injury application (the necessary precursor to a common law action) under section 134AB of the
AC Act.
235
Where the Magistrates Court is exercising jurisdiction in relation to a dispute arising
under the AC Act,
236
that Court has the same power to refer a medical question as does the
County Court.
237
10.307. The County Court
238
has a limited discretion to refuse to refer a medical question to a Medical
Panel if the Court is of the opinion that the referral would, in all in the circumstances, constitute
an abuse of process.
239
The Court also has discretion as to the form in which the medical
question is to be referred to a Medical Panel.
240
Stakeholder views
10.308. On the question of the referral of medical questions in serious injury applications, the County
Court submits
In 2000, section 45(1A) was added to the Act, making section 45 applicable to serious injury
applications under s134AB of the Act. Under s 45(1)(b) of the Act, if a party requests to have a
medical question referred the Court must refer the matter unless the referral would be an
abuse of process (s 45(1B)). It is very difficult to prove that such a request would be an abuse
of process. If one party seeks to avoid a prompt hearing or judicial determination, it may
effectively use this provision as a means of obtaining an adjournment or delaying the hearing.
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235 AC Act, s 45(1A).
236 That is, a dispute that relates to an amount or sum that does not exceed $40,000 or is in respect of
weekly payments: AC Act, s 43(1).
237 AC Act, s 43(3).
238 And therefore the Magistrates Court: AC Act, s 43(3).
239 AC Act, s 45(1B).
240 AC Act, s 45(1C).
In the context of applications under s 134AB of the Act, the ability of a party to effectively
require referral of a medical question to the Medical Panel has the potential to derail and
seriously delay the hearing of the 1000 or so serious injury applications currently before the
Court. Furthermore, an opinion of the Medical Panel is unlikely to lead to the resolution of the
serious injury application, so that a full hearing will need to be held in any event.
It is recommended that consideration be given to providing, in the context of an application for
leave under section 134AB(16)(b) of the Act, a wider discretion to refuse a partys application
for referral of a medical question to the Medical Panel . . .
241
10.309. The Common Law Bar Association similarly submits
The referral of a medical question to a Medical Panel does not . . . generally determine the
question of serious injury. A number of Judges of the County Court have held that the decision
of the Medical Panel is not capable of binding a Judge on a serious injury application because
it is for the Court, not a Medical Panel, to determine whether the injury is serious as at the date
of the hearing of the serious injury application.
In those circumstances, the referral of a medical question to a Medical Panel, at least in
serious injury applications, is without merit and of no benefit. The ability of a party to require
referral to a Medical Panel has the potential to seriously delay the hearing of serious injury
applications.
242
10.310. On the question of Court referrals to Medical Panels generally, the Magistrates Court advocates
introducing time restrictions on parties requests for referrals. The Court submits
Because s 45 does not place any time restrictions on requests for referrals (subject to a vague
exception of abuse of process), many such requests to this court occur very close to or at the
date of trial. Such requests will often occur when settlement discussions break down and one
party believes that because of the strength of the other partys case there is nothing to lose by
referring the case to a medical panel. The medical panel procedure was introduced to save
costs and delays. By not having any time restriction for such requests for referral and allowing
such requests to be made close to, or at the date of, trial obviously increases costs and delays
the finalisation of proceedings.
. . .
A late referral to a medical panel results in wasted legal costs, for example when a referral
request is made at the date of trial. Also, in most cases the proceedings have to be adjourned
in order to prepare the necessary referral causing further delay and increased costs.
243
10.311. The SIAV expresses the following concern about introducing timeframes within which referrals
to medical panels may be made
Difficulties are encountered by self-insurers in collecting relevant medical information in
readiness for court proceedings. While time-lines are supported, these difficulties should also
be taken into account. Medical Panels also have powers to require a medical practitioner to
answer questions or supply relevant documents to the Panel, but the use of this power
appears to be rarely used. Any timelines should be introduced with mandated use of this
power if evidence collection difficulties are encountered.
244
Give courts a wider discretion to refuse referrals
10.312. I recommended at paragraph 10.301 above that the AC Act should be amended to give Courts
greater discretion to determine whether a medical question should be referred to a Medical
Panel. The Courts should be able to determine whether a referral is appropriate when the
proposed question involves mixed medical and non-medical or entirely non-medical matters.
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241 County Court of Victoria, undated Submission, pp 2-3.
242 Common Law Bar Association, Submission, 2 May 2008, p 9.
243 Magistrates Court of Victoria, Submission, 2 May 2008, pp 5-6.
244 SIAV, Submission, May 2008, p 31.
10.313. In light of the concerns raised, I also consider that a wider discretion is required to ensure that
courts can supervise and manage their processes and reduce the potential for late, door of the
court, requests for Medical Panel referrals as a litigation tactic.
10.314. Of course, the terms of the discretion will need to be elaborated. An unstructured general
discretion would not be appropriate. The Court will need to be given appropriate statutory
indications as to the factors that should control the exercise of the discretion. The central factor,
in my view, should be the interests of the proper administration of justice.
10.315. The possibility that the courts might come to require a quite high threshold of persuasion
before acceding to a referral application cannot be excluded. I am mindful of the observation of
the Legislative Councils WorkCare Committee in 1988
Overseas experience suggests that unless panels are mandatorily required, the adjudicators
will resist their use.
245
10.316. Nevertheless, I consider that a discretion to refuse to refer medical questions to Medical Panels
is warranted, not only where the proposed question involves non-medical matters but also
where the referral would not be in the interests of the proper administration of justice.
Require timely referrals
10.317. It is clearly preferable that the parties notify the Court of any intention to apply for referral to a
Medical Panel soon after Court proceedings are issued. Placing a time limit on referral from
Court would likely act as an incentive for parties to gather required information early and apply
their minds to the issues that remain in dispute and that can properly be referred to a Medical
Panel.
10.318. However, there will be cases in which a late application to refer a medical question may be
unavoidable, as submitted by the SIAV
246
for example, because of new medical evidence
supplied shortly before a hearing. To accommodate such cases, a Court would need to retain a
power to refer after the time limit, perhaps governed by whether exceptional circumstances
exist.
REASONS
10.319. A Medical Panel must form its opinion on a medical question within 60 days after receiving the
referral or such longer period as is agreed by the conciliation officer, the County Court, the VWA
or a self-insurer (as the case may be).
247
10.320. The Panels opinion must be certified in writing and must be accepted and adopted as final.
248
The AC Act does not require the Panel to provide reasons for its opinion.
10.321. The Convenors Directions
249
direct a Panel to provide its certified opinion and its reasons for
that opinion to the Convenor. The Convenor then forwards the certified opinion to the referrer
and, in the case of referrals from the VWA, its agents or a self-insurer; a copy of the certified
opinion will also be forwarded to the worker. Reasons for the opinion must be provided when a
person affected by the opinion makes a request in writing in accordance with the Administrative
Law Act 1978 (Vic) (the AL Act).
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245 WorkCare Committee Final Report, Parliament of Victoria, August 1988, p 545.
246 See paragraph 10.311 above.
247 AC Act, s 68(1).
248 AC Act, s 68(2) and (4).
249 Convenors Directions as to the Arrangement of the Business and as to the Procedures of Medical
Panels Accident Compensation Act 1985, 2008.
10.322. Although the Convenor is not required to provide reasons together with the opinion unless
requested to do so under the AL Act, it is understood that the usual practice of Medical
Panels is to provide reasons with opinions, except where the referral was made by a Court,
250
presumably because it is only the Panels opinion which is binding on the Court and not the
reasons for that opinion.
10.323. It appears an unnecessary step to require an affected party to request written reasons from
the Panel following receipt of its opinion. On the basis that the Panel has already formulated
reasons in forming an opinion, I recommend that the Panel should be required to provide
written reasons together with its opinion.
ACCOUNTABILITY
10.324. The Convenor of Medical Panels is a statutory officer appointed under the AC Act.
251
The
Convenors most important function is to receive a referral and to select, from the list of
persons eligible to participate, the members of the Panel that the Convenor establishes for the
purposes of the particular referral.
252
10.325. In convening a Panel, the Convenors Directions
253
direct the Convenor to comply with a conflict
of interest policy
254
and certain procedures for managing conflicts of interest,
255
which include
the following:
a procedure for ensuring that any proposed member of a particular Medical Panel or
consultant has never treated or examined the claimant or been engaged to treat or examine
the claimant (otherwise than in his or her capacity as a member of a medical panel or as a
consultant to a medical panel);
a requirement for a proposed member of a particular medical panel or consultant to make a
statement of interest (which includes provision for a statement of no interest) in relation
to the parties to a particular referral;
a procedure for the replacement of a panellist or consultant when a statement of interest
is made and for the appropriate notification of the parties;
a procedure for the replacement of a panellist or consultant if the Convenor (or Deputy
Convenor) agrees there is a reasonably perceived conflict of interest or a reasonable
apprehension of bias regarding a particular panellist or consultant, when a complaint of a
perception of a conflict of interest or an apprehension of bias is received from a party to a
particular referral, and for the appropriate notification of the parties; and
a provision for the parties to a referral to agree that a particular eligible panellist can be a
member of a particular medical panel when he or she has a perceived or potential conflict of
interest, because there is no other suitably qualified eligible panellist without a perceived or
potential conflict of interest.
10.326. In a recent matter, Nisselle v Brouwer,
256
the Convenor applied to the Supreme Court to prevent
the Ombudsman investigating complaints about the Convenors decisions to appoint particular
medical practitioners to Panels, who were said not to be independent.
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250 Typically, Medical Panels provide written reasons to the parties to the dispute, but not to the Court.
251 AC Act, s 63(2), (3).
252 AC Act, s 63(4).
253 Convenors Directions as to the Arrangement of Business and as to the Procedures of Medical Panels
Accident Compensation Act 1985, 2008, p 4.
254 Medical Panels Conflict of Interest Policy, 1 March 2008;
http://www.medicalpanels.vic.gov.au/wps/wcm/resources/file/eb1c5c077f194a4/CONFLICT%20OF%20
INTEREST-POLICY2008.pdf
255 Procedures for managing conflict of interest in the appointment of Medical Panels, 1 March 2008;
http://www.medicalpanels.vic.gov.au/wps/wcm/resources/file/eb1c78077f2c406/CONFLICT%20OF%20
INTEREST-MANAGEMENT%20PROCEDURE2008.pdf
256 [2007] VSC 147.
10.327. The Convenor objected to the Ombudsmans proposed investigation on the ground that the
Convenor had the privileges and immunity of a Supreme Court Judge,
257
and the Ombudsman
was prevented from inquiring into the administrative functions of a Judge.
258
The Supreme
Court upheld the Convenors objection and ruled that the Ombudsman could not investigate
the Convenors actions in appointing members of Panels.
10.328. The Minister has requested this Review to consider the Supreme Courts judgment in
Nisselle v Brouwer and to make appropriate recommendations about the Convenors powers
and accountability.
Stakeholder views
10.329. The Convenor of Medical Panels submits
. . . the decision of the Supreme Court in Nisselle v Brouwer . . . is good law.
I advise that the Medical Panel has in place a Conflicts Policy, which is publicly available via
the web. In addition, each practitioner who is nominated to a Panel is sent a Conflict of
Interest statement for completion and return prior to the Panel examination. I further submit
that for the Panels to function independently and effectively immunity for the convenor and
panel members is needed and should be maintained via Section 65(10) of the Act and
independence from the Ombudsman. Decisions of the Panel are subject to review in the
Supreme Court via the Administrative Law Act.
259
10.330. The VTHC does not believe the Convenor should remain immune from investigation by the
Ombudsman in the exercise of the function of convening Panels. The VTHC believes the
existence of the immunity does not encourage an open, transparent and fair process.
260
10.331. Ai Group submits
The Act should be modified to clearly identify that the status of the convenor is not the same as
a Supreme Court judge, and that the Convenor is not immune from investigation by the
Ombudsman.
261
10.332. The SIAV submits
SIAV agrees with the general position that the Convenor should have immunity. Members,
however, have expressed concerns over the qualification and independence of the constituents
in making binding decisions that require specific technical expertise. The Convenor should be
required to provide public reports of the process of appointment and the frequency of
appropriate technical expertise matched to the same type of technical questions.
262
10.333. The Ombudsman has submitted
The justification for court immunity is, in my view, not based on the function exercised, but on
the constitutional position of the person or body exercising the function. While there is no strict
separation of powers at State level, Courts are in a separate branch of Government and court
immunity is required as the independence of Courts is one of the fundamental requirements
of our system of government.
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257 AC Act, s 65(10).
258 Ombudsman Act 1973, s 13(3)(a).
259 Convenor of Medical Panels, Submission, 17 April 2008, p 2. The Convenor repeated those points in a
further Submission to me dated 28 July 2008.
260 VTHC, Submission, 2 May 2008, p 53.
261 Ai Group, Submission, May 2008, p 83.
262 SIAV, Submission, May 2008, p 31.
The Convenor, however, while having both administrative and quasi-judicial functions, is not
part of the judicial branch of government, but is part of the executive branch. The Ombudsman
Act as you will be aware, was enacted for the important public purpose of allowing
administrative actions taken by persons employed within the Executive Branch to be reviewed
and investigated, so as to ensure accountability and responsibility for the numerous
administrative decisions taken within this State. I can see no justification or public interest for
the abandonment of that responsibility and function regarding the Convenor, merely because
the Convenor also exercises quasi judicial functions.
263
Ensure appropriate oversight by the Ombudsman
10.334. The Convenors function of appointing the members of a Panel is an administrative function.
Despite the Convenors broad protection and immunity under section 65(10) of the AC Act, it is
distinctly possible that the function may be subject to judicial review in the Supreme Court.
264
10.335. I agree with the force of the Ombudsmans submission.
265
Judicial immunity has little relevance
to an officer who is not part of the judicial branch and is exercising administrative functions.
I recommend that the AC Act be amended to ensure that the Ombudsman has effective
oversight of the Convenors administrative functions. (That oversight will not extend to any
functions that are part of a Panels decision-making.)
COMPOSITION OF MEDICAL PANELS
10.336. Medical Panels are constituted by the Convenor as necessary to determine medical questions
in disputes arising under the AC Act
266
from a list of members appointed by the Governor in
Council. A Medical Panel may consist of up to five members as determined by the Convenor.
267
Stakeholder views
10.337. The Convenor of Medical Panels submits
Section 63(4) of the Act currently confines the Panel to no more than 5 members. There are
occasions where matters that come before the Panel relate to multiple injuries and/or are of
such complexity that they require assessment by multiple specialities. This is currently
addressed where appropriate by the use of consultants however a consultant does not have
the same status as a Medical Panel member under the Act and is not part of the decision
making process.
I submit that Section 63(4) of the Act should be amended such that the current 5 should be
replaced by 8 so as to adequately cover these matters and allow flexibility in the
appointment of Panels. I submit that this suggested amendment would have no cost impact on
the overall scheme noting the small numbers involved and further noting the average number
of panellists currently stands at 2.7.
268
10.338. The VTHC submits
. . . the convenor should have the power to appoint additional members to a Medical Panel.
269
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263 Ombudsman, Submission, 7 May 2008, pp 2-3.
264 See the observations by Gillard J in Nisselle v Brouwer [2007] VSC 147at [97] and [98].
265 See paragraph 10.333 above.
266 AC Act, s 63(1).
267 AC Act, s 63(4).
268 Convenor of Medical Panels, Submission, 17 April 2008, pp 1-2.
269 VTHC, Submission, 2 May 2008, p 53.
10.339. Ai Group submits
It is essential that the medical panel includes all relevant areas of expertise. If a panel of more
than 5 is required to achieve this outcome, the convenor should have the power to appoint
additional members.
270
10.340. The Victorian Brain Injury Recovery Association Inc supports the Convenor having the power to
appoint additional members to a medical panel in special circumstances but submits
Medical Panels should be transparent in composition, and have as members those health care
clinicians best able to give relevant opinions. VBIRA believes that non-medical providers (i.e.
neuropsychologists, therapists) must be eligible for appointment to medical panels, as
required, for brain injured workers.
271
10.341. AMA Victoria supports the Convenor being able to appoint additional members to a Medical
Panel in special circumstances.
272
Allow the Convenor to determine the number of Panellists
10.342. As the Convenor submits, the number of situations in which more than five Medical Panel
members would be required because of the multiplicity of injuries would presumably be
relatively small. However, where additional expertise is required, the Convenor should be able to
appoint an appropriate Medical Panel.
10.343. The Convenor has implemented a practical solution through the engagement of consultants.
However, in the interests of transparency, I consider that all practitioners involved in the
formulation of the opinion should be Medical Panel members.
10.344. Accordingly, I recommend that the restriction on the number of Medical Panel members in
section 63(4) of the AC Act should be repealed.
THE MAGISTRATES COURT
10.345. The Magistrates Court deals with the vast majority of disputes over statutory benefits that
proceed to litigation. In 2006/2007, 77% of the litigated disputes over statutory benefits were
issued in the Magistrates Court.
10.346. The Magistrates Court is given a limited jurisdiction to deal with workers compensation
matters pursuant to section 43 of the AC Act:
The Magistrates Court can make orders for the payment of arrears of weekly benefits for a
period of 130 weeks.
273
It can also deal with other matters where the amount or value of the dispute does not exceed
$40,000.
274
10.347. The limitations sometimes lead to late transfers to the County Court, and transfers can increase
the time taken and costs involved in resolving disputes.
10.348. I recommend removing restrictions on the jurisdiction of the Magistrates Court with respect to
disputes over statutory benefits, including dependency claims following the death of a worker
from a work-related injury.
275
The lower scale costs, compared to costs in the County Court,
make the Magistrates Court more accessible to parties engaged in litigation. The Court has also
indicated in its submission that it can accommodate an expanded role.
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270 Ai Group, Submission, May 2008, p 82.
271 Victorian Brain Injury Recovery Association Inc., undated Submission, p 2.
272 AMA, Submission, 9 May 2008, p 4.
273 AC Act, s 43(1), (2).
274 AC Act, s 43(1).
275 See Chapter 9 Benefits for following work-related deaths, paragraphs 9.149-9.152.
10.349. The Magistrates Court submits
The Magistrates Court is the main court involved in determining claims to benefits under the
Act in Victoria. There is a specific court (Court 15) sitting daily at Melbourne dealing with those
claims, with other courts and magistrates being allocated as needed. Only magistrates with
experience of dealing with matters under the Act sit in such cases. In addition, there are
regular country circuits with specialist magistrates in seven different regional court areas
dealing with matters under the Accident Compensation Act . . . and the Workers
Compensation Act.
It is submitted that this Court is the best jurisdiction for dealing with workers compensation
cases (except Common Law Damages and Death Claims) taking into account such factors as
cost, efficiency, expertise and accessibility.
All workers compensation proceedings in this Court are subject to continual supervision by the
court by way of Mentions, Directions Hearings and Final Hearings. An open diary is kept so
that urgent matters (e.g. claims for payment for proposed surgery) are speedily dealt with, on
even the following day if necessary.
Written Decisions of the court are published on the Victorian WorkCover Authority . . . website
for the information of litigants and practitioners.
276
10.350. In correspondence from the Chief Magistrate to the Attorney General dated 3 July 2007
(provided to the Review together with the Magistrates Courts submission), the Chief
Magistrate urged increasing the jurisdictional limit of the Court in relation to workers
compensation matters to a level equivalent with its general jurisdiction. The Chief Magistrate
wrote
I can see no reason why this court should not have an unlimited jurisdiction to deal with
weekly payments and otherwise to a maximum of $100,000, or whatever that limit be from
time-to-time, as in the general civil jurisdiction. I can see no reason why there should be a
difference between the courts civil jurisdiction limit and the WorkCover jurisdiction limit.
Unfortunately, applications are made to transfer weekly payments claims to the County Court
on a regular basis where the arrears of weekly payments are greater than 2 years. This results
in delay and increased cost to both parties.
. . .
A case involving, say, 5 years of arrears of compensation is inherently no more difficult to
determine than a case involving 2 years of arrears. The issues remain the same.
Mandatory conciliation prior to court proceedings
10.351. The Magistrates Court submits
The Court supports the principle and requirement for conciliation of disputes prior to issue in
the courts. However, in many cases the mandatory requirement for prior conciliation causes
delay and unnecessary further expense. It is not unusual that just prior to the date for trial a
further claim or Notice may be issued to have all relevant matters before the court.
Thus, proceedings have to be delayed to obtain a conciliation certificate, often without any
actual further conciliation. Because of the amendments to s.39(1AA) a court can consider
further grounds for termination without a formal Notice. However, if such a Notice setting out
such grounds is issued, then it must be referred to formal conciliation prior to a court dealing
with it. This is illogical.
277
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276 Magistrates Court, Submission, 2 May 2008, pp 1-2.
277 Magistrates Court, Submission, 2 May 2008, pp 8-9.
10.352. The Compensation Law Bar Association submits
Section 49 requires that virtually all disputes in relation to statutory benefits be referred to
conciliation prior to the commencement of Court proceedings. The process is unnecessarily
time consuming and cumbersome where proceedings are already on foot on and subsequent
decisions are made by the Authority or a self insurer.
278
10.353. The SIAV submits
The issue of the delay in cases being heard is of concern to SIAV and SIAV would propose
either additional funding for the County Court to allow it to hear these matters on a more
expedited basis, (as hearing dates in Melbourne can require a wait of between 18 to 24
months) or the funding of other initiatives to streamline the management of cases.
279
10.354. It is clearly preferable for all disputed matters to be litigated together and, provided that the
other party is not prejudiced, that pleadings can be amended to incorporate any new issues
now requiring determination.
10.355. There appears to be no strong reason to adjourn Court proceedings for the purpose of
obtaining additional genuine dispute certificates from the ACCS where another dispute
subsequently arises between the parties. On that basis, there should be an exception to the
mandatory requirement for conciliation prior to proceedings being issued. Subject to the views
of the Court and an appropriate court order, the parties should be permitted to amend their
pleadings to ensure that all outstanding issues between the parties are brought before the
Court in a timely manner.
REVIEW OF AGENT DECISIONS BY EMPLOYERS
10.356. As outlined in paragraphs 10.111-10.120 above, there is no requirement that employers be
notified of reasons for decisions made by the VWA (through the agent).
10.357. Agent decision-making can affect an employers premium. For that reason, there remains
concern about employers lack of involvement, particularly when there was previously some
recourse in the AC Act for employers to object to an agents decision.
280
10.358. Although the VWAs complaints-handling process will hear employer complaints and refer any
complaints relating to insurance issues to the Premium Division for investigation, it is likely that
the majority of employer complaints are dealt with directly by agents and managed as a
component of that business relationship.
Stakeholder views
10.359. Ai Group submits
If the Agent makes an error in managing the claim . . . the employer will pay the cost through
increased premiums.
Between 1989 and 1993 section 120 of the Act allowed an employer to make an application to
the Accident Compensation Commission (ACC) . . .
The removal of this provision in 1993 has resulted in an employer having no financial recourse
for an inappropriate act or omission of the agent.
It is recommended that the new Act create an ability for an employer to lodge an application
to seek a review of an Agents decision and/or to have the Authority consider whether there
has been an act or omission on behalf of the Agent which has a negative financial impact on
the employer.
281
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278 Compensation Law Bar Association, Submission, 2 May 2008, p 24.
279 SIAV, Submission, May 2008, p 25.
280 AC Act, s 120(1) (repealed).
281 Ai Group, Submission, May 2008, pp 84-85.
10.360. Ai Group further comments that:
. . . if . . . the Agent made an incorrect decision (or omission), any future entitlements related to
that decision should be ceased, and the employer obligations to provide duties and offer RTW
should be discontinued.
282
10.361. The VACC supports this argument and submits
If an Agent mishandles a claim it is often to the employers financial detriment therefore,
employers should be able to dispute a decision made by an Agent if they believe it is
inappropriate or incorrect. VACC has consistently supported VECCI and AIG, that the review of
an agents decision should be conducted by an independent review unit established by the
Authority.
283
10.362. The Victorian Farmers Federation (VFF) also agrees with Ai Group and VECCI and submits
. . . that employers should be able to apply for an independent review of decisions made by
claims agents, to challenge claims agents decisions in court, and to be protected from
adverse financial consequences arising from incorrect decisions made by claims agents.
284
10.363. VECCI submits
Complaints can be made to the Ombudsman but a quicker less formal review is preferred
because it will quickly encourage Agents to explain their decision and action to the employer.
The ombudsman investigates process rather than decisions.
. . .
The scheme will suffer for continuing to exclude employers through poor return to work rates
and the loss of big companies to self insurance if self insurance is the only sure means of
obtaining inclusion.
285
10.364. Freehills goes further, suggesting
The Act should allow an employer to be legally represented at their own cost, subject to the
discretion of the court, in the claims process. This should include the employer being entitled
to dispute the acceptance of a claim. Providing that the employer bear the cost themselves,
subject to an order that the insurer or worker do so in appropriate cases, would provide a
disincentive to overuse of this entitlement and alleviate concerns of a flood of litigation.
Providing an employer this opportunity would add credibility to the process and to the insurer
agents. It would limit the need for a system of review of insurer agent conduct for premium
purposes.
The employer should be entitled to initiate proceedings, such as for review of ongoing
entitlements, and not just be a party to proceedings brought by others. The Act could require
certain conditions precedent to be met, for example requiring an employer to first make a
reasonable request for action by the insurer agent in relation to appropriate steps denying
liability, reviewing ongoing incapacity or ongoing work relationship of the injury.
286
10.365. MGA submits
The nature of an injury or illness that occurs in the workplace inevitably means that the
employer has a very close relationship with, or understanding of the circumstances that
caused the injury. However, the employer is often excluded from the claims process, and
particularly from the conciliation process.
287
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282 Ai Group Submission, 21 July 2008, p 8.
283 VACC, Submission, 1 May 2008, p 14.
284 VFF, Submission, May 2008, p 13.
285 VECCI, Submission, April 2008, p 73.
286 Freehills, Submission, 11 February 2008, p 10.
287 MGA, Submission, May 2008, p 8.
10.366. MGA further submits that providing the employer with an opportunity to be more actively
involved in the claims management process would lead to greater transparency and give
employers more opportunities to influence decision making.
288
10.367. I recommend that employers should have limited rights to seek review of decisions. In
particular, they should have the opportunity to seek review of initial decisions to accept liability
for a claim. Providing that opportunity should assist in restoring employer confidence in the
decisions that follow a decision to accept liability and in increasing the accountability of agents.
10.368. I recommend that the form of the internal review should be more extensive than the internal
review contemplated for worker disputes. That disparity would be justified because of the
limited impact of any decision made on internal review (see paragraphs 10.371 and 10.372
below) and because the employer would not be able to take the matter to the ACCS or to the
Magistrates Court.
10.369. That is, the review should be conducted on the basis of the information that was before the
agent when the decision to accept liability was made, together with any additional information
that the employer is able to provide within (say) 14 days of asking for internal review, and by
reference to the relevant provisions of the AC Act and the VWAs policies. The internal review
unit should be directed to check the reliability of the information that was before the agent and
that is provided by the employer.
10.370. I envisage that the review units decision would be either that
the agent decision is confirmed, because it was the correct or preferable decision on the
information before the agent and any additional information provided by the employer; or
the agent decision is not confirmed, because the correct or preferable decision, on the
information before the agent and any additional information provided by the employer, was to
reject the claim.
10.371. The review unit would report its conclusion to the employer and to the VWA, which in turn
would be required to apply any conclusion that the agent decision was not confirmed in the
calculation of the employers premium (see the following paragraph).
10.372. To avoid any potential for further delaying the delivery of benefits to injured workers, the
outcome of employer applications for review must be limited to premium impacts, rather than
outcomes affecting benefits already granted a worker.
10.373. Given that the outcome of employer applications for review would be limited to premium
impacts where the agents decision is not confirmed, it is important that both the worker and
employer continue to participate in the return to work process. Early return to work will ensure
that scheme liabilities are minimised. Thus, an employers and workers return to work
obligations would continue to apply.
10.374. In addition, employers should be given the right to request, from their agents, written reasons
for decisions, particularly in relation to initial liability, as well as at appropriate points throughout
the life of a claim.
10.375. Giving a right to request reasons would impose a higher level of accountability on the part of
agents to employers than currently exists, and could improve relationships between agents and
employers, through enhanced communication. The flow-on effect of increased employer
confidence in agent decision-making is desirable, with clear benefits for the functioning of the
scheme.
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288 MGA, Submission, May 2008, p 8.
APPENDIX 10.1
A step by step guide through the current dispute resolution process
1. The worker is notified by the agent of the decision and given reasons for decision, as well as review
options and information about assistance with disputes.
2. A request (optional) is made for agent internal review, to be undertaken by a senior officer/manager
not involved in the original decision outcome usually within seven days.
3. A request for conciliation form may be lodged (perhaps at the same time as a request for internal
review), within 60 days of notification of the decision (the time can be extended).
4. The worker receives a letter from the ACCS confirming lodgement of the request and asking the
worker to obtain a GP report (for medical issues), sign a medical authority or provide other relevant
information.
5. Letters are also sent to the employer and the agent, the latter receiving a copy of the request for
conciliation as well as any accompanying information provided by the worker.
6. Within five working days, the agent must provide the ACCS with copies of all information on which
the disputed decision is based. Copies are also sent to the worker or the workers nominated
representative.
7. The agent then undertakes a further review of the decision and completes a checklist for sound
and proper decision-making. Within 10 days of notification of the dispute, the claims officer must
direct the matter to the technical manager (or senior legal manager for access to information
disputes) to review the decision for technical compliance and evidentiary bases.
8. The agent presumably discusses relevant issues with the employer throughout this review process.
9. The agent is required to complete an agent advice to conciliation form, detailing the outcome of
the review that is, whether the decision is reversed, varied, maintained, or whether additional
information is required.
10. At least three days from the conference, of which all parties agent, worker and employer
are notified, the agent may inform the ACCS of information that is required from the worker.
11. A conference is scheduled to take place between 28 and 35 days after lodgement of the
conciliation request. The Conciliation Officer may contact the parties to clarify issues, request
information and ultimately resolve the dispute before the conference takes place.
12. At the conference, both the worker and the employer may have an assistant present. Legal
representation is not allowed without consent of all the parties. A worker is typically supported by
WorkCover Assist, Union Assist or the workers union. The Conciliation Officer may request
information from medical providers or the parties, and there are restrictions on a party relying on
that information in later proceedings if the information is not produced as requested.
13. Outcome certificates conclude the process and will set out the details of agreements, agreements
pursuant to a recommendation, directions (in limited circumstances), or a genuine dispute. Parties
should understand their rights and responsibilities pursuant to the outcome certificate.
14. A medical question may be referred to the Medical Panel for opinion by the Conciliation Officer or,
where the request is made by the VWA or self-insurer, the Conciliation Officer is satisfied (amongst
other things) that the worker has given informed and genuine consent.
15. Before an outcome certificate is issued, further decisions may be made and disputed. New
conciliation request forms are required but the matters will be jointly conciliated, with a view to an
agreed resolution.
16. A party required to pay pursuant to a direction may apply within seven days to the County or
Magistrates Court to have the direction revoked.
17. A genuine dispute certificate allows a party to commence Court proceedings; however, there is no
restriction on the timeframe for doing this, other than restricting interest on arrears of weekly
payments to 12 months after the genuine dispute certificate was issued.
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EMPLOYER PREMIUMS
Premium calculation
Principals and contractors
Employer excess
Remuneration
Premium disputes and appeals
Enforcing premium-related obligations
Independent review of premium-setting
Trustees
Uninsured Employers and Indemnity Scheme
11
11.1. The ACWI Act provides for a scheme of compulsory WorkCover insurance.
11.2. The ACWI Act requires employers to take out a WorkCover insurance policy if their annual
rateable remuneration is more than $7500 or if they engage any apprentices or trainees.
1
11.3. A premium is the annual cost to an employer for the insurance policy. The amount of an
employers premium is determined by several factors,
2
including:
the size of the employers payroll;
3
the risk classification of the employers industry; and
the employers claims costs, reflecting the employers past OHS performance and
return to work performance.
11.4. The revenue required to cover the schemes claims liabilities and operational costs is entirely
funded by premiums and investment returns. In 2006/2007 the VWAs total revenue was
$3.2 billion, of which $1.6 billion consisted of premiums.
4
11.5. Over the past four years to 2007/2008, the average premium rate has been reduced by 10%
each year reflecting, in part, improvements in claims management that have led to a reduction
in the schemes claims liabilities. Victorias average premium rate has been reduced by a further
5% to 1.387% of remuneration for 2008/2009
5
the second-lowest average premium rate of all
Australian State jurisdictions.
11.6. The Reviews terms of reference require an assessment of the current premium systems
fairness and effectiveness.
11.7. In this chapter, I:
assess aspects of the calculation of premium (including the operation of statistical case
estimates and the impact of recoveries and hearing loss claims);
examine how premium liability is determined in relation to principals and contractors who are
deemed workers, and propose a new approach;
recommend changes to the options available in relation to the employer excess;
examine whether remuneration can be defined in a way that is consistent with other workers
compensation and tax schemes;
recommend implementing a new comprehensive premium dispute and appeals system;
recommend measures to enable premium-related debts to be recovered more effectively;
recommend introducing penalties for premium avoidance;
examine the merits of an independent review of the premium-setting system;
determine whether trustees should be able to hold multiple insurance policies; and
recommend integrating the Uninsured Employers and Indemnity Scheme with the premium
system.
PREMIUM CALCULATION
11.8. An employers premium is calculated by multiplying the employers annual remuneration by the
employers premium rate.
11.9. The premium rate for a very small employer (with an annual remuneration under $200,000) is
the employers industry rate.
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1 AWCI Act, s 7(1). The policy indemnifies the employer against liability under the AC Act, at common
law or otherwise.
2 Calculated in accordance with the premiums order issued by the Governor in Council on the
recommendation of the VWA under s 15 of the ACWI Act.
3 ACWI Act, s 3; see rateable remuneration.
4 VWA Annual Report, 2006/2007, p 49.
5 Effective from 1 July 2008.
11.10. A larger employers premium rate is based on the employers industry rate adjusted for the
employers OHS and return to work performance rating. The larger the employer, the greater the
weight that is placed on the employers performance, and therefore the more the employers
premium rate can move above or below the employers industry rate.
11.11. An employers OHS and return to work performance rating reflects the employers size and
claims cost rate relative to the claims cost rate of the employers industry. If the employers
claims rate is the same as the industry average, then the employers premium rate will be the
industry rate. If the claims rate is above the industry average, then the employers premium rate
will be higher than the industry rate.
11.12. The premium system has been designed to provide incentives for employers to improve their
OHS and return to work performance. If an employer has fewer workplace injuries and
successfully returns injured workers to work, the employer will have lower claims costs. Lower
claims costs will be reflected in a good performance rating and a lower premium rate.
11.13. The calculation of claims costs therefore plays a central role in determining an employers
premium rate and providing incentives for OHS and return to work performance.
Estimating claims costs: statistical case estimates (SCEs)
11.14. An employers claims cost rate is the estimated lifetime cost of the claims received in the last
two and three quarter years, as a proportion of the employers remuneration.
11.15. The VWAs estimate of the lifetime cost of a claim reported in a particular year equals the costs
already incurred on the claim and an estimate of the costs that will be incurred on the claim.
11.16. In 2004/2005, the VWA introduced the SCE model to estimate the future cost of each
employers claims for premium calculation purposes.
11.17. The VWA uses the SCE model to estimate the lifetime cost of individual claims. The model uses
the schemes experience over 20 years to estimate the average cost of a claim, taking into
account the known characteristics of the claim. For example, if a claim is for a stress-related
injury and the worker has been off work for three months, the model will provide an estimate of
the lifetime cost of the claim based on the lifetime costs incurred for other such stress claims
for which workers were initially paid three months of weekly benefits.
11.18. A claims SCE changes as the claims payment profile changes. The main factor driving
estimates is return to work rates, as reflected in weekly benefit payments. If a worker returns
to work and weekly benefits cease, the SCE on the claim reduces. The longer a worker remains
at work, the more the estimate will fall, reflecting the lower likelihood of the worker again
ceasing work.
11.19. SCEs are based on claim characteristics (for example, the type of injury) as well as any
information about payments on the claim that is available when the estimate is made.
11.20. At the start of a claim, relatively sparse payment information is available and therefore the range
of possible outcomes for the claim is very broad. The worker could return to work tomorrow,
making the cost of the claim very low, or the worker could be off work until retirement, inflating
the cost of the claim.
11.21. Given that lack of information, the predictive value of the model for new claims is relatively low,
as indicated by a wide divergence between claim estimates and claim experience.
11.22. In addition, the model does not take account of workplace-specific characteristics that are
crucial for determining return to work performance. For example, the estimate does not reflect
an excellent relationship between a worker and employer, or an employers return to work
policies, until those factors are reflected in hard data such as cessation of payments due to a
workers return to work.
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11.23. As a result, at the start of claims, many employers consider that the SCE is too high, based on
the employers knowledge of the workplace and their assessment of the likelihood that a
worker will return to work. Equally, employers may consider that the SCE is too low but would
be less likely to raise this as a concern.
11.24. SCEs also move dramatically according to whether workers are at work. For example, one
employer cited the case of one of its workers who returned to work, but then took some time
off for corrective surgery, before returning to work again. Unfortunately for the employer, the
period of corrective surgery coincided with the time when estimates were made for premium
calculation purposes. The model assigned a cost of $200,000 to the claim, reflecting the
workers current off work status. Four months later, the estimate on the claim had fallen to
$45,000, reflecting the fact that the worker had returned to work. The example demonstrates
the sensitivity of estimates to whether a worker is working or not working.
6
11.25. The VWA calculates premium based on the employers case estimates on a particular date in
the premium calendar. Therefore, it follows that individual employers can have high claims costs
if the date when claims costs are measured coincides with an influx of new claims or a
recurrence of injuries. Equally, individual employers can have low claims costs if most of their
workers are back at work on the date claims estimates are drawn for premium purposes.
11.26. However, balancing the effect described in the preceding paragraph, premium is calculated by
using two and three quarter years of claims costs, so that a subsequent reduction or increase
in the estimate on a particular claim will be reflected in the premium over the next two years.
11.27. Although the concept of SCEs is relatively straightforward, its application is very complex,
resulting in estimates on individual claims and different estimates on apparently similar claims
appearing nonsensical to employers.
11.28. To improve the predictive capability of the SCE model, each estimate on a claim is always
delayed three months. For example, on 1 December, an estimate is assigned to a claim
reflecting the claims status on 1 September. This delay allows time for late invoices and
requests for weekly income reimbursements to be received. For example, it might be October
before an employer forwards medical certificates and a request for reimbursement for the
month of August. If the estimate for a claim on 1 September was made on 2 September
(rather than 1 December), then it would appear that the worker had returned to work because
no payments had been made in August.
11.29. While delaying estimates for three months increases the predictive capability of the SCE model,
the delay can make it difficult for employers to link their return to work efforts with movements
in the estimate. For example, if a worker suffers a recurrent injury in September and goes off
work, there will be an increase in the estimate on the claim three months later in December,
even though the worker may have returned to work in October. To an employer, the increase in
the claim estimate in December may appear nonsensical. As most employers would not be
aware that estimates are delayed three months, they have difficulty relating changes in the
estimate on a claim to their knowledge of the claims status. This can make employers sceptical
about the link between their return to work efforts and reductions in their claims costs and
premiums.
11.30. Estimates are also influenced to a lesser extent by factors outside employers control, such as
the indexation of workers benefits, indexation of medical fees, and recalibration of the SCE
model. For example, the annual indexation of workers weekly benefits increases the lifetime
estimated cost of claims.
11.31. The SCE model is recalibrated twice a year to take into account more recent scheme
experience with the cost of claims. Where the scheme has reduced the cost of claims, the
recalibration can lead to a reduction in the estimate on individual claims.
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6 Confidential submission, February 2008.
11.32. The external factors influencing claims cost estimates can undermine employers confidence in
the connection between their own efforts to reduce claims costs, and their premium.
11.33. Estimates also rely critically on the coding of claims and claim costs. Therefore, an agent error
in coding a claim as a stress claim rather than as a sprain claim will affect the claim estimate.
However, the VWA has informed the Review that it has rarely found inaccurate coding when it
has reviewed individual case estimates at the request of employers.
Information for employers about their claims estimates
11.34. When employers receive their interim premium statement in May of each year, the VWA
provides the following information:
an estimate of the employers premium for the approaching financial year;
the employers interim performance rating (that is, the employers claims cost rate relative to
the applicable industrys claims cost rate, taking into account the employers size);
the interim premium rate of the employers industry;
the employers interim premium rate, reflecting the employers interim performance rating
multiplied by the employers interim industry rate;
a summary of the employers claims costs;
a complete listing of the total cost of every claim relevant to the premium calculation,
including the actual payments on the claim and the future estimated costs of the claim; and
a page of frequently asked questions, which includes information on how the costs of claims
are estimated, but does not specify the key drivers of SCEs (namely, fewer claims, faster
return to work and staying at work).
11.35. In addition, employers can ask their agents to provide estimates of the cost of individual claims
on a monthly basis, enabling employers to see the monthly volatility in claims cost estimates.
11.36. The VWAs website has information on how claims costs are estimated, including a presentation
for employers. Most of this information is dated; and, while almost all of the information still
applies, employers would benefit if the documents were updated or the currency of information
was confirmed. In addition, none of the information states when claims cost estimates are
drawn for premium purposes and the three-month delay. It follows that it is difficult for
employers to understand the reasons for monthly fluctuations in SCEs, based on the
information publicly provided by the VWA.
11.37. The VWA website also has a premium simulator which assists employers to predict their
premium costs. However, according to one employer group, at times the VWA removes the
simulator from the website for months at a time, which inconveniences employers.
11.38. The VWA advises that it does this to minimise employer confusion around the time when
premium is being determined for the coming year. Although the VWA provides each employer
with an illustration of the employers premium in the May interim premium statement, the
simulator could give different results because it has not been updated for the coming year.
11.39. Employers currently receive estimates on individual claims, which influence their performance
rating and premium rate. However, insufficient information is provided to employers, either with
their premium statements or on the VWA website, about the main drivers of SCEs or how
estimates are derived.
11.40. Although there are difficulties and complexities in the SCE model, it is definitely superior to its
predecessor. Before the introduction of statistical case estimation, claims agents estimated
future costs for individual claims, leading to substantial underestimation. To reconcile agents
estimates of the future cost of claims with the actuaries estimate of the schemes liabilities for
all claims, the VWA found that it needed to increase agents estimates around threefold.
This was known as an F factor and illustrated the high degree of inaccuracy in the previous
method.
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11.41. The previous method also led to a misdirection of effort. Agents and employers invested time in
negotiating estimates time that could otherwise have been spent on improving return to work
rates and claims management.
11.42. The effort expended in estimating and negotiating claims estimates did not change the amount
of premium that needed to be collected to fund the schemes liabilities, although individual
employers could benefit by negotiating a reduction in their claims estimates, which would result
in lower premiums.
11.43. As a result, the previous system led to inequities. Employers who invested time in negotiating
estimates with their agents could pay less premium than required by their share of claims
liabilities, while other employers could pay more.
Stakeholder views
11.44. Overall, there is strong support by employer organisations for increasing the transparency of
SCEs and providing employers with additional information to understand SCEs.
11.45. Ai Group submits that
SCEs have created much angst among employers, who see large estimates of future costs
impacting on their premium when a worker has been off work for only a short period of time,
or not at all.
7
11.46. Ai Group further believes
. . . the role of the premium system should be to provide tangible incentives for employers to
improve OHS and RTW activities with a view to reducing their premiums . . . with one of the
major components of the premium scheme (SCEs) . . . to not be transparent, and treated with
significant cynicism.
8
11.47. One confidential submission
9
to the Review makes a number of recommendations, including:
increased transparency about the calculation of SCEs;
providing employers with information that enables them to understand what drives the
movements in SCEs;
the timing for claims to be included in the premium calculation should be changed, and
should include only those claims lodged up to and including 31 December;
the claims should be developed through to the following 31 March, ensuring that every
claim has at least three months worth of experience before it is used to calculate the
premium;
claim statements should be redesigned to ensure that employers are advised of the timing of
information used in determining the SCEs;
amending the SCE model to differentiate the impact on case estimates of resumptions in
weekly payments due to subsequent surgery compared to failed return to work; and
claim statements should include all estimates of future costs against the individual claims,
rather than grouping the estimates in one large amount at the end of the statement; this
would give greater credibility to the estimates shown, and highlight areas requiring
management attention.
Improve employer understanding of the SCE process
11.48. Claims costs are integral to the incentives for OHS and return to work performance provided by
the premium system. Employers need to understand what drives premium, so that they can
respond to the incentives that the premium system provides.
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7 Ai Group, Submission, May 2008, p 94.
8 Ai Group, Submission, May 2008, p 95.
9 Confidential Submission, February 2008.
11.49. The fundamental principles and incentives in the SCE model are straightforward. Employers will
reduce their claims costs if they:
provide a safe workplace with fewer claims;
enable injured workers to return to work as soon as possible; and
prevent injuries from recurring so that workers who have returned to work following an injury
can remain at work.
11.50. However, as discussed in paragraphs 11.27 and 11.29 above, the complexity of the application
of SCEs in individual cases can obscure these key messages.
11.51. It appears that the information provided by the VWA and its agents provide to employers
(especially monthly data on SCEs for individual claims) exposes employers to the complexity of
SCEs, without providing clarity about what drives the estimates (such as the three-month delay).
As noted in paragraph 11.29 above, above, that lack of clarity has led to employers becoming
sceptical about reducing their premium through better management of OHS and return to work,
undermining the incentives provided by the premium system.
11.52. Enhanced information and advice for employers will go some way to improving their confidence
in the operation of the premium system and its incentives.
11.53. I recommend that the VWA improve its information and advice to employers by:
ensuring that claim statements disclose the timing of information used in determining the
SCEs for individual claims; and
including all estimates of future costs against individual claims, rather than grouping the
estimates in one combined amount at the end of the statement (unless the grouped amounts
are small).
10
11.54. Improved information should be supported by:
including information with the premium statement that explains the key drivers of SCEs
(safety, speedy return to work, and staying at work) and tells employers what they can do to
reduce their premiums and where they can get more information;
providing more detailed and up-to-date information on the VWA website about how premiums
are set, what drives SCEs and how employers can reduce their premiums; and
making the premium simulator available to employers on the VWA website whenever possible.
11.55. Employers clearly want to understand their individual case estimates, so generic information
will not always be adequate. VWA and agent staff must be sufficiently informed about SCEs
to explain individual estimates to employers. This is critical for retaining confidence in the
premium system.
11.56. It is also important that VWA and agent staff provide employers with integrated advice,
reflecting an understanding of factors that influence premiums and claims costs, namely safety
and sustainable return to work. In this way, employers will know what they need to do to
improve management of a claim and reduce their premiums. For many agents, this will involve
a degree of multi-skilling, given that different staff usually handle premium and claims issues.
Improve the accuracy of estimates for new claims
11.57. The WorkCover scheme is characterised by a high proportion of short-duration claims. Around
70% of time loss claims have five or less days of weekly compensation
11
(in addition to the
10-day employer excess). Therefore, the lifetime cost of the vast majority of weekly benefits
claims will be very low. However, the lifetime cost of a small proportion of weekly benefit claims
will be very high. For example, claims where the worker is off work and compensated until
retirement drive up the average cost of all claims.
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10 While this is the VWAs intended practice, employers have advised that there are occasions when the
grouped amounts can be large.
11 Source: advice from the Reviews independent actuaries.
11.58. Given the wide divergence between the average cost of claims and the cost most likely to apply
for the vast majority of claims, the VWA should allow more time to elapse, so that it can gather
more information on a new claim, before assigning an estimate that will influence premium.
11.59. I recommend that only new claims received to the end of December be included in the
calculation of premium for the following financial year. This would enable the model to consider
at least three months of experience on a claim before assigning an estimate for the claim,
12
and would improve the predictive capability of the SCE model.
Provide employers with a right to seek a review of estimates
11.60. Given the potential (however unlikely) for erroneous estimates, I consider that employers should
have the right to seek a review of their SCEs. However, that right should be limited to data
errors that lead to erroneous estimates (such as errors in coding of claims or claims costs)
and the information provided to the agent when the estimate was made.
11.61. In other words, a workers subsequent return to work should not be a basis for seeking review
of an earlier claims estimate. Similarly, employers should not be able to apply for review of an
estimate on the basis that, at the time that the estimate was drawn for premium purposes, the
worker had already returned to work. That information would have been excluded because of
the time delays before estimates are assigned (see paragraph 11.28 above).
11.62. Furthermore, the parameters and predictive power of the model should not be a basis for
review. For example, an employer should not be able to seek review of an estimate on the basis
of expert evidence from a claims estimator challenging the estimate.
11.63. The main reason for limiting employers ability to review claims cost estimates is that premium
is a closed system. That is, the total amount of premium that needs to be collected annually is
determined by actuarial estimation. The application of the SCE model for premium purposes
influences the allocation of premium between employers, but not the total amount of premium
needed.
11.64. In addition, it is an employers claims performance relative to others in their industry that drives
the employers performance rate and therefore the employers premium rate, not the
employers absolute level of claims costs.
11.65. The amount of premium to be collected for the scheme and from individual employers is set at
the start of the year. If individual employers could challenge and reduce their claims cost
estimates, the scheme would not collect sufficient revenue to cover the future costs projected
by the actuaries. There would be an inevitable bias towards employers who thought that their
estimates were too high seeking review. Employers who thought that their estimates were too
low would be unlikely to seek an increase in their estimates and premiums.
11.66. However, limited rights of review can be justified because:
of the need to provide natural justice to employers;
a small number of premium revisions would not threaten scheme viability; and
if an individual employers premium needed to be adjusted to correct a data error, there
would be a corresponding change in the value of the schemes liabilities, and therefore no
impact on scheme viability.
Impact of recoveries
11.67. The AC Act authorises the VWA to recover compensation paid to a worker from a third party
whose negligence wholly or partly caused the workers injury (for further discussion see
Chapter 12, Recovery from third parties). The VWA is also entitled to recover compensation
paid to a worker from the TAC, where the work-related injury was directly caused by a motor
vehicle, train or tram.
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12 This would be in addition to the two or three months delay to ensure all payments had been received
for that three-month period.
Stakeholder views
11.68. A number of employers have raised concerns about how recoveries are reflected in premium
calculation.
11.69. It is Ai Groups view that
Employers should get immediate premium relief associated with statutory entitlements, and
full benefit of any subsequent recoveries associated with negligence and any related common
law claims.
13
11.70. Where a workers injury arises out of the use of a motor vehicle and no fault can be attributed
to a third party, employers have submitted that the VWA effectively collects for the same claim
twice: first, from the employer through premium increases, and then from the TAC through
recoveries.
11.71. VECCI recommends that
. . . recoveries be credited against employers claims costs. Penalising employers for road
accidents and then obtaining recovery for those same costs is plain double dipping and cannot
be justified by an oblique reference to encouraging employer responsibility for road safety.
14
11.72. The VWAs policy not to credit all TAC recoveries to individual employers claims costs and
premium was also opposed by NewCare WorkCover Specialists.
15
Provide better information to employers on how recoveries affect premium calculation
11.73. As discussed in paragraphs 11.8 to 11.11 above, an employers premium rate is a combination
of the employers industry rate and the employers performance rating, as measured by the
employers relative claims cost rate.
11.74. The VWA calculates industry rates based on each industrys claims costs for the previous five
years and any recoveries received on claims made against employers in that industry during
those five years (even if those claims occurred before the five-year period). It follows that the
more recoveries the VWA makes, the lower the industry rate.
11.75. An individual employers performance rating reflects the employers claims costs over the last
two and three quarter years. An employers claims costs are reduced by any recoveries made
from negligent third parties during those two and three quarter years (even if the claims to
which the recoveries relate occurred before the two and three quarter year period). Therefore,
employers benefit from recoveries directly through lower claims costs and a better performance
rating, and indirectly through lower industry rates.
11.76. Recoveries therefore do compensate for the previous increase in premiums, although the
compensating effect is obscured by the time delay between the impact of a claim on premium,
and the impact of a recovery on premium.
11.77. For example, when a worker employed by a labour hire agency has a claim, the labour hire
agencys premium increases. The VWA may take recovery action against the host employer; but
it is likely to be some time before the recovery action is settled or determined and the recovery
is credited to the labour hire agencys claims costs and reflected in its premium.
11.78. As mentioned in paragraph 11.38 above, employers receive an interim premium statement in
May each year. The statement lists the recoveries received on individual claims during the two
and three quarter year experience period used to determine premium.
11.79. The VWAs website contains no additional information about recoveries. It is therefore not
surprising that employers are sceptical about the impact of recoveries on premiums.
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13 Ai Group, Submission, May 2008, p 96.
14 VECCI, Submission, April 2008, pp 75-76.
15 NewCare WorkCover Specialists, Submission, 1 May 2008, p 3.
11.80. Although recoveries are relatively rare (constituting only 4% of premium revenue), it would be
useful if the VWA provided information about recoveries on its website so that affected
employers could research the issue. The VWA should also ensure that advisory and agent staff
are trained to respond to employers queries about recoveries.
11.81. The VWA has taken the policy position that it will only credit TAC recoveries to an individual
employers claims costs where the VWA assesses that there is likely to be third party
negligence. The VWA adopts this approach to retain incentives for employers to reduce
workers exposure to driving risks.
11.82. The VWA assesses whether there is likely to be third party negligence after reviewing Victoria
Police traffic incident reports. The VWA will credit a recovery to the individual employers claims
costs even where third party negligence makes a relatively small contribution to causing a
workers injury.
11.83. However, TAC recoveries are included when the VWA calculates industry rates. Thus, the total
amount of premium revenue raised is not increased under the VWAs policy identified in
paragraph 11.81 above. A lower industry rate decreases premiums for all employers in that
industry classification.
11.84. Overall, I consider that the VWAs treatment of recoveries for premium purposes is reasonable.
The VWAs approach to reimbursements from the TAC is intended to provide an incentive to
individual employers to reduce workers exposure to driving risks.
11.85. Given the VWAs statutory objective to reduce the incidence of workplace accidents and disease
and noting that its approach does not increase premium revenue overall, I believe that the
policy, while contentious, is justified.
11.86. However, as with other areas of premium, employers support for and confidence in the
premium system is reduced by the lack of information about how premiums are calculated.
Impact of hearing loss claims
11.87. If a worker lodges a hearing loss claim, the full cost of the claim is used in calculating the
premium of the current or most recent relevant employer,
16
despite the fact that the exposure
to noise that caused the hearing loss may have involved many employers. Subsequent
compensation, such as the cost of hearing aids, is also attributed to the current or most recent
employers premium.
Stakeholder views
11.88. Ai Group favours attributing claims costs to past employers with known exposures to noise
hazards, and provided the following example illustrating the problems of the current approach.
17
11.89. Ai Group has provided an example of an employer engaging an older worker who had been
working in heavy industry for more than 30 years
The new employer, which is using personal protective equipment to address noise issues in
the workplace, undertook audiometric testing within three months of the new employee
commencing employment (as required by the OHS regulations). The testing identified that the
worker had a significant level of hearing loss; he lodged a claim, which was accepted; the
costs of this claim will be utilised in the premium calculation for the next three years. Having
had this experience, the employer is now reluctant to engage workers who have had previous
noise exposures.
18
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CHAPTER 11 EMPLOYER PREMIUMS
PAGE 394
16 AC Act, s 88(4).
17 Ai Group, Submission, May 2008, p 97.
18 Ai Group, Submission, 8 February 2008, p 17.
11.90. A number of employers comment that young workers are now reporting hearing loss, which is
due to recreational pursuits (for example, listening to music), and yet are being compensated
through the workers compensation system.
No change to premium calculation for hearing loss claims
11.91. The VWA receives around 1000 new hearing loss claims each year, relating to about 500
employers, and hearing loss claims are estimated to cost around $10 million a year, with an
average cost for each claim of about $10,000. Historical claims experience indicates that around
2000 employers are likely to have hearing loss claims across a seven-year period, equivalent to
about 1% of Victorian employers over that period.
19
11.92. The issues raised by hearing loss claims are also raised by other gradual onset conditions such
as degenerative back conditions, where work with several different employers may contribute
to an injury.
11.93. The premium impact of the VWAs current approach of attributing the cost of hearing loss
claims to the most recent employer depends on the employers size:
For small employers, there is little premium impact because their premium rates are largely
determined by their industry rates, rather than by their own claims experience.
For large employers, there can be a significant premium impact, because of the greater
weighting of their own experience in determining their premium rates. However, the situation
can balance out over time, particularly with a larger workforce: while some workers will
submit claims against the employer, others will submit claims later while employed by
another employer with noise exposure. The exception would be an employer that had a
disproportionately large number of older workers with short periods of service.
For medium-sized employers, there can also be a considerable premium impact; and,
because of the size of the workforce, there may be less scope for things to balance out. That
is, in some years an employer could be paying considerably more premium for hearing loss
claims than if the cost of those claims was spread across all employers with noise exposure.
11.94. The current approach has a number of benefits, including:
providing certainty to workers, who only need to lodge a claim on one employer;
promoting safety, as employers have an incentive through the premium system to reduce
their workers exposure to excessive noise; and
ensuring lower administration costs than if claims costs were attributed to all relevant
employers throughout a workers career.
11.95. The main disadvantage of the current approach is its potential for inequity, especially for a
medium-sized employer, where the number of hearing loss claims received could be
disproportionate to the size of the employers workforce. This could have the adverse effect of
leading to discrimination in employment for older workers with past noise exposure. It could
also undermine the incentives created by the premium system.
11.96. There are two ways in which the cost of hearing loss claims could be reflected in premium.
11.97. The first approach would be to include the cost of hearing loss claims in industry rates, rather
than individual employers claims costs and premiums. This approach would cover the cost of
claims, while protecting employers from inequitable outcomes. However, the disadvantage of
this approach is that it would remove premium incentives for employers to reduce noise risks in
their workplaces.
11.98. Spreading the cost of hearing loss claims across all employers would be expected to reduce
the premiums paid by employers likely to have hearing loss claims by $9,900 a year on average
and increase the premiums of all other employers by $100 a year on average.
20
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19 Source: advice from the Reviews independent actuaries.
20 Source: advice from the Reviews independent actuaries.
11.99. The second approach would be to spread the cost of individual hearing loss claims across all
employers in a workers career who have contributed to the hearing loss. That approach would
reduce current inequities all employers who contributed to a workers hearing loss would
share in the costs. However, there would be significant practical difficulties in implementing this
option. The agent would need to establish the liability of many different employers; and, given
that many workers make hearing loss claims on retirement; this approach could involve
investigating the liability of employers going back 40 years. That investigation would raise
evidentiary difficulties. Many employers would no longer exist and the VWA would need to
identify the relevant insurer for pre-1985 employers, when the scheme was privately
underwritten.
11.100. The method of attribution between different employers would also need to be determined
would employers contribute proportionally according to the workers length of service, or
according to the workers extent of hearing loss? While the latter approach would be more
equitable, in many cases there would be insufficient evidence to support it and the cost of
gathering the evidence could be considerable.
11.101. As a result, the cost of administering claims would be considerably greater under the
second option than under the current approach. The second approach would cost an extra
$7.5 million,
21
equivalent to 38% of hearing loss claims costs each year. The additional
administrative cost appears to be out of proportion to the benefit, especially given that the
premium system mitigates inequitable outcomes to some extent, because an employers
premium rate reflects the employers industry rate as well as claims experience.
11.102. There is no perfect solution for reflecting the cost of hearing loss claims and other gradual
onset injury claims in employers premiums, and there are disadvantages with all options.
On balance, I consider that the current approach where workers have certainty of entitlement,
OHS incentives are retained, and administration costs are minimised is reasonable. Therefore,
I recommend retaining the current system of attributing the cost of hearing loss claims to the
premium of the most recent relevant employer.
PRINCIPALS AND CONTRACTORS
11.103. Deeming provisions in the AC Act aim to prevent the creation of artificial arrangements such as
engaging certain people as contractors who are in all meaningful respects workers. Those
arrangements would inappropriately exclude workers from insurance coverage under the
scheme.
11.104. The deeming provisions are intended to make employers liable to provide insurance coverage to
contractors where there is effectively an employment relationship between the employer (that
is, the principal) and a worker (that is, the contractor).
11.105. Accordingly, in some circumstances where a principal enters into a contract for a service with a
contractor, the legislation treats the contractor as a worker.
22
Both incorporated and
unincorporated contractors may be deemed workers.
11.106. Where a contractor is deemed to be a worker, the principal is required to hold a WorkCover
insurance policy and to pay a premium for scheme coverage in respect of the contractor. At the
same time, the contractor may also be required to hold a WorkCover insurance policy and to
pay a premium for scheme coverage in respect of any workers that the contractor engages.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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21 If the additional administrative cost of attributing liability across multiple employers was $1000, 25%
of claims result in disputes and the disputes cost an average of $5000 per claim. Source: advice from
the Reviews independent actuaries.
22 AC Act, ss 8, 9, 10.
11.107. For the purposes of calculating premium, any amounts paid by a deemed employer to a
contractor who is deemed a worker are treated as rateable remuneration, less any amount that
is not attributable to the performance of work (such as the costs of materials or equipment).
The AC Regulations prescribe deductions for that part of the total amount paid to the contractor
which is not attributable to the performance of work and not remuneration for the purposes of
the AC Act (such as the costs for materials or equipment provided by the contractor at his or
her own cost).
23
The prescribed deductions aim to provide administrative efficiency for
employers and the scheme. The VWA has published guidelines to help employers comply with
these provisions.
24
11.108. The existing arrangement for unincorporated contractors is illustrated in the diagram below.
11.109. The deemed employer (XYZ Pty Ltd) is liable to provide insurance coverage for the deemed
worker (Adam). The total contract price of $100,000 payable to Adam must be declared by
XYZ Pty Ltd as rateable remuneration for premium calculation. In the event of an injury, Adam
would submit a workers compensation claim to XYZ Pty Ltd, who would claim under its
insurance policy.
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23 AC Regulations 2001, reg 13.
24 Determining Rateable Remuneration for Contractors under the Accident Compensation Act 1985. VWA
Guideline, July 2004.
Unincorporated contractors
Deemed
employer
Deemed
remuneration
Deemed
worker
Principal
XYZ Pty Ltd
Unincorporated contractor
(individuals and partnerships)
Worker
Adam
Contract payable
$100,000
Injury
claim
11.110. The existing arrangement for incorporated contractors is illustrated in the diagram below.
11.111. In the above example, the deemed employer (XYZ Pty Ltd) is liable to provide insurance
coverage for the deemed worker (Bruce). The total contract price of $100,000 payable to the
incorporated contractor (Bruce & Sons Pty Ltd) must be declared by XYZ Pty Ltd as rateable
remuneration for premium calculation. Bruce & Sons Pty Ltd then pays $20,000 (of the total
$100,000) to Bruce as wages, which must be declared under the insurance policy held by Bruce
& Sons Pty Ltd as rateable remuneration for premium calculation.
11.112. In the event of an injury, Bruce can submit a workers compensation claim to XYZ Pty Ltd or to
Bruce & Sons Pty Ltd. In practice, Bruce would normally submit claims to Bruce & Sons Pty Ltd.
There is anecdotal evidence to suggest that this may occur where the deemed employer (XYZ
Pty Ltd) has a strong preference for the deemed worker (Bruce) to lodge injury claims against
the contractor company (Bruce & Sons Pty Ltd), so that the claim does not impact on the
deemed employers premium.
11.113. The main advantages of the current arrangement are:
The ability of a worker to make injury claims under either the deemed employers insurance
policy or the contractors insurance policy:
maintains coverage of contractors who are deemed workers; and
provides incentives for both the deemed employer and the contractor to manage OHS
and return to work for the deemed worker, particularly given that either party could have
a claim lodged against its insurance policy.
It is a relatively straightforward process to administer and implement.
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CHAPTER 11 EMPLOYER PREMIUMS
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Incorporated contractors
Deemed
employer
Deemed
remuneration
Deemed
remuneration
Deemed
worker
Principal
XYZ Pty Ltd
Contractor (incorporated)
Bruce & Sons Pty Ltd
Worker
Bruce
Contract payable
$100,000
Wages paid from contract
$20,000
Injury
claim
Injury
claim
11.114. The main disadvantages of the current arrangement are:
The ability for a worker to be covered and make injury claims under the contractors insurance
policy is not in keeping with the underlying intention of the deeming provisions, particularly
given:
the employment relationship is between the deemed employer and the deemed worker;
and
it may reduce incentives for the deemed employer to manage OHS and return to work for
the deemed worker.
It increases scope for premium avoidance, particularly given the potential for the deemed
employer to under-declare or not to declare the contract amount as remuneration.
The requirement for remuneration to be declared by both the deemed employer and the
contractor can potentially be a double collection of premium, leading to an increase in labour
costs, with adverse economic effects.
Stakeholder views
11.115. Stakeholders have raised concerns about the premium impacts of the current arrangements.
Freehills argues that
While the Act provides that in the event of a deeming of employment it is the principal that is
liable for the premium, the reality is that the contractor ordinarily has a WorkCover policy for its
employees. This can result in double dipping by the VWA.
25
11.116. VECCI submits that this double-dipping of premium should be disallowed by the AC Act.
26
11.117. The VACC requested that the Review address what appears to be unnecessary double coverage
for some contractors.
27
Amend the contractor provisions
11.118. In response to stakeholder concerns, I have considered options for streamlining premium
responsibilities in the circumstances involving contractors who are deemed workers. My
preferred option is to exempt from remuneration the wages paid by the incorporated contractor
to the deemed worker, with the deemed employer declaring remuneration based on the
contract amount paid to the incorporated contractor. The preferred option is illustrated in the
diagram below.
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CHAPTER 11 EMPLOYER PREMIUMS
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25 Freehills, Submission, 11 February 2008, p 9.
26 VECCI, Submission, April 2008, p 15.
27 VACC, Submission, 8 February 2008, p 2.
Deemed
employer
Deemed
remuneration
Deemed
worker
Principal
XYZ Pty Ltd
Contractor (incorporated)
Bruce & Sons Pty Ltd
Worker
Bruce
Contract payable
$100,000
Wages paid from contract
$20,000
Injury
claim
11.119. In this option, the principal (XYZ Pty Ltd) would declare as remuneration the contract amount
($100,000) paid to the incorporated contractor (Bruce & Sons Pty Ltd). The wages paid by Bruce
& Sons Pty Ltd to the deemed worker, Bruce ($20,000 of the total $100,000) would be exempt
from remuneration for the purposes of calculating premium. The deemed worker (Bruce) would
only be able to claim against the deemed employers (XYZ Pty Ltds) insurance policy. The OHS
and return to work obligations for Bruce would rest with XYZ Pty Ltd.
11.120. The main advantages of this option are:
The requirement for a worker to be covered and make injury claims under the deemed
employers insurance policy:
maintains coverage of contractors who are deemed workers; and
provides incentives for the deemed employer to manage OHS and return to work
for the deemed worker.
It ensures that premium continues to be paid while the deemed worker is unable to work.
It would increase deemed employers compliance with their responsibility to provide workers
compensation insurance for contractors who are deemed workers. It would become easier to
detect non-compliance if deemed workers served claims on deemed employers.
It avoids any double premium collection and therefore does not inflate labour costs or create
adverse economic effects.
It is a relatively straightforward process to administer and implement.
It eliminates the potential for alleged coercion by the deemed employer for the deemed
worker to claim against the incorporated contractors policy.
11.121. The main disadvantage of this option is that it could lead to overestimation of remuneration if
the incorporated contractor did not provide information about the costs of materials or
equipment included in the contract price. However, this is also a disadvantage of the current
arrangements.
11.122. While details of the nature of employment are not available, the overall impact on premiums
would be expected to be small.
28
11.123. I have also considered two alternative options:
Option 1: Exempt from remuneration the contract amount paid by the deemed employer to
the incorporated contractor, with the incorporated contractor declaring remuneration based on
the wages paid by the incorporated contractor to the deemed worker, and the deemed worker
lodging injury claims on the incorporated contractor.
Option 2: Exempt from remuneration the contract amount paid by the deemed employer to
the incorporated contractor, with the deemed employer declaring remuneration based on the
wages paid by the incorporated contractor to the deemed worker, and the deemed worker
lodging injury claims on the incorporated contractor.
11.124. I have decided not to proceed with option 1 (only the incorporated contractors wages would be
declared as remuneration) because:
it could lead to premium avoidance as contractors artificially reduced wages (and took the
surplus as profits); and
it could reduce incentives for the deemed employer to manage OHS and return to work
obligations for the deemed worker.
11.125. I have decided not to proceed with option 2 (the principal would declare the incorporated
contractors wages as remuneration) because it is not commercially feasible as contractors
would be reluctant to reveal to principals the wages they pay employees.
11.126. Therefore, I recommend amending the contractor provisions so that only the deemed employer
would declare rateable remuneration for the deemed worker. The deemed worker would be
entitled to make an injury claim only against the deemed employers WorkCover insurance
policy.
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28 Source: advice from the Reviews independent actuaries.
EMPLOYER EXCESS
11.127. In Victoria, employers who have not opted to buy out their excess are required to pay an excess
for the first 10 days of weekly benefit payments to each injured worker and the first $564 of
reasonable medical and like expenses on every claim.
29
The excess is indexed annually.
Payments on most claims reach the medical and like excess before they reach the weekly
benefits excess.
11.128. Compared to other types of insurance, workers compensation has a low excess relative to the
average claims payment. However, although excess levels are lower than for other types of
insurance, the excess in Victoria is higher than that in other Australian workers compensation
schemes.
In New South Wales, the employer excess is equivalent to one week of the workers average
wage or $1,594, whichever is lower.
30
In Queensland, the excess is $690 or the weekly compensation rate, whichever is lower.
31
In South Australia, an employer must pay the first two weeks of income maintenance for each
injured worker in each year.
32
There is no employer excess in Western Australia.
33
11.129. Employers have the option of buying out their excess by paying an additional loading of 10%
on their insurance premium. Around 6% of employers choose this option.
34
Where the buy-out
option is chosen, claims are managed and paid for by the VWA agent from the beginning of
each workers injury.
11.130. The AC Act provides that employers may elect to increase, reduce or eliminate the excess by
paying an adjusted premium, subject to guidelines issued by the VWA and in accordance with
the premiums order.
35
The option contemplated by the AC Act for employers to increase their
excess has not been put into effect, because there are no guidelines, and the premiums order
makes no provision for this option.
Stakeholder views
11.131. Freehills submits that
An employer should have the option of lifting the excess on a claim to a specified upper limit
(say $50,000 of claims costs) consistent with general insurance / public liability schemes.
36
11.132. Freehills further submits that
Such a scheme would give greater flexibility over premium setting, would take pressure off
the system, provide more direct incentive to manage injuries and particularly manage return to
work and would allow more direct allocation of claims costs by the employer to the work unit
responsible driving targeted prevention activities in the business.
37
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 401
29 AC Act, ss 99(5) and 100(2A). Section 99(5) originally required employers to pay the first $506 of
reasonable medical and like expenses on every claim. Following legislative changes in December
1997, section 100(2A) of the AC Act was inserted to enable specified amounts to be indexed by the
rise in Consumer Price Index (CPI) for Melbourne. Subsequently, an employer is currently required
to pay the first $564 of medical and like expenses, at the rate from 1 July 2008. (Source: Victorian
Government Gazette, No. G 26, 26 June 2008, pp 1425-1430, available at
<http://www.gazette.vic.gov.au/Gazettes2008/GG2008G026.pdf>).
30 Workers Compensation Act 1987 (NSW), s 160; Insurance Premiums Order 2008-09 (NSW), clause 5.
31 Source: WorkCover Queensland, What are employers required to pay?, available at
<http://www.workcover.qld.gov.au/employer/Employerhome/Statutoryclaims/Benefi262yments/
Employerexcess.html>.
32 Source: Multi-State Workers Compensation guidance material, Item: 2, Employer Claim Excess
Amounts and Periods, available at <www.worksafe.vic.gov.au>.
33 Source: Multi-State Workers Compensation guidance material, Item: 2, Employer Claim Excess
Amounts and Periods, available at <www.worksafe.vic.gov.au>.
34 Source: VWA.
35 AC Act, s 125A(6).
36 Freehills, Submission, 8 February 2008, p 17.
37 Freehills, Submission, 8 February 2008, p 17.
11.133. Ai Group submits that
An increase in the excess, well beyond the current level, would create a fairer system and
allow large employers to elect to bear a greater level of direct financial risk.
38
11.134. McGrath Consulting submits that guidelines should be issued to provide employers an
opportunity to take more responsibility for managing their claims. McGrath Consulting argues
that an employer should be able to
. . . nominate a predetermined amount of a claim that they are prepared to cover, and they
should have management of the claim up to that point.
39
Allow employers to elect a higher excess
11.135. On balance, I consider that the scheme should provide employers with the option of a higher
excess because it would:
enhance incentives for safety and return to work performance by giving employers an
immediate and simple pricing signal about the cost of workplace injury; and
increase choices available to employers by allowing them to elect insurance that best reflects
their risk preferences.
11.136. An option would be an excess of $1000 for medical expenses and $15,000 for weekly
payments, equivalent to around 16 weeks of salary. The rationale for the proportionately greater
increase in the weekly payment component of the excess is that employers have more
influence over time off work than they do over medical payments. Therefore, the excess would
align employers financial incentives with the matters over which they have control. To protect
workers benefits, the option should only be available to large firms (who have lower rates of
default), and they would be required to post a refundable bond with the VWA.
11.137. Preliminary modelling indicates that, if an employer took up the option of an increase in
employer excess of $1000 for medical expenses and 16 weeks of compensation, the scheme
could expect the employers premium to be 6% lower.
40
The financial impact to the scheme
would be cost neutral. The relatively small premium reduction reflects the fact that increasing
the excess only allows the scheme to avoid the impact of low-cost claims, whereas the
schemes costs are driven by long-duration claims. This modelling assumes no change in the
duration of claims and return to work rates.
11.138. In making this recommendation, I have considered the risk that a higher excess could lead
employers to delay lodgement of claims. However, that risk would be addressed by my
recommendation for direct notification of injuries. In addition, I note the existing measures
implemented by the VWA to improve early claims reporting namely:
a requirement that all time loss claims, regardless of their duration, be notified to the agent
within 10 days; and
for claims that are notified late, a requirement that employers meet an additional liability
penalty which covers the cost of claims from the date of injury to the date the claim was
received by the agent.
11.139. In summary, I recommend that the scheme provide employers with the option of a higher
excess. The recommendation is contingent on the introduction of direct injury or claim
notification.
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38 Ai Group, Submission, May 2008, p 91.
39 McGrath Consulting, Submission, 4 February 2008, p 4.
40 Source: advice from the Reviews independent actuaries.
Up-front payment of excess
11.140. Employers who have not opted to buy out their excess are required to pay an excess for the
first 10 days of weekly benefit payments to each injured worker and the first $564 of reasonable
medical and like expenses on every claim
41
and are required to forward all claims below the
excess (minor claims) to agents at regular intervals.
42
11.141. MGA submits that many smaller employers currently experience difficulties when paying
substantial up-front excess amounts. Further, MGA submits that
. . . in the interest of assisting employers who experience these difficulties that up-front
payment by employers of their excess be abolished.
43
11.142. The APA also support the abolition of up-front payment of excess, and submits that the current
process is difficult to administer for workers, healthcare providers and employers.
44
11.143. WV Management Pty Ltd states that
. . . payment regimes that are incorporated into annual premiums may result in many
employers losing their current awareness of workers compensation issues as the direct costs
and payments would become largely invisible in the monthly accounts payable process.
45
11.144. The CFA considers that the employers
. . . direct involvement in the initial stages of a claim is in the best interests of the injured
worker.
46
11.145. Up-front payment of the excess by employers does not necessarily prevent workers from
receiving benefits in a timely manner, except where the employer has rejected liability for the
claim. However, it does delay the active management of the claim by the VWA.
11.146. Further, employers are not required to limit their payments to the particular types and amounts
of medical and like expenses that would be payable by the VWA. This can set worker
expectations regarding the treatment payable to injured workers, which may not be met by the
VWA when it takes over payment for medical and like expenses.
11.147. It appears that keeping track of the payments made towards each injured workers medical and
like treatment, before the VWA takes over liability for payment, also creates additional
administrative burdens for employers.
11.148. Payment of the excess by way of reimbursement to the agent rather than up-front to the worker
would be one means of facilitating earlier injury management and more consistent payment of
medical and like expenses without affecting employers premiums. Injuries that did not exceed
the excess in a particular year would continue to be excluded from an employers experience
rating.
11.149. Thus, administration of minor claims (those claims that fall below the employer excess) would
be transferred from employers to the VWA.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 403
41 AC Act, ss 99(5) and 100(2A). Section 99(5) originally required employers to pay the first $506 of
reasonable medical and like expenses on every claim. Following legislative changes in December
1997, section 100(2A) of the AC Act was inserted to enable specified amounts to be indexed by the
rise in Consumer Price Index (CPI) for Melbourne. Subsequently, an employer is currently required to
pay the first $564 of medical and like services, at the rate from 1 July 2008. (Source: Victorian
Government Gazette, No. G 26, 26 June 2008, pp 1425-1430, available at
<http://www.gazette.vic.gov.au/Gazettes2008/GG2008G026.pdf>).
42 AC Act, s 108(3).
43 MGA, Submission, May 2008, p 6.
44 APA, Submission, May 2008, p 2.
45 WV Management Pty Ltd, Submission, 28 April 2008, p 7.
46 CFA, Submission, 29 April 2008, p 2.
11.150. However, taking into consideration employers views that abolishing the up-front payment of
excess would not cut red tape for most employers, and their concerns that the proposed
changes would detrimentally affect employers involvement in the claims process, I have
concluded that abolishing the up-front payment of excess is not required.
11.151. I consider that provisional liability combined with direct injury notification will allow for sufficient
early intervention by agents, and enable them to provide oversight and assistance to employers
with claims management, with the result that abolishing the up-front payment would be of
limited additional benefit to workers or employers.
REMUNERATION
11.152. Remuneration is relevant to the administration of both the AC Act and the ACWI Act, particularly
for the calculation of employers premiums. Remuneration has the same definition in each
Act.
47
11.153. Remuneration can include both cash and non-cash (in-kind) payments. In general, remuneration
includes all wages, salaries, annual and long service leave, back pay, commissions,
superannuation, bonuses and certain other benefits or allowances which may attract fringe
benefits tax (such as motor vehicles) payable to, or in relation to, a worker.
11.154. Under the Victorian workers compensation system, employers who operate for a full financial
year have the first $15,500 of their total remuneration automatically deducted from the
calculation of their insurance premium.
48
Those who operate for part of the year receive a pro-
rata deduction. Employers whose annual rateable remuneration is between $7,500 and $15,500
are still required to pay a minimum insurance premium of $156.20.
49
11.155. It is commonly accepted that remuneration is the appropriate variable factor for calculating
premiums for workers compensation purposes
50
and that its definition should be as broad
51
as possible. In Victoria, premiums are calculated on the basis of an employers rateable
remuneration using a prescribed formula.
11.156. The definition of remuneration is different in workers compensation schemes across Australia
and within Victorias statutory payroll tax regime.
52
Each jurisdiction has its own rationale for the
way it defines remuneration. The definition often relates to other factors in a particular scheme
or to policy considerations. For example, some jurisdictions exempt payments to apprentices or
trainees from the calculation of remuneration as an incentive to employ those workers.
11.157. However, differences in the definition of remuneration create complexity and uncertainty among
employers, industry and other stakeholders.
11.158. Workers compensation insurance and payroll tax are both compulsory State-based imposts,
which rely on employers to self-register and self-assess. They are both levied at the employer
level and the amounts payable are based on an employers payroll.
11.159. Currently, around 27,000 or 13%
53
of employers operating in Victoria are liable for both workers
compensation insurance and payroll tax.
54
11.160. The definitions of remuneration for workers compensation and payroll tax contain a number of
differences. The differences broadly relate to the inclusion, exclusion or differential treatment of
directors payments, termination payments, contractor payments and deductions, shares as
remuneration, apprentice and trainees wages, and allowances.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 404
47 ACWI Act, s 3(1); AC Act, s 5(1).
48 ACWI Act, Premiums Order (No.16) 2008/2009, clause 7.
49 ACWI Act, Premiums Order (No.16) 2008/2009, Schedule 3, clause 7.
50 A range of other factors determines the final premium paid by an employer.
51 This provides a wide premium base and minimises the opportunities for avoidance.
52 The term wages rather than remuneration is used in the Payroll Tax Act 2007.
53 Source: VWA.
54 State payroll tax is currently imposed on the payment of taxable wages in excess of the annual tax
free threshold of $550,000. Source: State Revenue Office Victoria, available at <www.sro.vic.gov.au>.
11.161. Table 11.1 outlines some of the components of remuneration under the workers compensation
and payroll tax regimes in Victoria.
11.162. Although there is a great deal of commonality and only minor differences between the two
definitions, the differences prevent employers operating in Victoria from using a single method
for calculating remuneration to determine their workers compensation and payroll tax liabilities.
TABLE 11.1: VICTORIAS WORKERS COMPENSATION AND PAYROLL TAX REGIMES
1
Differences in treatment and/or inclusions.
2
Upper limit applies.
3
Certain allowances may be fully or partially exempt in some circumstances.
* Apprentice and trainee wages are exempt provided they are part of an approved apprentice or trainee scheme and in
accordance with the Ministers declaration.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 405
Components of remuneration
Victorian workers
compensation Victorian payroll tax
Salaries
Wages
Gross pay before tax
Shares and options as remuneration
Allowances
1,3

Annual leave payments and leave loading payments
Long service leave payments
Sick leave payments
Make-up pay
Piece work payments
Back pay
Bonuses
Directors fees/payments and remuneration to directors or
members of a governing body
1

Fees for work by workers or deemed workers
Payments to contractors for labour only services and/or who are
or who supply deemed workers
1
section 9
section 8
section 3c

Contractor deductions
1
use prescribed rates
Fringe benefits taxable value
1
do not use grossed up use lower grossed up
Superannuation contributions
1

Commissions
Apprentice wages *
Trainee wages
2
*
Workers compensation payments
Dividends paid to shareholders
Trust distributions
Partners drawings
Termination payments, e.g. lump sum redundancy
3
Termination payments, e.g. accrued leave
1

3
Certain other payments made while absent from work,
e.g. maternity/adoption leave, defence, etc.
unspecified
11.163. A further issue involves employers that operate businesses across States and Territories.
Those employers pay for workers compensation insurance in each jurisdiction. The lack of
consistency in the definitions of remuneration for workers compensation purposes across
jurisdictions creates an added administrative burden for employers operating across jurisdictions.
11.164. For example, there are differences relating to the inclusion, exclusion or differential treatment
of directors payments, termination payments, contractor payments and deductions, apprentice
and trainee wages, dividend and trust distributions, and other allowances. Table 11.2 provides
a comparison of the different regimes in Victoria and New South Wales.
TABLE 11.2: WORKERS COMPENSATION REGIMES IN VICTORIA AND NEW SOUTH WALES
1
Difference in treatment and/or inclusions.
2
Upper limit applies.
3
Certain allowances may be fully or partially exempt in some circumstances.
* Apprentice and trainee wages are exempt provided they are part of an approved apprentice or trainee scheme and in
accordance with the Ministers declaration.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 406
Components of remuneration
Victorian workers
compensation
New South Wales
workers compensation
Salaries
Wages
Gross pay before tax
Shares and options as remuneration
Allowances
1, 3

Annual leave payments and leave loading payments
Long service leave payments
Sick leave payments
Make-up pay
Piece work payments unspecified
Back pay
Bonuses
Directors fees/payments and remuneration to directors or
members of a governing body
working
non-working
working
non-working
Fees for work by workers or deemed workers
Payments to contractors for labour only services and/or who
are or who supply deemed workers
1
section 9
section 8

Contractor deductions
1
use prescribed rates use default rates
Fringe benefits taxable value
1
do not use grossed up use higher grossed up
Superannuation contributions
Commissions
Apprentice wages *
Trainee wages
2
*
Workers compensation benefits
Dividends paid to shareholders unspecified
Trust distributions
Partners drawings unspecified
Termination payments, e.g. lump sum redundancy
Termination payments, e.g. accrued leave
1

Certain other payments made while absent from work,
e.g. maternity/adoption leave, defence, etc.
unspecified unspecified
11.165. Again, the differences prevent employers who operate across jurisdictions from using a single
method for calculating remuneration to determine their workers compensation liabilities.
Stakeholder views
11.166. VECCI states that
A simple remuneration definition would be to adopt wages and salaries. However to collect
the same premium higher percentage rates would need to be applied. This would be seen as
a premium increase and cause uproar. The same would apply if another jurisdictions definition
was applied.
55
11.167. However VECCI goes on to say that
VECCI supports aligning with existing tax systems to cut duplication and to reduce red tape.
56
11.168. Ai Group
. . . welcomes opportunities for the administrative burden in this area to be reduced. However,
it is essential that any increase in the remuneration base would lead to a corresponding
reduction in the average premium rate.
57
Define remuneration consistently
11.169. Since 1 July 2007, Victoria and New South Wales have had almost identical payroll tax
legislation.
58
The alignment demonstrates the possibility of reform to reduce administrative
burdens on employers and increases the potential to:
align the definition of remuneration for workers compensation and the calculation of wages
for payroll tax within Victoria; and
align the definition of remuneration for workers compensation between Victoria and New
South Wales.
11.170. In my view, there are clear benefits for employers in providing a uniform definition of
remuneration for workers compensation and for payroll tax within Victoria and for workers
compensation across all jurisdictions.
11.171. Alignment of the definition would reduce compliance costs for employers. Cooperation
between State agencies may also create added opportunities to streamline the collection and
administration of workers compensation premiums and payroll tax. However, I recognise that
alignment of the definitions of remuneration would not be straightforward.
11.172. For example, even if a uniform definition was used, employers could not use a single calculation
for both workers compensation and payroll tax purposes, particularly because the definition of
a worker under the workers compensation system is different from the definition of an
employee under the payroll tax regime.
11.173. Despite employers inability to use a single calculation, I believe that alignment of the definitions
of remuneration for workers compensation and payroll tax purposes would be beneficial and,
based on the above analysis, feasible.
11.174. I recommend that alignment of the definitions of remuneration for workers compensation and
for payroll tax within Victoria be commenced. I further recommend that alignment of the
definitions of remuneration for the workers compensation schemes in Victoria and NSW be
commenced with a long term view to aligning the definition across all Australian jurisdictions.
11.175. While the overall amount of premium collected would remain unchanged, some employers may
pay more and other employers may pay less because elements of the revised definition of
remuneration would affect employers differently.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 407
55 VECCI, Submission, April 2008, p 76.
56 VECCI, Submission, April 2008, p 76.
57 Ai Group, Submission, May 2008, p 96.
58 Excluding rates and thresholds.
PREMIUM DISPUTES AND APPEALS
11.176. The VWA responds to approximately 200 disputes about premium each year.
59
However, since
the commencement of the ACWI Act in 1993, there has been no comprehensive legislative
framework for the resolution of premium disputes.
11.177. The current system is characterised by uncertainty about the actions employers can take to
resolve genuine disputes over the calculation of premium. Despite the large number of reported
disputes, there is little case law in this area.
Overview of the existing premium disputes system
11.178. A premium dispute will usually arise in the context of a review of premium, which may be
initiated under the ACWI Act by an employer or by the VWA.
11.179. An employer can apply to the VWA for a review to determine whether the employers premium
was calculated in accordance with the relevant premiums order.
60
There is no formal process
for an employers application for review of premium under the ACWI Act. An employers
application can only be made in relation to a current policy period and the previous four
completed policy periods.
61
(The VWA can initiate a review for any policy period.
62
) On receiving
an application, the VWA must review the premium amount.
63
11.180. In conducting the review, the VWA can consider any matter relevant to the determination or
calculation of the premium.
64
If the VWA believes that the premium was not calculated in
accordance with the relevant premiums order, the VWA must adjust the amount accordingly.
65
Unless there has been fraud by an employer, the VWA may only recover additional premium for
the current policy period and the previous four policy periods.
66
11.181. The ACWI Act does not prescribe how the VWA must conduct a review of premium. There are
no prescribed timeframes in which the VWA must complete the review, nor is there any
requirement for the VWA to provide reasons in writing for its decision. Further, there are no
restrictions on an employer making multiple or repeated requests for the VWA to review the
employers premium.
11.182. A premium dispute may also arise under the ACWI Act where an employer applies for a refund of
premium and the VWA rejects the application or does not determine the application for a refund.
67
11.183. The ACWI Act requires an employer to lodge an application for a refund within five years after
the commencement of the policy period to which the payment of premium relates.
68
11.184. The VWA has four months from the date of the application to determine the application, after
which the employer may bring proceedings for the refund or recovery of the premium.
69
11.185. Other than in the case of a refund application that has been refused or not determined by the
VWA, the ACWI Act does not specify the action open to an aggrieved employer for an
independent review of the VWAs premium decision.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 408
59 Source: VWA.
60 ACWI Act, s 22(1).
61 ACWI Act, s 22(1A).
62 ACWI Act, s 27(1).
63 ACWI Act, s 22(2).
64 ACWI Act, s 27(2).
65 ACWI Act, s 28.
66 ACWI Act, s 31.
67 ACWI Act, ss 22A and 22B.
68 ACWI Act, s 22A(3).
69 ACWI Act s 22B(3); proceedings is defined to include (a) seeking the grant of any relief or remedy in
the nature of certiorari, prohibition, mandamus or quo warrant, or the grant of a declaration of right or
an injunction; (b) seeking any order under the Administrative Law Act 1978.
11.186. If the employer disagrees with the VWA, the employers options are based on rights under the
general law, including:
judicial review;
general common law or statutory actions; or
defence to a recovery action brought by the VWA.
11.187. An employer may seek judicial review of the VWAs premium determination in the Supreme
Court of Victoria.
70
Judicial review focuses on the legality of the actions of the administrative
body (here, the VWA). It is not concerned with the merits of the decision under review or
whether the decision was fair or correct.
71
11.188. Accordingly, judicial review will not examine the merits of a premium determination, such as
whether a workplace was classified correctly or appropriately grouped with other workplaces.
An employer must demonstrate that, in exercising its power to determine premium, the VWA
exceeded the power conferred on it by the ACWI Act or exercised that power in a manner that
was not authorised by the ACWI Act.
11.189. An application for judicial review may be made on several grounds, such as the decision-maker
did not act within the law, failed to take into account relevant considerations, took into account
irrelevant considerations, acted for an extraneous purpose or denied the employer procedural
fairness.
11.190. If a judicial review application succeeds, the usual court order would involve setting aside the
VWAs premium decision and referring the matter back to the VWA to make a new premium
decision in accordance with correct legal principles identified by the court.
11.191. An employer may have a cause of action to recover payment, or to recover compensation for
loss and damage where an employer has paid premium that it did not legally owe.
11.192. There are few examples of an action by an employer to recover payment of premium from the
VWA. In VWA v IR Cootes Pty Ltd,
72
the employer successfully sued the VWA for the recovery of
the sum paid, on a common money count of moneys had and received that is, on the
basis that moneys were paid under protest to the VWA in circumstances where the moneys
were not legally owed.
11.193. If an employer fails or refuses to pay an adjusted premium, the VWA may initiate recovery
action. Under the ACWI Act, the VWA can sue to recover unpaid premium in the Magistrates
Court or any other court of competent jurisdiction.
73
11.194. Although the legal issue is not certain, arguably it is open to an employer to defend an action
brought by the VWA for recovery of premium on the basis that the ACWI Act (and relevant
premiums order)
74
was not correctly applied by the VWA when it determined the premium.
In this way, the employer might have the merits of the VWAs premium decision reviewed
indirectly. Depending on the courts decision about the appropriate onus, the VWA might be
required to prove that the premium had been calculated correctly in order to recover the debt.
11.195. From the VWAs perspective, the requirement to conduct reviews in response to employer
requests can result in the VWA being forced to reconsider the same issue several times. There
is also the potential for the review mechanism to be abused by employers seeking to delay
recovery action by the VWA for unpaid premium.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 409
70 The proceeding is brought by originating motion pursuant to Order 56.01 of the Supreme Court
(General Civil Procedure) Rules 2005.
71 SBA Foods Pty Ltd v VWA [2001] VSC 276 at [54].
72 VWA v IR Cootes Pty Ltd [2001] VSCA 85.
73 ACWI Act, s 68(2).
74 A premiums order is a statutory rule.
11.196. The current system provides little incentive for the parties to focus on the matters that would
need to be proven before a court or tribunal.
11.197. Litigation for debt recovery (from the perspective of the VWA) and judicial review (from the
perspective of the employer) is usually costly and time-consuming. The disincentives to
litigation may be exploited so as to force one party to compromise its position by reference to
considerations that do not adequately take account of the merits of the case.
11.198. In New South Wales and South Australia, rights of premium objection and appeal are broadly
equivalent to the Victorian legislation. However, the Queensland workers compensation regime
includes formal premium objection and appeals processes codified in legislation, while South
Australia has a quasi-independent review panel comprising some independent members.
Stakeholder views
11.199. VECCI
75
and Ai Group
76
submit that it is appropriate to have premium dispute resolution and
appeals mechanisms codified in legislation and for employers to have recourse to appeal to an
independent umpire outside that of the regulator. Ai Group submits that
. . . this codification must include provisions which ensure that objections are dealt with in a
timely manner, with clear and objective feedback provided to the employer.
77
11.200. However, the VTHC
. . . does not believe it is desirable for employers to have recourse to further rights of review.
78
Implement a new comprehensive premium objection and review process
11.201. In my view, it is unsatisfactory that the legislation does not prescribe the process for an
employer to initiate an independent review of the merits of the VWAs premium determination,
and I consider that there should be transparent and robust mechanisms to appeal against
decisions made by the VWA. I favour:
a formal internal VWA premium review process which aims to provide a non-adversarial
system for the prompt and low-cost resolution of premium disputes; and
a codified premium dispute resolution system with the ability for employers to have recourse
to independent review (for example, VCAT, the Magistrates Court or the Supreme Court),
based on the model for Victorian State taxes.
11.202. I recommend that the dispute resolution system should include:
the right of an employer to object to a premium notice (including an adjusted premium) within
a prescribed time period (for example 60 or 90 days)
79
after the date of receipt of the
premium notice, with certain extensions granted for a later lodgement
80
(consideration,
however, should be given to addressing the issue of multiple and repeated requests from
employers for the VWA to review the same premium);
the requirement for the VWA to determine an employer objection within a prescribed time
period (for example 60 or 90 days);
the requirement for the VWA to provide written reasons for its decision to ensure
transparency; the reasons would be provided through a formal premium review process by a
VWA internal review unit with parameters codified in legislation;
81
and
the right of an employer, aggrieved by a decision made by the VWA (or the failure to make
a decision), to seek an independent review within a prescribed time period (for example,
60 or 90 days).
82
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 410
75 VECCI, Submission, April 2008, p 75.
76 Ai Group, Submission, May 2008, p 93.
77 Ai Group, Submission, May 2008, p 93.
78 VTHC, Submission, 2 May 2008, p 54.
79 Compare the Taxation Administration Act 1997 (Vic), s 99.
80 Compare the Taxation Administration Act 1997 (Vic), s 100.
81 Information on the VWA internal review unit is provided in Chapter 10, Transparency in decision-
making and the efficient resolution of disputes, paragraphs 10.368-10.375.
11.203. The independent review would be available to employers through two alternative routes:
a merits review by an independent body, such as VCAT or the Magistrates Court, with
decisions appellable to a court, such as the Supreme Court, on questions of law only; or
a review on questions of fact or law to the Supreme Court.
83
11.204. I propose that the review process would be the only way in which premium decisions could be
challenged or questioned, closing off any other avenues of legal challenge. (Moreover, the
existence of a formal merits review right would generally be regarded as a good reason for
dismissing any judicial review proceedings.)
11.205. My proposal is based on the objection and review process in the current Victorian tax system.
The model allows taxpayers to contest the correctness of an assessment via a detailed
objection, review and appeals process.
84
11.206. If my proposed model is implemented, I would expect that most disputes would be resolved by
the VWA internal review process. Similar review mechanisms for inspectors activities under the
OHS Act have resulted in relatively few appeals to VCAT. There were 686 requests for a review
of a health and safety inspectors decisions during 2006/2007; only seven people were not
satisfied with the outcome of the review performed by the WorkSafe Internal Review Unit and
sought external review by VCAT.
85
11.207. My proposed process for premium dispute resolution is summarised in the diagram below:
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 411
82 Compare the Taxation Administration Act 1997 (Vic), s 106.
83 Compare the Taxation Administration Act 1997 (Vic), s 106.
84 Compare part 10 of the Taxation Administration Act 1997 (Vic) and, for Federal taxes, Part IVC of the
Taxation Administration Act 1953 (Cth).
85 VWA, Annual Report 2006/2007, p 28.
Employer objects to VWA premium notice
Formalised internal VWA review
Review by an independent body
such as VCAT/Magistrates Court
(merits review)
Limited appeal to court such as the
Supreme Court (questions of law)
Appeal to court such as
the Supreme Court
(questions of fact and law)
Proposed premium dispute resolution model
11.208. I consider that my proposal for establishing a formal premium objection and review process
would not only provide natural justice to employers, but would indirectly strengthen and
streamline the VWAs debt recovery powers and process.
11.209. Debt recovery is a significant issue for the VWA. Every year, the VWA needs to collect close to
$1.6 billion in annual premium revenue, and over the past five years, the VWA has written off
bad debts of up to $17 million per annum.
86
Moreover, a significant amount of overdue
premium remains unpaid each year.
11.210. Section 71(2) of the ACWI Act provides that a notice of the VWAs assessment of premium is
conclusive evidence that the assessment was made and is correct so that the notice will
conclusively prove the amount owing by the employer.
87
Section 71(2) is designed to preclude
an employer defending an action for recovery of premium on the basis that, the ACWI Act (and
relevant premiums order) has not been correctly applied by the VWA.
11.211. Based on analysis of the case law, courts seem to distinguish bodies such as the VWA from tax
authorities, because the relevant tax legislation that makes an assessment conclusive
evidence in recovery proceedings also provides a comprehensive system for objecting to
assessments and determining disputes.
11.212. Therefore the absence of a statutory objection and review process in the ACWI Act weakens
the VWAs power to use the conclusive evidence provisions of the Act to recover premium
debts. It means that employers may be able to defer payment of premium debts by arguing that
the amount of premium owing is in dispute.
11.213. Providing a formal premium objection and review process would remove any doubt that an
employer is required to pay the employers premium, even if the amount is in dispute. Disputes
will no longer be an excuse for delaying payment.
11.214. However, given that employers are required to pay premium, even if the amount is in dispute,
I believe that the VWA should be obliged to pay interest where a review finds that a lesser
amount of premium is payable.
ENFORCING PREMIUM-RELATED OBLIGATIONS
11.215. To enable the VWA to perform its functions
88
effectively, the ACWI Act and AC Act prescribe
consequences for employers who do not comply with their premium-related obligations.
11.216. Premium enforcement provisions address the following four broad areas of non-compliance:
employers who do not comply with their obligations to obtain a WorkCover insurance policy
(uninsured employers);
89
employers who have obtained WorkCover insurance policies but do not comply with their
obligations so as to enable the correct calculation of their premiums by the VWA;
90
employers who have obtained WorkCover insurance policies but do not comply with their
obligation to pay the premiums, which have been correctly calculated by the VWA;
91
and
employers who do not comply with miscellaneous premium obligations under the relevant
legislation, such as keeping proper records and providing information.
11.217. The current premium enforcement mechanism is based on a system that prescribes specific
penalties for non-compliance by reference to particular obligations in the ACWI Act or the
AC Act.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 11 EMPLOYER PREMIUMS
PAGE 412
86 Bad debts written off during the year include unpaid premium for prior years. Source: VWA annual
reports.
87 There do not appear to be any reported cases in which the VWA has sought to rely on s 71(2) in debt
recovery proceedings.
88 AC Act, s 20.
89 ACWI Act, s 7.
90 ACWI Act, ss 18, 20 and 23.
91 ACWI Act, s 42(1).
11.218. An employer who does not comply with the premium-related obligations will generally be
subject to a financial penalty (rather than imprisonment
92
). A financial penalty may be imposed
under the ACWI Act or AC Act and recovered by the VWA from the employer (in the case of a
civil penalty) or imposed by a court after prosecution (in the case of a penalty for committing a
criminal offence).
11.219. The AC Act and the ACWI Act do not adequately address the issue of premium avoidance
schemes. In particular, under the current accident compensation legislation, entering into a
premium avoidance scheme for the purposes of obtaining a premium benefit or promoting such
schemes is not an offence, nor does it give rise to a penalty.
93
11.220. The premiums order includes a general anti-avoidance provision aimed at premium avoidance
schemes.
94
However, if the VWA determines that a premium avoidance scheme has been
entered into or carried out, the only consequence for an employer is a requirement to pay the
adjusted premium.
95
11.221. In the absence of penalties, the current system provides inadequate disincentives for employers
to use premium avoidance schemes and there is no deterrent for the promoters of such schemes.
11.222. Penalties in relation to avoidance schemes are included in taxation legislation. For example,
the Taxation Administration Act 1953 (Cth) provides for administrative penalties for entities who
attempt to reduce tax-related liabilities or increase credits through a scheme.
96
The Act also
provides civil penalties for promoters of such schemes.
97
11.223. To encourage voluntary disclosure of non-compliance and help reduce the VWAs administrative
burden, I believe that provisions allowing the remission of penalties in cases of voluntary
disclosure should be included in the ACWI Act.
11.224. I also recommend that the legislation be amended to introduce penalties for employers who
enter into premium avoidance schemes and for the promoters of such schemes.
INDEPENDENT REVIEW OF PREMIUM-SETTING
11.225. Premium-setting begins at a scheme level, expressed as an average premium rate,
98
which is
then translated into the actual premium rates to be paid by individual employers through the
issuing of a premiums order.
99
11.226. Although the Reviews terms of reference require it to consider whether the current premium
regime remains fair and effective, having regard to other Australian jurisdictions, it is not
feasible for the Review to undertake a comprehensive evaluation of the way in which premiums
are currently calculated; indeed, such an evaluation would be outside the Reviews terms of
reference. Nevertheless, it is important that stakeholder concerns about premium-setting are
addressed.
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92 Premium-related obligations with penalties of imprisonment attached have not been considered in this
chapter.
93 The AC Act provides for some specific areas of premium avoidance for example, grouping
provisions to address avoidance through company splitting to minimise workers compensation
premiums; and deeming provisions to address avoidance through employment-related arrangements
that are structured to minimise workers compensation premiums (see paragraphs 11.103 -11.126 on
principal and contractor arrangements).
94 ACWI Act, Premiums Order (No 16) 2008/2009, clause 18.
95 ACWI Act, Premiums Order (No 16) 2008/2009, clause 18.
96 Taxation Administration Act 1953 (Cth), schedule 1, chapter 4, part 4-25, ss 284-140, 284-160.
97 Taxation Administration Act 1953 (Cth), schedule 1, s 290-50: An entity must not engage in conduct
that results in that or another entity being a promoter of a tax exploitation scheme.
98 The average premium rate is the percentage of total remuneration paid by Victorian employers
(excluding self-insurers) that the VWA proposes to collect in the relevant policy year to fund the
operation of the scheme. Source: Essential Services Commission, Review of 200506 WorkCover
Average Premium Rate, report to the Minister for WorkCover, May 2005.
99 ACWI Act, s 15(1).
11.227. The VWA operates a single compulsory insurance scheme to underwrite workers compensation
in Victoria. The VWA also administers the AC Act.
11.228. One of the statutory objectives of the VWA is to manage the accident compensation scheme
as effectively and efficiently and economically as is possible.
100
The VWA must also ensure
that the scheme of accident compensation is competitive and fully-funded.
101
11.229. The VWA has access to a number of regulatory tools to manage the scheme. Those tools are
designed to support the provision of rehabilitation and compensation services to injured
workers, as well as ensure good OHS in Victoria.
11.230. The VWA is also the manager and service provider of workers compensation benefits and
insurance. Most of the VWAs service provision activities, such as premium collection, return to
work management and claims management, are delegated to six accredited insurance agents,
who act on behalf of the VWA.
11.231. The insurance agents do not perform insurance functions such as underwriting or pricing at the
scheme level. The VWA is the single underwriting insurer and is responsible for recommending
the nature and level of compulsory accident compensation insurance pricing. A premiums
order
102
giving effect to that pricing is made by the Governor in Council on the recommendation
of the VWA.
103
11.232. The VWAs role as the underwriting insurer and manager of Victorias scheme means that it
must ensure that pricing is set at the right level to guarantee scheme viability.
11.233. Given its various statutory roles as scheme regulator, manager and service provider, a high level
of transparency for the VWAs premium-setting is essential.
104
11.234. It is a function of the ESC
105
to review any premiums order made or proposed to be made
under the ACWI Act.
106
However, a review by the ESC can only be undertaken at the request
of the responsible Minister
107
and, if a review is undertaken, its result need not be made
publicly available. Moreover, there is nothing in the ACWI Act or the AC Act that requires
a review to be undertaken.
11.235. Aspects of Victorias scheme are also examined periodically by parliamentary committees
and the Auditor General. For example, in 2000 the Economic Development Committee of the
Victorian Parliament inquired into premiums following large increases for individual employers.
108
11.236. The VWA engages an independent actuary to inform recommendations about the average
premium rate required to fund scheme liabilities.
109
However, the actuarial advice is not
available to the public.
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100 AC Act, s 19(a).
101 AC Act, s 20(1)(d).
102 Premiums for individual employers are required to be calculated in accordance with the formula set
out in the relevant premiums order.
103 ACWI Act, s 15(1).
104 Transparency refers to the degree to which parties are able to observe and understand the decision
making process. Source: The Department of Treasury and Finance Victoria, National Competition Policy
Review of Victorian Workplace Accident Compensation Legislation, PricewaterhouseCoopers and
Minter Ellison, December 2000.
105 The ESC is the independent economic regulator for a number of essential services in Victoria.
106 Essential Services Commission Act 2001, s 10B. The Minister administering the ACWI may request the
ESC to review any premiums order made or proposed to be made under s 15 of that Act; and provide
advice or make recommendations to the Minister in relation to that order or proposed order.
107 The ESCs power is triggered only if the responsible Minister administering the ACWI Act requests the
Commission to carry out a review of the charges or premiums that are proposed to be made.
108 The average premium rates for 2000/2001 increased by 15% as a result of the introduction of common
law, plus a further 2% to cover the flow-on effects of GST.
109 The advice enables the VWA to determine the total amount of insurance premium revenue that needs
to be collected by the VWA each year to cover the schemes claims liabilities and expenses.
11.237. A premiums order must be published in the Victorian Government Gazette
110
and the full text of
the order is available on the internet.
111
The premiums order contains complex and detailed
information in relation to the premium structure and the premium rules for the scheme.
112
However, it does not include information that would help determine whether there are systemic
cross-subsidies in the premium system.
11.238. The VWAs past financial results, including its premium revenue and underwriting expenses, the
average premium rate and the break-even premium rate, are reported in the VWAs annual
reports. The Auditor General audits the VWAs financial statements.
11.239. Despite those measures, it is doubtful that the process of setting scheme pricing under the
premiums order would be readily apparent to employers, or the general community.
11.240. Legislative proposals that impose an appreciable economic or social burden on a sector of the
public or have a significant effect on business and/or competition must undergo a high degree
of scrutiny and rigorous assessment. For example, the formula for calculating self-insurer
financial contributions ($13.7 million in 2006/2007) to the WorkCover Authority Fund to cover
certain scheme administrative costs is subject to stringent and formalised evaluation processes.
In comparison, the level of scrutiny and transparency of premium-setting for the scheme
($1.6 billion in 2006/2007) is more limited.
11.241. For monopolies operating in markets where there is limited competition (such as electricity, gas
and water) regulators monitor the prices charged, and the prices are generally subject to
regulation.
11.242. The 2000 National Competition Policy Review of Victorian Workplace Accident Compensation
Legislation proposed an independent third party review body to improve transparency in the
premium-setting process.
11.243. The review recommended a more transparent process which details the actual methodology
and principles applied in setting premiums, and stated:
Transparency refers to the degree to which parties are able to observe and understand the
decision making process. This includes members of the public, as well as parties with other
direct interests . . . [T]ransparency tends to impose rigour into decision making processes and
requires decision makers to justify their actions . . . [T]he technical nature of premium
determination means that the information would remain inaccessible to many people. In these
circumstances it is common for transparency to also be improved by the introduction of an
independent expert, whose opinion can add to the assurance that a decision is sound and that
due processes have been followed.
113
11.244. The role of an independent review body is similar to that of a pricing regulator, which involves
the assessment of three key factors:
the methodology for premium-setting;
the overall level of premiums; and
the structure of the premiums, for example identifying cross-subsidies.
11.245. The National Competition Policy review did not envisage that a review body would be able to
override premium proposals from the VWA. It favoured independent review by a generalist
regulator (such as the ESC), rather than a specialist WorkCover regulator, in order to minimise
any additional burden in establishing a specialist independent regulator.
114
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110 ACWI Act, s 16(1).
111 Available at <http://www.gazette.vic.gov.au>.
112 For example, Premiums Order (No 16) 2008/2009 runs to 276 pages.
113 Department of Treasury and Finance, National Competition Policy Review of Victorian Workplace
Accident Compensation Legislation, 20 December 2007, p 112.
114 This is particularly the case with a single entity as opposed to a requirement to regulate a market with
a number of providers.
11.246. The State Government supported the implementation of those reforms, subject to the scope for
outsourcing an independent review of proposed premiums.
11.247. Moreover, in the absence of a high level of transparency in price setting, decisions can be
influenced by factors that are not necessarily consistent with the schemes objectives or
viability. Those factors could include the policy or funding objectives of Government, or the
influence of dominant stakeholder groups. In some circumstances, it may be appropriate to take
these factors into account (for example, Government policy to increase compensation benefits
or to reduce the average premium rate).
11.248. Fundamental features of good governance include transparency of process and judgement, and
accountability of decision making. It is important that there is adequate access to premium
information, and thus accountability to stakeholders.
11.249. Payment of premium is a cost borne by employers as part of employing labour ($1.6 billion in
2006/2007). Premiums now represent an average of 1.387% of wage costs.
11.250. Although the average premium rate has been reduced over the past four years, individual
employers pay above or below the average premium rate, depending on the distribution of
premium between employers and industry sectors. If employers costs increase as a result of a
premium measure, they may, for example, pass this increase onto consumers in the form of
higher prices. Therefore, any inappropriate pricing in premiums could affect relative labour costs
and have adverse impacts on industry sectors and the Victorian economy as a whole.
Stakeholder views
11.251. VECCI submits that, while it
. . . is of the view it is not currently necessary to review premium setting, [requiring
independent review of scheme premium setting] will demonstrate a transparency and
establish further confidence in the scheme.
115
11.252. Ai Group submits that a major concern with the premium-setting process is
. . . the ability to make significant changes to the way in which the premium is calculated
(distributed between employers) without scrutiny, and without the need to provide advanced
notice to employers.
116
11.253. Ai Group is also concerned that
As the premiums order is not published until June each year, large employers can experience
changes in the premium calculation which have a significant and unexpected impact on the
premium payable, with no opportunity to budget for that change.
117
11.254. Ai Group recommends that some form of stakeholder engagement, and notice period, be
included in the legislative requirements.
118
Amend the AC Act to require regular independent reviews of premium-setting
11.255. The interests of employers and the community are better served by enhancing transparency
and specialist pricing expertise in the setting of premiums by the VWA. Increased transparency
through adequate access to premium information should also further enhance the correct
pricing signals given to employers in terms of OHS and return to work performance.
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115 VECCI, Submission, April 2008, p 74.
116 Ai Group, Submission, May 2008, p 89.
117 Ai Group, Submission, May 2008, p 89.
118 Ai Group, Submission, May 2008, p 89.
11.256. An independent review mechanism would address employers concerns regarding transparency,
particularly given the complexity associated with premiums and the additional labour costs
incurred by employers through premium. It would also subject the VWA to public scrutiny on a
systematic basis, promoting information-sharing and enhancing employer and public trust in the
quality and the integrity of the premium-setting process. That process would enable stakeholder
concerns to be addressed as they arise and enable more informed stakeholder input into public
comment and consultation processes.
11.257. For the reasons outlined in paragraphs 11.255 and 11.256 above, I support the introduction of a
statutory requirement for review of the VWAs premium-setting by an independent expert body,
such as the ESC. The process could require:
a regular review of premium (say every one to three years);
publication of the reviews results (although discretion to remove confidential material from
the public report should be retained);
the terms of reference and timing of the review to be determined by the relevant Minister;
and
the independent review body to undertake consultation (where appropriate).
11.258. Examples of the types of issues that could be reviewed by an independent body might include:
cross-subsidies within the premium system;
technical issues relating to the premium formula, such as the SCE model and the
responsiveness of premium to employers OHS and return to work performance;
how scheme costs that are not claims-related, such as other budgeted expenses (for
example, accident prevention programs and administration costs), are reflected in premiums;
the pricing of insurance options such as the buy-out of employers standard excess; this
could also apply if options such as the introduction of voluntary excess are implemented;
transparency in the application of scheme funds for broader purposes;
the scheme funding ratio and the margin between the average and break-even premium rate;
economic and financial assumptions underpinning the setting of premium and the
assessment of scheme viability (for example, long-term average return on assets); and
whether premium notice periods are commensurate with the expected size and impacts of
the premium measure.
11.259. It is not envisaged that a review body could override premium proposals made by the VWA and
approved by the Governor in Council. The advice of the independent body would not be binding
on the relevant Minister or the VWA. However, the VWA would be expected to have regard to
the findings of the review body.
11.260. The State retains ultimate responsibility for underwriting the scheme. Consequently, claims
liabilities, scheme funding in the event of any shortfall and related insurance risks ultimately rest
with the State. The Government therefore should have the flexibility to protect the viability of
the scheme and to make policy decisions.
11.261. The main costs associated with this proposal are likely to be the cost of reviews. However, as
VECCI submits
Conducting such a review every five years would reduce the cost to the scheme.
119
11.262. In general, an independent body such as the ESC is predominantly funded by Parliamentary
appropriations. Any additional funding required by an independent body to perform these
reviews could be managed via a similar process. However, I anticipate that regular, independent
oversight of premium setting would produce a net public benefit.
11.263. There may also be additional costs to the VWA in participating in independent reviews
associated with responding to queries from an independent body. These should be minimal,
as the VWA must respond to stakeholder concerns, irrespective of whether there is an
independent review.
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119 VECCI, Submission, April 2008, p 74.
11.264. A premiums order is a separately maintained statutory rule to enable timely, flexible and regular
amendments (for example, changes to industry rates to reflect claims experience). Tight
timeframes exist for the making of each premiums order; and information requests as a result
of an independent review may also be a potential burden for the VWA. The ESC has noted that
the focus on the adequacy of the premium revenue and the tight timeframe for conducting
these reviews limits the scope of the advice that the Commission is able to provide.
120
11.265. However, most reviews would not need to coincide with the making of the premiums order.
Moreover, the reviewer would be required to consult with the relevant Minister and the VWA on
the subject matter and timing of any proposed review.
11.266. On balance, I consider that the benefits of the proposal will outweigh the expected costs of the
proposal, without compromising the overall objectives of Victorias workers compensation
legislation.
11.267. The proposal for independent review will ensure transparency of premium-setting, and thus
accountability, as well as an improved understanding for employers and the general community.
TRUSTEES
11.268. Under the ACWI Act, an employer who employs a worker within the meaning of the AC Act
must not keep in force more than one WorkCover insurance policy at any one time.
121
Penalties apply for non-compliance with this restriction.
11.269. The prohibition on maintaining more than one WorkCover insurance policy may have an adverse
impact on trustees. Under section 7(1)(b) of the ACWI Act, a trustee of various trusts operating
different businesses may be precluded from holding a separate policy as employer in relation to
each of the trusts.
11.270. Where a business is run under a trust arrangement, the trust itself has no legal capacity. The
trustee is the only entity that can be the employer and hold a WorkCover insurance policy.
11.271. A single trustee may be the trustee for several unrelated trusts. Logically, the trustee should
have different insurance policies if the trustee is an employer for each separate business run
under a trust. This situation may arise where a commercial trustee company becomes the
trustee of several businesses for example, through the incapacity of the business owners.
11.272. The grouping provision in the ACWI Act
122
means that the trustee of several businesses
conducted under trusts is seen to have a controlling interest in the businesses as the owner.
The businesses would therefore normally be grouped under section 66(3)(f) for the purposes of
workers compensation insurance.
11.273. The grouping provision is an anti-avoidance mechanism to prevent a person gaining an unfair
premium benefit. The VWA can exclude members from a group in certain circumstances where
the VWA is satisfied that a business is carried on independently of the group.
123
Therefore, the
trustee of several businesses could be excluded from membership of a group.
Enable a trustee to hold separate WorkCover insurance policies
11.274. I recommend that section 7 of the ACWI Act be amended to overcome the situation where a
trustee would be in breach of the legislation by holding multiple WorkCover insurance policies
because they are classified as the single employer for different independent businesses run
under trusts.
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120 ESC, Review of 200506 WorkCover Average Premium Rate, Report to the Minister for WorkCover,
May 2005.
121 ACWI Act, s 7(1)(b).
122 ACWI Act, s 66.
123 ACWI Act, s 66(8).
11.275. A discretion, exercisable by the VWA, to allow a trustee to keep more than one policy in force at
any one time could be included in the ACWI Act. This would enable the VWA to permit a trustee
to maintain separate policies as an employer for its own workers (a trustee company for
example) and for each of the independent businesses run by the trustee.
11.276. Such a discretion would need careful articulation. Section 66(8) of the ACWI Act, which gives
the VWA a discretion to exclude a member from a group, provides a good model.
124
UNINSURED EMPLOYERS AND INDEMNITY SCHEME
11.277. The Uninsured Employers and Indemnity Scheme (the UEIS) was established in 1993, when the
ACWI Act was introduced.
11.278. The UEIS was established to ensure that workers who incur a work-related injury with an
uninsured employer are entitled to receive the same benefits as workers injured with an insured
employer.
11.279. All moneys received under the UEIS are included in the WorkCover Authority Fund, which
covers the costs of administering UEIS claims.
125
11.280. The VWA administers the UEIS under the ACWI Act.
126
Generally, the VWA only becomes aware
of an uninsured employer if that employer voluntarily notifies the VWA or if an injured worker
makes a claim.
11.281. The VWA manages penalties
127
and recovery notices
128
associated with an uninsured employer.
11.282. If a worker employed by an uninsured employer suffers a work-related injury, the ACWI Act
provides
129
that a claim may be made under the UEIS if:
the claim is made against an employer whose rateable remuneration, at the time of the injury,
did not exceed the exemption limit;
130
the claim is made against an employer who cannot be identified;
the claim is made against an employer who cannot be found, is dead, or has been wound up
and was not the holder of a WorkCover insurance policy at the time of the relevant injury; or
a claim is made against an employer who exists and can be found but was not the holder of a
WorkCover insurance policy at the time of the relevant injury.
11.283. In the first instance, the claim is forwarded to the employer. If the employer cannot be located
or identified, is no longer in existence, or is not abiding by the required process,
131
the claim
may be made on the VWA.
11.284. The workers claim is processed in accordance with the AC Act (including payment of benefits),
whether the employer is insured or uninsured. The administration of an injured workers claim
made against an uninsured employer is delegated by the VWA to its authorised agents.
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124 ACWI Act, s 66(8): the VWA must be satisfied, having regard to the nature and degree of ownership
and control of the businesses, the nature of the businesses and any other matters the VWA considers
relevant, that a business carried on by a member of a group is carried on independently of, and is not
connected with the carrying on of, any other business carried on by any other member of that group.
125 AC Act, s 32(2A).
126 AC Act, s 20(1)(f) and (g).
127 ACWI Act, s 7(6).
128 ACWI Act, s 61(1).
129 ACWI Act, s 55.
130 The exemption limit relates to employers who are not required to take out a WorkCover policy if their
rateable remuneration is less than a specific amount identified in the ACWI Act or the premiums order.
For the year ending 30 June 2007, the exemption limit was $7,500.
131 AC Act, s 103 (1A): The employer must notify the worker in writing that a claim for compensation has
been received.AC Act, s 108: An employer must, within a specified time period, forward to the
Authority any claim for compensation made by a worker as a result of injury, advise of whether it will
accept or reject the claim, and in a form approved by the Authority.
11.285. The liabilities covering the cost of these claims are funded by the WorkCover Authority Fund.
Claims costs are recovered from the uninsured employer if possible and penalties are issued
by the VWA.
11.286. If the rateable remuneration of the uninsured employer did not exceed the exemption limit at
the time of the relevant injury, and a claim is made against that employer for an injury during
that period, the employer must apply to the VWA for registration and pay the applicable
registration fee set out in the relevant premiums order.
132
11.287. For all other uninsured employers, the ACWI Act provides several options for recovery of claims
costs. If a claim is made against an uninsured employer who was required at the time of the
injury to hold a WorkCover insurance policy, that employer may:
be penalised up to twice the amount of the premium that would have been payable to the
VWA during the period that the employer was uninsured;
133
be required to reimburse the VWA the amount specified by the VWA in relation to the cost
of the relevant injury paid under the UEIS;
134
or
be fined up to 100 penalty units following a prosecution.
135
11.288. Any moneys recovered as penalties for offences under the AC Act, the ACWI Act or the WC Act
must be paid into the WorkCover Authority Fund.
136
11.289. There are many reasons why an employer may not have held a WorkCover insurance policy.
For example, an employer may:
be unaware of the requirement to obtain a WorkCover insurance policy in Victoria;
not be aware of the requirement to notify the VWA when the employers rateable
remuneration exceeds $7500; or
simply not apply for a policy to avoid payment of the premium.
11.290. The VWA may waive the amount owed by the uninsured employer in relation to the costs
associated with the relevant claim if:
137
the amount is beyond the capacity of the employer to pay;
the employer could not reasonably have been expected to regard himself or herself as an
employer at the relevant time;
the employer, not being a corporation, is bankrupt and the liability cannot be recovered;
the employer, being a corporation, is being wound up and the liability cannot be recovered;
the employer, being a corporation, has been dissolved; or
it would not be commercially feasible for the VWA to attempt to recover the amount of the
liability.
11.291. The circumstances of each case are taken into consideration when determining which penalties
apply, if any, for an employers failure to obtain a WorkCover insurance policy.
11.292. Approximately 22,800 new employers apply for a WorkCover insurance policy each year. Of
those employers, around 2,800 (12%) are identified as potentially having an uninsured period of
more than 60 days.
138
11.293. When the VWA is made aware of an uninsured period for a particular employer, the VWA
contacts the employer and requests certification of remuneration for the uninsured period.
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132 ACWI Act, s 58(1). The registration fee for 2008/2009 is set at $142 in the premiums order, clause 14.
133 ACWI Act, s 7(6).
134 ACWI Act, s 61.
135 ACWI Act, s 7(1).
136 AC Act, s 32(3)(b).
137 ACWI Act, s 61(2).
138 Source: VWA.
11.294. It is the VWAs internal policy to allow time for employers to take out their WorkCover insurance
policy. Therefore, if the uninsured period is less than 60 days, the employers policy is
backdated and the employer is covered from the beginning of the required policy period.
Generally, the VWA will not seek penalty premiums or recoveries for an uninsured period of
less than 60 days.
11.295. Once the remuneration details for the uninsured period are provided by the employer (or
assessed by the VWA), the VWA may begin processing penalties or recovery notices in
accordance with the ACWI Act.
11.296. An employer who is required to take out a WorkCover insurance policy after having an
uninsured period is required to make premium payments for that policy (to the employers
authorised agent). In addition, the employer must pay any penalties or amounts due under
recovery notices issued by the VWA.
11.297. Since 1 July 2004, some 647 claims have been lodged against uninsured employers, worth
around $8.4 million in claims costs.
139
Each year, the VWA collects approximately $3.5 million in
employer uninsured penalties under the ACWI Act.
140
In addition, the VWA has issued recovery
notices to 94 employers to recover approximately $1.8 million in claims costs since 2004.
11.298. Administering penalties and recovery notices under the current UEIS is a time-consuming and
expensive process for the VWA. It may also cause confusion for employers if they are required
to make penalty or recovery payments to the VWA and ongoing premium payments to their
authorised agents.
Simplify the arrangements
11.299. I recommend that the legislation be amended to allow the VWA to integrate any penalties for an
uninsured period into the employers ongoing premium account, and to give the VWA the
power to backdate an employers insurance policy to the commencement of employment to
cover an uninsured period. This would remove the need for the current legislative provisions
relating to the UEIS.
11.300. The recommended approach would:
be simpler for employers, who would receive a single premium notice from the VWAs agent,
rather than two separate notices one from the VWA and the other from the VWAs agent;
provide more payment options for employers, who could pay monthly, quarterly or yearly,
potentially improving the VWAs rate of collection for penalties; and
allow for the experience of claims incurred before an employer had a WorkCover insurance
policy to be used in the employers ongoing premium calculations.
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139 Source: VWA.
140 ACWI Act, s 7(6). The penalties issued to uninsured employers range from 100% to 200% of the
premium that would have been due had the employer had a policy at the required time.
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RECOVERY FROM
THIRD PARTIES
The recovery formula
Application of the recovery provision
Labour hire
Hold harmless clauses
Reimbursement to employers
following recoveries
Impact of recoveries on premium
12
12.1. Section 138 of the AC Act allows the VWA, an employer or a self-insurer to recover
compensation paid or payable under the AC Act from a third party who caused or contributed
to the workers death or injury.
12.2. In this chapter, I examine the operation of section 138 and the circumstances in which it can be
applied. In particular, I:
examine the formula used to determine the amount of compensation that can be recovered
from a third party;
explore the use of recovery proceedings in the labour hire context;
examine the use of hold harmless clauses in relation to recovery proceedings against host
employers in the labour hire context; and
consider how employers could derive greater benefit from successful recovery proceedings
against third parties.
Overview of recovery proceedings
12.3. Provisions allowing the recovery of compensation from third parties in relation to workers
compensation claims originated in the United Kingdom Workmens Compensation Act 1906,
1
and can be found in all Australian jurisdictions.
12.4. Under the WC Act, recovery was limited to situations where compensation had already been
paid for the injury or death of a worker;
2
that is, amounts of compensation that might be paid
in the future could not be recovered. The AC Act initially introduced an indemnity provision that
maintained the same approach;
3
however, in 1994, section 138 of the AC Act was amended to
allow recovery of compensation that is or may
be payable.
12.5. The purpose of section 138 has been described by the Court of Appeal in the following terms:
4
In a statutory scheme calculated to benefit injured workers, and to spread the cost impact of
doing so, the section confers upon the authority, insurers and employers a statutory
entitlement, exercisable at times to suit themselves, to be indemnified by negligent third
parties against compensation which has been paid or is payable to injured workers up to,
but not exceeding, a limit which, if not agreed, is to be established by the courts.
12.6. The right of recovery is not limited to cases where the third party would be liable in negligence,
but extends to cases where the circumstances of the injury or death have created a legal
liability in a third party to pay damages.
5
Although in the majority of cases the basis of the
recovery action will lie in the third partys negligence, the third partys liability may be founded
in some other tort (including trespass to the person and breach of statutory duty), in contract or
in statute.
12.7. Under section 137(5A) of the AC Act, the VWA, an employer or a self-insurer may also recover
compensation paid or payable under the AC Act from the TAC where the workplace injury was
directly caused by the driving of a motor vehicle, railway train or tram.
6
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1 Workmens Compensation Act 1906 (UK) s 6.
2 WC Act 1958 (Vic) s 62(b).
3 AC Act, No 10191, s 138.
4 Esso Australia Ltd v Victorian WorkCover Authority (2000) 1 VR 246 at [27] (Winneke P).
5 AC Act, s 138(1).
6 TA Act, s 3(1). Section 137(1) of the TA Act also allows the VWA, a self-insurer or employer to recover
from the TAC compensation paid in respect of a death or injury that was caused by or arose out of the
use of a car before 17 December 1986.
12.8. Alongside the recovery provisions, the AC Act provides substantial protection for third parties
from actions for damages by injured workers, by providing no-fault benefits as an alternative to
common law damages, restricting workers ability to sue at common law and placing a
maximum cap on the amount of common law damages that can be awarded to an injured
worker.
7
12.9. A third partys potential liability for a workers injury or death is usually identified early in the
claims process. As part of the process that must be followed before commencing a common
law action, a worker must serve a serious injury application on each person against whom the
applicant claims to have a cause of action.
8
Recovery proceedings and any related common
law claim brought by a worker are often run concurrently, so that the issue of liability, which
forms part of both actions, can be determined at the same time in both proceedings.
12.10. There are two elements involved in the recovery process. First, it must be established that the
circumstances of the injury or death have created a legal liability in a third party to pay
damages.
9
Secondly, the estimated quantum of compensation paid or payable under the
AC Act must be assessed as well as the common law damages for which the third party would
have been liable.
Stakeholder views
12.11. Middletons submits that
. . . the current wording and effect of section 138 should be reconsidered and an appropriate
revised version developed which does not lead to unfair results for liable third parties.
10
12.12. Ai Group submits that, considering the costs associated with initiating section 138 recoveries
and the discontent and cynicism about recoveries amongst employers, the continued operation
of a recovery process needs to be reconsidered.
11
12.13. There is also a strong view among many stakeholders that section 138 should be rewritten in
plain English to facilitate its operation and effect.
THE RECOVERY FORMULA
12.14. The AC Act contains a complex formula for determining the amount that the VWA may recover
from a third party. The formula allows the VWA to recover payments that have already been
made, and compensation that is anticipated to be paid, on a claim.
12.15. The amount recoverable from the third party is either the amount of compensation paid or
payable by the VWA under the AC Act or the amount calculated in accordance with the formula
below, whichever is less:
12
[A (B + C)] x X
100
Where A is the notional assessment of common law damages in respect of the workers
injury
B is the amount recovered or recoverable from the TAC.
C is the amount already paid by the third party to the worker or his or her dependants
in respect of the injury.
X is the extent, expressed as a percentage, to which the third party caused or
contributed to the injury or death.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 12 RECOVERY FROM THIRD PARTIES
PAGE 425
7 For a discussion of the restrictions on common law under the AC Act, see Chapter 8, Access to
justice for seriously injured workers: common law.
8 AC Act, s 134AB(5A), (18).
9 AC Act, s 138(1).
10 Middletons, Submission, 22 April 2008, p 1.
11 Ai Group, Submission, May 2008, p 76
12 AC Act, s 138(3).
12.16. According to Freehills, in most cases a third party will be liable to indemnify the VWA for
compensation payments if the third partys contribution to the injury is more than about 30%
to 35%.
13
12.17. Freehills further submits
It is unfair for the third party to bear all of the costs in this way, and it is inconsistent with other
legislation limiting the contribution of the third party to that which is just and equitable and
represents the degree to which it has contributed by its negligence to the outcome . . .
We submit that the potential for recovery of compensation should be determined at the start of
a claim, and that the costs of the claim be excluded from premium consideration from the
outset.
14
12.18. Middletons also criticises the current method of determining the financial contribution to be
paid by the third party, and submits that
. . . the percentage amount by which the third party has caused or contributed to the workers
injury is calculated against an assessment of the damages that the injured worker is (or would
be) entitled to at common law and not, as one might expect, against the actual loss incurred
and paid by the insurer. As a consequence, in many cases, a third party will be liable to
indemnify the insurer for a grossly disproportionate amount of the loss actually incurred by the
insurer.
15
12.19. One option proposed by Middletons is the amendment of section 138 to
. . . allow the insurer to recover a proportion of what it has been paid commensurate with the
extent to which the employer and third parties have each respectively caused or contributed to
the injured workers incident and injuries.
16
12.20. VECCI recommends that section 138 of the AC Act be amended to limit recoveries to actual
costs (as distinct from projected costs) and that recoveries should only apply where the third
party that is being sued is near 100% responsible for the negligence.
17
12.21. Factor X in the section 138(3)(b) formula (see paragraph 12.15 above) requires that liability for
the workers injury or death be apportioned, so that the third partys proportionate share of that
liability can be determined. However, the hypothetical nature of factor A in that formula and
the alternative under section 138(3)(a) of allowing recovery of the amount of compensation paid
or payable under the AC Act, may mean that in some cases the third party will reimburse the
VWA for the whole amount of the compensation paid by the VWA. For example, where the
amount recovered is based on an estimate that a worker will continue to receive weekly
payments for three more years, but the worker ceases to receive benefits after one year, the
third party will pay more than its proportionate share
18
of the amount of compensation paid by
the VWA.
12.22. The risk that the third party will pay more than its proportionate share of compensation is likely
to be higher where common law proceedings have not been finalised. However, it is the VWAs
usual practice, where possible, not to finalise recovery proceedings until common law
proceedings are settled; although in some circumstances, such as where the worker is unable
or unlikely to bring proceedings, this will not be possible.
12.23. Of course, the future component in the assessment of the third partys liability under section
138(3)(a) can act to the third partys benefit, where (for example) the worker remains in receipt of
weekly payments for longer than the period estimated when the recovery proceeding is finalised.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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13 Freehills, Submission, 11 February 2008, p 18.
14 Freehills, Submission, 11 February 2008, pp 18-19.
15 Middletons, Submission, 11 April 2008, p 2.
16 Middletons, Submission, 11 April 2008, pp 2-3.
17 VECCI, Submission, April 2008, pp 69-70.
18 As calculated by reference to the third partys proportionate share of liability for the workers injury.
12.24. In any event, the formula in section 138(3)(b) (see paragraph 12.15 above) places a cap on the
amount that is recoverable from the third party, equivalent to the amount that the third party
would have been liable to pay by way of damages in respect of the workers injury or death.
Because the right of indemnity created by section 138 is limited in that way, the degree of
unfairness or inequity identified by some stakeholders is similarly limited.
12.25. In most circumstances, a third party can choose whether to indemnify the VWA for a workers
ongoing medical and like expenses or whether to finalise the matter on the basis of a
negotiated amount. It appears that, in the majority of cases, the third party (or its insurer) will
opt to finalise the matter by paying a lump sum based on an estimate of future liabilities.
12.26. Although settling a matter on that basis involves a risk that the third party will pay the VWA
more than the cost of the medical and like expenses ultimately paid for by the VWA, it gives the
third party the advantage of removing the administrative costs associated with ongoing
reimbursement, and provides certainty for the third partys insurer. In those cases, the risk that
the VWA will recover more than it eventually pays by way of compensation is a risk assumed by
the third party.
12.27. The uncertainty inherent in future estimates for section 138 recoveries is also present in
assessments of future economic loss in proceedings under the common law and under the
Wrongs Act 1958. For example, there is always a risk that, after a worker is awarded damages
for loss of earning capacity based on a permanent inability to work until retirement age, the
worker may recover more quickly than predicted and return to work. The risk is difficult to avoid
in any system which allows the recovery of future losses. The settlement amount agreed
between parties, whether in common law or in recovery proceedings, is intended to take
account of those contingencies.
12.28. For the reasons outlined above, I recommend that the current formula be retained.
APPLICATION OF THE RECOVERY PROVISION
12.29. If recoveries could only be sought from third parties when those third parties are near 100%
responsible for the injury,
19
it is likely that recovery actions would not proceed in a significant
number of matters. The scheme, and ultimately all employers within the scheme, would end up
covering the cost of compensation that would otherwise have been recovered from third
parties.
12.30. For reasons explored further in this chapter, I consider there are good policy reasons for
continuing to institute recovery proceedings against third parties who have contributed to a
workers injury. It is difficult to see why, for example, a third party should be exempted from
recovery action merely because the third party contributed only 60% to an injury sustained
by a worker.
12.31. Further, the proposal that recoveries only be pursued against parties who are close to 100%
responsible would create inconsistencies with the approach taken in awarding common law
damages for work-related injuries and deaths.
12.32. For example, if a third party was named as a co-defendant (along with the employer) in
common law proceedings brought by a worker and was found to have contributed 60% to the
workers injury, the third party would be required to contribute 60% of the damages awarded to
the worker. The amount of damages (which would be paid 60% by the third party and 40% by
the employer) would be reduced by the amount of the compensation (such as weekly
payments) already paid by the VWA to the worker.
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CHAPTER 12 RECOVERY FROM THIRD PARTIES
PAGE 427
19 As submitted by VECCI: see paragraph 12.20 above.
12.33. Accordingly, if the third party who had contributed to the workers injury could not be pursued
for its share of the compensation paid by the VWA, the third party would benefit, often
significantly, from the reduction in the amount of damages on account of the compensation
paid by the VWA.
12.34. One way of meeting the stakeholder criticism (that recoveries are not limited to actual loss
incurred by the VWA, employer or self-insurer) could be to require the reimbursement to third
parties of amounts recovered in excess of the amount of compensation actually paid once a
claim is closed. However, allowing reimbursement of any excess above the amount of
compensation ultimately paid under the AC Act would be difficult, and of limited application,
largely because it is difficult to determine when a claim has closed.
It is not uncommon for a worker to return to work after an injury but then discover that her or
his condition has deteriorated, cease working and recover common law damages for a
serious injury.
Even where a worker returns to work successfully, as the worker ages he or she may require
surgery for a work-related injury, for example for an injury to a back or knee, which was not
thought necessary when the worker was younger.
The amount of compensation ultimately paid would remain uncertain until either settlement of
any common law damages claim
20
or the workers death.
There could be no way of knowing that the workers condition in later years would not
deteriorate and that the worker would not require further compensation by way of weekly
payments and medical expenses.
12.35. Where a claim for recovery of compensation is made after the death of a worker, recovery
will involve the interaction between section 138(3)(b) of the AC Act and section 29 of the
Administration and Probate Act 1958 (the AP Act), if the recovery relates to compensation paid
to the worker before the workers death, or Part III of the Wrongs Act 1958, if the recovery
relates to compensation paid to the workers dependants by reason of the workers death from
work-related injuries.
12.36. Liability under section 29(3)(c) of the AP Act does not include liability for pain and suffering and
future economic loss, and liability under Part III of the Wrongs Act 1958 is for the loss suffered
by the deceased persons dependants. In such cases, factor A in the section 138(3)(b) formula
will significantly limit the amount recovered from the third party. However, the deceased
persons dependants are entitled under the AC Act to benefits beyond those provided under the
AP Act and the Wrongs Act. Accordingly, in circumstances involving deceased workers, any
amounts recoverable against a third party are likely to be less than the total compensation paid
under the AC Act.
12.37. As discussed in paragraph 12.22 above, where common law proceedings appear likely, it is rare
for the recovery proceedings to settle before finalisation of the common law proceedings.
Accordingly, where common law proceedings are involved, it is unlikely that the third party will
pay more than the amount eventually paid out by the VWA, an employer or a self-insurer.
12.38. A further difficulty with the proposal that third parties be reimbursed for any excess recovery
would be deciding which entity should receive the reimbursement. Given that a public liability
insurer often pays for a large part of the amount recovered from a third party, it could be
difficult to ascertain who should receive the retrospective adjustment, particularly where the
public liability insurer is not identified during the recovery process.
12.39. In a case where an insurer has opted to settle a matter involving ongoing medical and like
expenses for a lump sum, in order to avoid the administrative costs of reimbursing the VWA on
an ongoing basis, it is difficult to see why the excess should be seen as any different to an
excess arising after any other legal settlement between parties.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 428
20 However, even after a common law settlement, compensation for medical and like expenses could
still continue to accrue.
12.40. Ultimately, any financial settlement, which includes an amount for anticipated future costs or
events, involves a risk to both parties that the settlement amount will be found eventually to
have benefited one party more than another.
12.41. Limiting recovery proceedings to the compensation paid to date could lead to delays in bringing
or finalising those proceedings, because it could be many years before the compensation paid
would sufficiently stabilise to equate to a reasonable proportion of the overall costs of a claim.
The delays would in turn lead to extended delays in adjusting employers premiums to allow for
the third parties liability.
12.42. Accordingly, I recommend that the current application of section 138 be maintained.
LABOUR HIRE
12.43. Labour hire workers are employed by labour hire agencies. They work or are placed with
another entity (the host employer), on either a temporary or a permanent basis.
12.44. Using labour hire workers can provide benefits to host employers by reducing their overhead
costs and providing greater workforce flexibility. For example, labour hire arrangements may
ensure that a company is more adaptable to seasonal fluctuations in workload and remove the
cost of recruiting new employees. Labour hire arrangements also reduce WorkCover insurance
premiums and payroll tax for the host employer, and remove the need to pay annual leave,
maternity leave etc.
21
12.45. There has been significant growth in the number of labour hire workers over the last 20 years.
In 2002, labour hire workers were estimated to make up 3.9% of all employed people, with that
proportion having grown almost fivefold (from 0.8%) since 1990.
22
Labour hire workers are most
frequently used in Victoria in the mining and construction industries, followed by manufacturing,
education, health and community services.
23
12.46. Labour hire workers are considered to be employees of the labour hire agency, not the host
employer,
24
and are covered by the labour hire agencys WorkCover Insurance Policy.
12.47. As a result, a host employer who operates a site where a labour hire worker is injured will not
be subject to an increase in premium (as the host employer would be if its own employees
were injured). The claims made for those injuries will impact on the labour hire agencys
premium.
12.48. A 2002 Victorian study found that labour hire workers had more frequent and severe injuries
than direct hire workers.
25
Between 1995 and 2001, the number of workers compensation
claims in the labour hire industry increased at a faster rate than the total remuneration for the
sector.
26
In contrast, the number of compensation claims made by other workers was fairly
static during this period, even though their overall remuneration increased.
27
12.49. The increased rate of claims in the labour hire sector may have contributed to the increase in
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 12 RECOVERY FROM THIRD PARTIES
PAGE 429
21 However, the cost of hiring labour (the amount paid by the host employer to the labour hire agency)
will reflect those costs.
22 Laplagne, P, Glover, M and Fry T, The Growth of Labour Hire Employment in Australia Report.
Productivity Commission Staff Working Paper, February 2005, p 7.
23 Victoria, Parliament, Economic Development Committee, Final Report, Inquiry into Labour Hire
Employment in Victoria, Melbourne, Parl. Paper 136, 2005, p 29.
24 AC Act, s 5(1).
25 Elsa Underhill, Extending Knowledge on Occupational Health and Safety and Labour Hire
Employment: A Literature Review and Analysis of Victorian Workers Compensation Claims: Report for
Worksafe Victoria, Melbourne, 2002, p 101.
26 Elsa Underhill, Extending Knowledge on Occupational Health and Safety and Labour Hire
Employment: A Literature Review and Analysis of Victorian Workers Compensation Claims: Report for
Worksafe Victoria, Melbourne, October 2002, p 101.
27 Elsa Underhill, Extending Knowledge on Occupational Health and Safety and Labour Hire
Employment: A Literature Review and Analysis of Victorian Workers Compensation Claims: Report for
Worksafe Victoria, Melbourne, October 2002, p 80.
recovery actions against host employers. Recoveries against host employers for compensation
paid to labour hire workers make up approximately 40% of all recoveries, equivalent to around
30% of all revenue collected by the VWA under section 138 of the AC Act.
28
12.50. Ai Group submits that some employers are concerned that there is the potential for double
dipping by the VWA in relation to recoveries and labour hire.
29
It has been said that the VWA
collects an insurance premium from the labour hire agency calculated partly on the basis of the
risk of workplace injuries, and can also sue the host employer to recover the cost of a claim.
12.51. Employer groups such as Ai Group
30
and VECCI
31
believe that there is a risk that host
employers will fail to obtain adequate insurance to cover their potential recovery liabilities. Host
employers may be unaware that, although labour hire agencies pass on the cost of the VWAs
insurance premium to host employers, host employers are not protected from a recovery claim
brought by the VWA.
12.52. Ai Group submits that
. . . there is a role for third party recoveries, predominantly in circumstances where there is no
direct employment relationship between the three parties, e.g. a council which has not
repaired a footpath, or a shopping centre with slippery floors.
However . . . the provisions were not intended to be applied to the type of employment
relationships which are regularly utilised in Victorian workplaces today.
32
12.53. On the other hand, Geoff Provis, Special Counsel for Russell Kennedy, submits that
. . . there is no need for any amendment to make specific provision with respect to labour hire
companies or host employers.
. . .
There is no logical or common sense basis for carving out labour hire arrangements from this
scheme.
33
12.54. Mr Provis further submits that
. . . the responsibilities found in S 138 play a complementary role to the responsibilities found
in the Occupational Health and Safety [Act] in ensuring the host employers maintain adequate
. . . standards in respect of all their workers.
34
12.55. There is little evidence that the recovery provisions have not always been understood to apply
to labour hire situations. Labour hire arrangements have been considered since the
commencement of the AC Act in 1985. For example, the original definition of employer
included a reference to labour hire arrangements and this definition has not changed.
35
12.56. In a recent case in the County Court, VWA v DSG Pty Ltd,
36
the host employer defendant argued
that the fees it had paid to the labour hire agency included WorkCover costs, so that the host
employer was covered under the labour hire agencys WorkCover Insurance Policy and had the
right to be indemnified by the VWA. The host employer contended that, because of that
indemnity, it could not be regarded as a third party for the purposes of section 138 of the
AC Act.
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CHAPTER 12 RECOVERY FROM THIRD PARTIES
PAGE 430
28 Source: VWA.
29 Ai Group, Submission, 8 February 2008, p 25.
30 Ai Group, Submission, 8 February 2008, p 25.
31 VECCI, Submission, April 2008, p 69.
32 Ai Group, Submission, May 2008, pp 73-74.
33 Geoff Provis, Submission, 1 April 2008, p 1.
34 Geoff Provis, Submission, 1 April 2008, p 2.
35 AC Act, s 5(1).
36 County Court of Victoria, 14 December 2006, unreported.
12.57. The County Court rejected the host employers argument. It also rejected an argument that the
host employer was a deemed employer pursuant to section 9 of the AC Act and was not
therefore a third party for the purpose of recovery proceedings. Judge Campion said:
37
. . . section 138 of the AC Act provides an avenue for the VWA to pursue negligent host
employers for the cost of the workers compensation claims of labour hire workers and I reject
the defendants submission that it could not have been the intention of parliament to expose a
host employer to liability.
12.58. On appeal, the Court of Appeal unanimously upheld Judge Campions decision, commenting
that the host employers argument would lead to a result that was fundamentally contrary to
the scheme and objectives of the Act.
38
The Court of Appeal further commented that section
138 was designed to match the burden of payment with the legal liability in respect of a
compensable injury.
39
12.59. Labour hire agencies are obliged to place workers in safe working environments and to
continue monitoring the safety of all workers during the workers placements with host
employers.
40
However, in most cases a labour hire agency will not be the legal occupier of the
host employers work site and will not usually have direct control or management of the
workplaces involved.
41
Accordingly, host employers will often have greater day-to-day control
over a workers work environment than labour hire agencies will.
12.60. Under the OHS Act, host employers are responsible for the health and safety of all workers at
their workplace, including labour hire workers.
42
Persons who manage or control workplaces
also have a duty to ensure, as far as reasonably practicable, that the workplace is safe and
without risks to health, and have a duty to ensure that persons other than employees are not
exposed to risks to their health and safety arising from the employers conduct.
43
12.61. Under the Wrongs Act 1958,
44
and at common law, occupiers owe a duty of care to persons on
their premises. In the labour hire situation, the host employer is frequently the occupier of the
worksite.
12.62. I consider that removing the right to recover against host employers would be out of step with
host employers obligations under the OHS Act and under the common law.
12.63. There are cases where, although a labour hire agency has carried out an inspection on the day
when an injury occurred, the agency could not prevent the injury for example, where the host
employers manager removed equipment from the premises or made sudden changes to the
system of work.
45
12.64. In those situations, having regard to the policy considerations behind the recovery provisions, I
believe that the burden of paying for a workers injury should rest with the party on which legal
liability for the injury would fall the host employer. That is, the labour hire agency as employer
and the VWA should be entitled to recover against a host employer that fails to discharge its
common law duty of care or its statutory duty to avoid injury.
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37 VWA v DSG Pty Ltd (County Court of Victoria, unreported, 14 December 2006), pp 23-24.
38 DSG Pty Ltd v VWA [2008] VSCA 42 at [88] (Pagone AJA).
39 DSG Pty Ltd v VWA [2008] VSCA 42 at [88] (Pagone AJA).
40 Labour Hire Workers: OHS Rights and Responsibilities, VWA, 1
st
Edition September 2006, p 1.
41 Labour Hire Workers: OHS Rights and Responsibilities, VWA, 1
st
Edition September 2006, p 1.
42 Host Employers: Managing the Safety of Labour Hire Workers, VWA, 2
nd
Edition, June 2006, p 1.
43 OHS Act, ss 23 and 26.
44 Wrongs Act 1958 (Vic), Part IIA Occupiers Liability.
45 See, for example, the facts in VWA v DSG Pty Ltd (County Court of Victoria, unreported, 14 December
2006), where a supervisor altered the usual system of work by ordering the removal of a plank usually
used to assist workers in their duties stacking shelves.
12.65. Section 138 recoveries can act to deter third parties maintaining negligent OHS practices
(particularly in occupier/host employer situations). The prospect of those recoveries can also be
an incentive for good OHS practices.
12.66. Section 138 ensures that there are incentives for both labour hire agencies and host employers
to reduce workplace injuries.
A labour hire agency which holds a WorkCover Insurance Policy will have a financial incentive
to reduce the incidence of injury and consequent claims for compensation, because (if the
employer is classified as a medium or large business) the calculation of the employers
insurance premium will take into account the employers claims history.
Section 138 recoveries provide the financial incentive for host employers to maintain a safe
workplace.
12.67. Mr Provis submits that
The comment made in the . . . discussion paper that the host employer is always carrying the
greatest exposure due to the workers being under its supervision and control is the very
reason why host employers ought continue to be held responsible for workers compensation
costs incurred as a consequence of their negligence.
46
12.68. WV Management, a labour hire specialist explains that
We assume a role, with the host employer, whereby we take an active interest in site OH&S
matters and, within the boundaries of a labour hire labour supplier, we impose restrictions in
such areas as total hours worked, breaks between shifts, type of work to be done etc.
. . .
In return for our involvement and the clients assistance, we further treat our workers
compensation arrangement as a shared risk cost and we pass onto the client:
the actual cost of workers compensation premium (free of on costs)
the cost of minor claims
the cost of any shortfalls in premium
and we pass back to our client
all credits and recoveries in relation to workers compensation
In this way we make the whole of the workers compensation cost fully transparent between
ourselves and the client. Any recoveries achieved are refunded, the workplace is subject to
our review and we maintain a capacity to advise the client of any non conforming matters or
concerns.
47
12.69. WV Management further submits
Removal of S138 claims against host employers should be introduced where it can be shown
that there are transparent and documented systems and sustained evidence trails of effective
OH&S management by the parties. Such a concession should not apply where no such
arrangements exist.
48
12.70. The arrangements raised by WV Management are legitimate considerations for the VWA to
consider when deciding whether to exercise its discretion to commence recovery proceedings
against a particular host employer under section 138. However, those arrangements are not a
sufficient basis for a statutory exemption from the section 138 liability. Recoveries protect the
scheme as a whole (and all employers) from the negligent actions of parties who have
contributed to workplace injuries and deaths. Around $20 million is recovered annually by the
VWA,
49
money that reduces the money that the VWA needs to recover in the form of employer
premiums.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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46 Geoff Provis, Submission, 1 April 2008, p 3.
47 WV Management Pty Ltd, Submission, 28 April 2008, pp 22-23.
48 WV Management Pty Ltd, Submission, 28 April 2008, p 23.
49 Source: VWA.
12.71. Removing the right to recover from host employers would have a financial impact on the
scheme. All employers would subsidise the costs caused by negligent host employers through
increased premiums; and the reduction in the cost of public risk insurance for one class of
employers (host employers) would not be shared by other employers. Most directly affected
would be other businesses that operate within the same industry classification as the labour
hire agencies; those other businesses would bear the costs of increased premiums through
higher risk classifications for their industry.
12.72. Consequently, I recommend retention of the current approach that allows for recovery against
host employers, who cause or contribute to a workers death or injury.
HOLD HARMLESS CLAUSES
12.73. Host employers and labour hire agencies often include hold harmless clauses in the
agreement setting out their labour hire arrangements.
50
Under a hold harmless clause,
the labour hire agency agrees to indemnify the host employer against any legal liability, loss,
claim or proceeding in respect of personal injury to the labour hire agencys employees. The
indemnity extends to liability under section 138 of the AC Act. Some agreements between
labour hire agencies and host employers require that the labour hire agency obtain insurance
to cover the indemnity.
12.74. The RSCA submits
There is a growing trend for clients, both in the private and public sector, to insist that on-hire
services providers sign contracts which include what is known as a hold harmless clause
(type of indemnity clause).
51
12.75. These contractual arrangements shift the financial costs and risks of poor OHS practices
from the host employer to the labour hire agency.
12.76. The VWA currently has no control over the way costs are distributed between labour hire
agencies and host employers.
12.77. The RCSA submits that hold harmless clauses cause concern for the labour hire sector
Because of the commercial realities, such contracts are invariably signed, but this type of
clause clearly militates against the policy imperatives of the Occupational Health and Safety
Act and the Accident Compensation Act. The problem is further exacerbated by the fact that
labour hire consultancies do not have direct control of the workplace environment.
While it is acknowledged that these exemption/indemnity clauses embrace a wide number of
terms and conditions of a commercial arrangement, hold harmless clauses should not be
permitted to have application in the arena of workcover and occupational health and safety.
52
12.78. Harwood Andrews Lawyers submit that many contractors and subcontractors do not in reality
have the negotiating power to negotiate a more favourable agreement, forcing them to accept
hold harmless clauses.
53
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PAGE 433
50 The RCSA reported in 2004 to a House of Representatives Inquiry that close to 50% of labour hire
companies had been asked to sign a hold harmless clause by a host employer: submission to
Australia, Parliament, House of Representatives Inquiry into Independent contracting and labour hire
arrangements, February 2004, p 38.
51 RCSA, Submission, 2 May 2008, p 5.
52 RCSA, Submission, 2 May 2008, p 6.
53 Harwood Andrews Lawyers, Submission, 1 April 2008, p 1.
12.79. Although hold harmless clauses do not permit the delegation of duties under the OHS Act,
54
and are in the main untested in the courts,
55
with careful wording the clauses may indemnify
host employers against section 138 recoveries.
56
They have the potential to reduce the financial
consequences of poor OHS practices by host employers.
12.80. Hold harmless clauses could defeat some of the objectives of section 138 or other recovery
action against a host employer (that is, objectives other than providing a financial return for
the VWA).
The labour hire agency (or its insurer) will be required to pay any damages or compensation
that would otherwise be paid by the host employer.
The effect of hold harmless clauses is to shift the burden of a host employers negligence
to the labour hire agency, even though that agency is not at fault.
12.81. Preliminary research by the Review suggests that a significant number of reputable insurers will
not issue public liability policies to indemnify against liabilities arising from a labour hire
agencys agreement to a hold harmless clause. That unwillingness is based on the fact that
the labour hire agencys liabilities arising under such a clause relate to acts beyond the control
of the labour hire agency; the risk inherent in a hold harmless clause is regarded as
unquantifiable, and beyond the scope of the risks on which the insured persons premium can
be calculated.
12.82. A labour hire agencys public liability insurance policy can be invalidated where the agency
signs a hold harmless clause without the clearance of its insurer.
12.83. Comments provided by insurance representatives to the Economic Development Committee of
the Victorian Parliament (EDC) Inquiry into Labour Hire Employment in Victoria
57
suggested that
(in South Australia at least) insurers would not touch a labour hire agency that had agreed to a
hold harmless clause in its contract with a host employer. If a separate insurance policy could
be taken out to provide cover in relation to liabilities arising from a hold harmless clause, the
policy was likely to have a huge premium.
12.84. Accordingly, a hold harmless clause in a labour hire agreement can expose the labour hire
agency to direct, uninsured liability for a host employers negligent acts. Alternatively such a
clause can force a labour hire agency to take out an additional, expensive insurance policy to
insure against the host employers breaches of its OHS obligations.
12.85. In 2005, after its inquiry into labour hire employment in Victoria, the EDC reported that the
incentive for host employers to protect the health and safety of labour hire workers is greatly
reduced if host employers can transfer the financial consequences of OHS breaches. The EDC
recommended that hold harmless clauses should be prohibited, because they directly
contradict the objectives of OHS and workers compensation laws.
58
12.86. The State Government accepted the EDCs recommendations in principle. The Government
undertook to consider amendments to the ACWI Act to prohibit hold harmless clauses to the
extent that those clauses impacted on the premiums of labour hire agencies.
59
To date, no
legislation has been introduced.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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54 Kondis v State Transport Authority (1984) 154 CLR 672.
55 Victoria, Parliament, Economic Development Committee, Final Report, Inquiry into Labour Hire
Employment in Victoria, Melbourne, Parl. Paper 136, 2005, p 98.
56 See the discussion of indemnity clauses in the South Australian context in Action Engineering Pty Ltd
v Press [2006] SASC 207.
57 Transcript of witness, Mr P Janvold, Group Manager Southern Region, Insurance Council of Australia,
Economic Development Committee Inquiry into Labour Hire Employment in Victoria, 15 November
2004, p 255.
58 Victoria, Parliament, Economic Development Committee, Final Report, Inquiry into Labour Hire
Employment in Victoria, Melbourne, Parl. Paper 136, 2005, p 99.
59 Government Response to the Recommendations contained in the Victorian Parliament Economic
Development Committee, Final Report, Inquiry into Labour Hire Employment in Victoria, Melbourne,
2006, p 7.
12.87. Harwood Andrews Lawyers have submitted that hold harmless clauses undermine section 138
of the AC Act, and that adding a provision which prohibits hold harmless clauses would be an
efficient way of preventing the difficulties.
60
12.88. It is arguable that, if hold harmless clauses were prohibited, host employers could avoid the
financial consequences of recovery actions under section 138 by taking out public liability
insurance. However, public liability insurance policies usually provide for the payment by the
insured of a substantial excess; and a host employers claims on a public liability insurance
policy would most likely increase that excess. Accordingly, some financial consequence would
usually be borne by the host employer if hold harmless clauses were prohibited, even if the
host employer were insured against section 138 recovery actions.
12.89. It might be argued that, because the labour hire agency is indemnified by the VWA against the
cost of claims by workers, the host employer is within its rights to seek an indemnity from the
labour hire agency.
12.90. However, under the schemes premium system, employers premiums are adjusted by
reference to the frequency and the cost of claims, through the statistical case estimator
and the industry classification rate (which takes into account the relevant industrys claims
performance).
61
12.91. Those factors are included in the calculation of premium to provide a strong financial incentive
for employers to maintain safe workplaces and improve their return to work rates.
62
Unlike the
insurance/indemnity system provided by the VWA to employers, hold harmless clauses do not
include in-built financial penalties for the host employers negligence.
12.92. I acknowledge that prohibiting hold harmless clauses would restrict the rights of host
employers to contract out their legal liabilities. However, having regard to the primary objectives
of the scheme (which include reducing the incidence of accidents and diseases in the
workplace)
63
and the benefits that host employers gain from the schemes deeming labour hire
agencies to be the employers of labour hire workers (thereby excluding labour hire workers
from host employers premium calculations), I consider that there are good reasons for
interfering with those rights in the interests of the greater welfare of workers.
12.93. The use of hold harmless clauses appears to go against one of the underlying purposes of
section 138, which the Court of Appeal described as to match the burden of payment with the
legal liability in respect of a compensable injury.
64
Hold harmless clauses effectively place the
burden of payment on the labour hire agency, irrespective of legal liability for a compensable
injury.
12.94. I consider that to allow host employers to avoid any financial responsibility for the cost of
workplace injuries is out of line with the policy objectives of the AC Act, which is to encourage
workplace safety through premium adjustment in the case of the general run of employers
and through recoveries in the case of host employers.
12.95. I therefore recommend that the AC Act should provide that hold harmless clauses in
arrangements between labour hire companies and host employers are void and unenforceable
for the purposes of the workers compensation scheme.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 435
60 Harwood Andrews Lawyers, Submission, 1 April 2008, p 2.
61 See Chapter 11, Employer premiums, paragraph 11.14-11.33.
62 Victoria, Parliament, Economic Development Committee, Final Report, Inquiry into Labour Hire
Employment in Victoria, Melbourne, Parl. Paper 136, 2005, p 95.
63 AC Act, s 3(a).
64 DSG Pty Ltd v VWA [2008] VSCA 42 at [88] (Pagone AJA).
REIMBURSEMENT TO EMPLOYERS FOLLOWING RECOVERIES
12.96. Where a recovery is made against a negligent third party, the amount recovered will result in an
offset to the employers premium: see paragraphs 12.102-12.107 below.
12.97. Freehills submits that employers should be entitled to take action for recovery of compensation
paid, where the VWA has failed to do so after a request by the employer.
65
Freehills also
submits that, if recovery of amounts paid and payable under a claim is achieved from a third
party, then the full cost over time of inclusion of the claim for premium calculation should be
determined and offset against the employers premium.
66
12.98. Section 138(1) provides that the Authority, self-insurer or employer is entitled to be indemnified
by the third party in accordance with this section. However, where the VWA recovers
compensation from a third party, the employer is not reimbursed for the employers payment of
any excess in relation to the workers claim.
12.99. It is clear from the terms of section 138(1) that employers are entitled to recover any excess
amount that they have paid from third parties; however, the relatively small excess amounts
involved have discouraged employers pursuing that entitlement.
67
12.100. Under section 138(1), the VWA can only recover against a third party the amount for which the
VWA is indemnified by the sub-section; that is, because the employers excess is not a cost
incurred by the VWA, the VWA is not indemnified for, and cannot recover, that amount.
12.101. I consider that the AC Act should be amended to allow the VWA (with an employers consent)
to recover from third parties the amount of any excess paid by the employer, with the amount
recovered to be paid by the VWA to the employer. That amendment should address the
situation where it is not economically viable for an employer to seek recovery of the excess
amount.
IMPACT OF RECOVERIES ON PREMIUMS
12.102. Generally, employers are required to maintain a current WorkCover Insurance Policy at all
times.
68
The calculation of an employers insurance premium takes into account the employers
total remuneration, the risk profile of the industry in which the employer operates and the
employers claims history.
12.103. Where the VWA recovers the cost of a claim against a third party under section 138 of the
AC Act, the calculation of the employers premium is adjusted. The employer is credited with
the amounts recovered as an offset to the costs of the relevant claim previously included in the
employers premium calculation.
69
12.104. Employers performance ratings (which are used in calculating premiums for medium and large
employers) reflect their claims costs over the last three years. An employers claims costs are
reduced by any recoveries made from third parties during the three-year experience period
(even if the claims to which the recovery action related occurred outside the three year period).
The reduction, referred to as a recovery rebate, results in a reduced premium for the
employer.
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65 Freehills, Submission, 11 February 2008, p 19.
66 Freehills, Submission, 11 February 2008, p 19.
67 In Chapter 11, Employer premiums, paragraph 11.135-11.139, I recommend an optional increase in
the amount of employer excess. Even after that increase, the amounts involved would not justify
separate recovery action by employers.
68 ACWI Act, s 7. Employers with a payroll of less than $7500 per year are the exception to this
requirement.
69 WorkCover Insurance Premiums Order (No 15) 2007/2008, schedule 2, items 2 and 5.
12.105. As discussed in Chapter 11, Employer premiums (see paragraphs 11.67-11.72), claims costs
and recoveries have the same proportionate impact on premium. That is, the amount by which
premiums increase because of claims costs is the same as the amount by which premiums
reduce when a recovery of the same size is credited to the employer.
12.106. However, the similarity of effect can be obscured because of the different times at which claims
costs and recoveries impact on an employers premium. For example, when a worker employed
by a labour hire agency makes a claim, the labour hire agencys premium increases. If the VWA
takes recovery action against a host employer, it may be some time before the recovery action
is settled or determined and the recovery credited to the labour hire agencys claims costs and
reflected in premium. The passage of time can lead to the labour hire agency assuming that the
VWA is recovering the cost of the claim twice first from the labour hire agency, and then from
its client, the host employer.
12.107. Reimbursements received from the TAC under section 137 of the AC Act are regarded as
recoveries. However, unlike recoveries under section 138, amounts recovered under section 137
are not entered as recoveries on an employers claims statement. The premium is therefore not
adjusted in favour of the employer unless there was a legal liability to damages by a third party.
12.108. Issues relating to the impact of recoveries on premium and possible options for reform are
canvassed in more detail in Chapter 11, Employer premiums (see paragrpahs 11.67-11.72).
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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SELF-INSURANCE
The role of self-insurance
How should self-insurance be managed?
Eligibility and approval
Ongoing requirements
Contributions
Audit program
Claims management
The need for greater flexibility
13
13.1. Self-insurance allows eligible employers to manage and pay for their own workers
compensation claims. In all other respects, self-insurers are regarded in the same way as other
(scheme-insured) employers in the scheme self-insurers workers are eligible for the same
compensation benefits and self-insurers must comply with the AC Act and the OHS Act.
13.2. As at 30 June 2007, there were 38 self-insurers in Victoria, representing about 9% of all wages
in Victoria.
1
The VWA continues to receive several applications for self-insurance each year.
13.3. Typically, self-insurers are large employers. They span a wide range of industries, including
finance, manufacturing, utilities, trade, construction, education, and transport and storage.
Several self-insurers operate in more than one State and some are foreign-owned.
13.4. Self-insurers are regulated under legislative requirements as well as the terms and conditions in
their licences. These requirements and conditions are designed to protect the financial position
of the scheme and to ensure that self-insurers are managing their claims appropriately and
meeting their OHS obligations.
13.5. In this chapter, I:
discuss the role of self-insurance;
examine the criteria for eligibility and approval of self-insurers;
explore self-insurers legal requirements; and
consider the changing environment in which self-insurers operate and the need for greater
flexibility.
THE ROLE OF SELF-INSURANCE
13.6. Self-insurance has been a feature of the workers compensation scheme since its inception
nearly a hundred years ago, and many of the States largest companies are self-insured.
13.7. The potential advantages of self-insurance include:
giving employers a choice for their workers compensation arrangements;
providing a direct financial incentive to employers to improve OHS and return to work
performance;
giving employers an opportunity to reduce individual employer costs through improved
compensation claims management;
allowing employers to maintain a direct relationship with injured workers during the
management of claims; and
enabling more tailored return to work approaches, given the employers knowledge of
the workplace.
13.8. The direct financial incentives associated with self-insurance should drive strong OHS
performance, low claim rates and good return to work outcomes. However, the effect of
financial incentives in achieving those objectives may depend on a number of factors, including
whether the full costs of self-insurance are monitored within the self-insurers organisation and
whether the volume of claims allows trends in claim rates and liabilities to be measured and
improved. It should also be recognised that the incentives built into the premium system in
Victoria provide a strong driver for improved OHS on the part of scheme-insured employers.
13.9. The potential disadvantages of self-insurance include:
a reduction in the size of the premium pool, potentially impacting on scheme costs
for employers;
the financial exposure of the self-insurer;
the risk that claims and return to work might be poorly managed; and
the risk of legal precedents set by self-insurers affecting the scheme.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 13 SELF-INSURANCE
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1 VWA, Annual Report 2006/2007, p 92.
13.10. The current regulatory environment is designed to mitigate most of those risks. The financial
risks to the scheme and self-insurers are managed through prudential requirements for self-
insurers, as well as elements of the approval process. The risk of adverse legal precedents is
currently not fully managed, and that issue is discussed in paragraph 13.166 below. The risks of
poor claims and return to work management are currently addressed through an audit program
and surveys. Surveys are also used to determine levels of customer satisfaction with self-
insurer claims management.
Stakeholder views
13.11. VECCI supports the principle of self-insurance as an appropriate way for large employers to
manage their claims, rather than leaving the claims in the hands of a third party. VECCI argues
that self insurance drives innovation in claims management and that
Self-insurance creates internal management accountability and drives good prevention and
return to work.
2
13.12. However, the AWU queries the policy basis for maintaining self-insurance as an option and
claims that there is frequent mistreatment of injured workers, which appears to be rife amongst
self-insurers.
3
13.13. The VTHC submits that there should be no self-insurance in the Victorian workers
compensation scheme as
There are currently six authorised agents administering the scheme, together with numerous
self-regulated insurers. Each of these organisations administer the scheme pursuant to
different policies, which leads to inconsistency and unpredictability.
4
13.14. I consider that there are no compelling arguments to abandon self-insurance. However, there
would seem to be significant room for improvement in service levels and client satisfaction.
5
Although meaningful comparisons are difficult to draw on claim rates, it does appear that
standard claim rates are improving amongst self-insurers at the same rate as those across
the scheme.
13.15. Accordingly, I recommend that self-insurance be retained.
HOW SHOULD SELF-INSURANCE BE MANAGED?
13.16. Self-insurance is regulated by Part V of the AC Act; and its regulation one of the specific
functions of the VWA.
6
13.17. There are perceived conflicts of interest between the VWAs responsibility for managing
OHS and its responsibility for managing the financial integrity of the scheme and its insurance
functions. Further, there may be a particular perception of conflict of interest in the VWAs
current role in relation to self-insurance.
Stakeholder views
13.18. The SIAV considers that
a series of failures derive from the conflicted position of the Victorian WorkCover Authority
as both an insurer in competition with self insurance and as a regulator.
7
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 441
2 VECCI, Submission, 8 February 2008, p 40.
3 AWU, Submission, 31 January 2008, pp 1-2.
4 VTHC, Submission, 2 May 2008, p 56.
5 This is discussed further in paragraph 13.156.
6 AC Act, s 20(1)(c).
7 SIAV, Submission, February 2008, p 4.
13.19. The SIAV further submits
The Review represents an opportunity to consider governance structures in other states in
particular Queensland where the separation of the regulatory and insurance functions gives
far greater credibility to the Government in the view of businesses.
8
(WorkCover Queensland provides workers compensation insurance, Q-Comp is the regulatory
authority and the Department of Employment and Industrial Relations undertakes the OHS
regulatory function.)
13.20. The SIAV also submits
a similar structure in Victoria would bring a new discipline to the management of the
workers compensation system and offer better outcomes in injury reduction and funds
management particularly in light of new challenges in the international economy.
9
13.21. Although the VWAs various regulatory and management responsibilities may raise perceived
conflicts, there are also a number of synergies in the VWAs overarching regulatory and
insurance functions, including self-insurance, borne out of experience, knowledge and
expertise.
13.22. Maintaining an effective balance between its various roles is an ongoing challenge for the VWA.
However, it is a challenge that appears to have been met over several years, as is reflected in
the success of the scheme overall.
13.23. Currently, the self-insurance management function is separated from other VWA functions and
operates independently. An effective separation is therefore already currently achieved. It would
be difficult to justify the creation of a separate entity to resolve the perceived conflict of interest
relating to self-insurance management, given all the inherent costs and legislative impacts.
13.24. The relative performance of self-insurance in Victoria and Queensland is also relevant (although
comparisons of injury rates are problematic because there are differences between the
schemes).
13.25. State-wide injury rate data
10
indicate that Victorias overall rates of injury are equal to or better
than Queenslands, suggesting that there is no major performance impact from the current
management of self-insurance in Victoria. In fact, it is potentially advantageous.
13.26. Irrespective of whether the regulatory function is administered by the VWA, or by a separate
entity such as that in Queensland, there is no evidence to suggest that there would be a
material difference in the compliance costs for self-insurers. In either case, the statutory
obligations in Victoria will be enshrined in the AC Act and its subordinate legislation.
13.27. Consequently, I believe there is no persuasive reason for removing self-insurance management
from the VWA, and I recommend that the current governance arrangements be retained.
ELIGIBILITY AND APPROVAL
13.28. To be eligible to apply for approval as a self-insurer, an organisation must be a body corporate
and not be a subsidiary of another body corporate (other than a foreign company).
11
13.29. The AC Act also makes special provision for the MAV to become a self-insurer,
12
although it
has not yet exercised this option. There is also provision for partnerships to be approved as
self-insurers.
13
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 13 SELF-INSURANCE
PAGE 442
8 SIAV, Submission, February 2008, p 4.
9 SIAV, Submission, February 2008, p 4.
10 Workplace Relations Ministers Council, Comparative Performance Monitoring Report, 9th edition,
2008.
11 AC Act, s 141(1).
12 AC Act, ss 141A and 142A.
13 AC Act, ss 142B and 142C.
Determining eligibility
13.30. Currently, the VWA tests an employers eligibility for self-insurance against certain criteria
before allowing the employer to go through the full application process. The pre-application
assessment allows an employer to make an informed decision about whether an application
is likely to be successful, and prevents the employer from investing further time and effort if
it does not meet the financial or other eligibility criteria.
13.31. The pre-application assessment process is not set out in the AC Act, although the minimum
requirements as to financial and other eligibility criteria are clearly stated.
14
13.32. The VWA is concerned that the current process involves extensive work and resources. Where
an employer fails the pre-application test, no fee is collected. There are also no timelines around
this process, so that assessment of eligibility can continue indefinitely.
13.33. Several changes have been suggested, including the introduction of a fee for the pre-application
eligibility process. This fee could be credited against the approval fee where the full application
process goes ahead.
13.34. The rationale for a pre-application assessment fee is that the VWA incurs a cost in administering
the eligibility process, which is borne by existing self-insurers and scheme-insured employers
rather than the employer generating that cost.
13.35. By way of analogy, the procedure for licensing major hazard facilities has a clearly defined two-
step process, which is set out in the Occupational Health and Safety Regulations 2007.
15
Facilities are required to register with the VWA
16
and then apply for a licence within 12 months
of the registration.
17
13.36. I recommend that a similar approach be used for self-insurance approval arrangements. A
provision to the effect that an eligibility application remained valid for a set period would ensure
that employers applied when they had the best chance of meeting the eligibility requirements.
It would also limit the amount of subsequent reworking required when the employer proceeded
to seek approval as a self-insurer.
13.37. I also recommend that the VWA should be allowed to charge a fee for the eligibility process.
The approval process
13.38. To be approved as a self-insurer, an eligible employer must satisfy the VWA that it is fit and
proper
18
by reference to the following criteria:
whether the employer is, and is likely to continue to be, able to meet its liabilities;
the employers capacity to administer claims for compensation;
the incidence of injuries to the employers workers and the cost of resultant claims;
the safety of working conditions for workers employed by the employer and its subsidiaries;
whether the employer has failed to comply with the AC Act or AC Regulations or any
conditions of approval as a self-insurer; and
such other matters as the VWA thinks fit.
13.39. Most Australian schemes require both that employers demonstrate prudential and
administrative capacity before they are eligible for self-insurance.
19
Potential self-insurers must
demonstrate their capacity and experience in OHS and claims management performance.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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PAGE 443
14 AC Act, ss 141, 141A and 142B; AC Regulations, reg 19.
15 OHS Regulations, Part 6.1, 6.2.
16 OHS Regulations, Part 6.2.
17 OHS Regulations, reg 6.1.19, 6.1.22.
18 AC Act, ss 142(1), 142(2); 142A(1), 142A(2); 142C(1), 142C(2).
19 Bracton Consulting Services Pty Ltd and PricewaterhouseCoopers, Approach to Determination of Self-
Insurer Contributions and Review of Calculations, 2007, p 148.
13.40. To improve the transparency of its decision-making and to assist applicants, the VWA has
developed guidelines on the approval process and what constitutes a fit and proper
organisation.
20
13.41. However, the current VWA guidelines have no legal status. Formal guidelines issued under
the AC Act would provide applicants with more certainty.
13.42. I recommend that power be given to the VWA to set guidelines under the AC Act to support
the management of self-insurers. The power would be similar to the current process for making
guidelines under the OHS Act.
21
13.43. Any revised guidelines should be developed consultatively with stakeholders.
Introduce a time limit on applications
13.44. After receiving an application from an eligible employer, the VWA begins an assessment
process, which involves audits and stakeholder feedback and can take up to a year to complete.
13.45. As in the case of determining eligibility, there is no time limit currently attached to the
assessment process and, once an application is lodged, it remains valid indefinitely.
13.46. The lack of a timeframe appears to benefit employers. Where an employer does not meet the
approval requirements, the employer can continue to work towards meeting the requirements
and reactivate the application when appropriate.
13.47. To some extent, an improvement process always forms part of the application, because OHS
audits are carried out early in the process and employers are expected to rectify all gaps before
a licence is granted. However, where an employers performance is significantly below the
required level, the process can be lengthy. The VWA must carry out multiple assessments,
which is a cost on all self-insurers, as well as a burden on the employer.
13.48. A time limit on applications would address that issue. Twelve months has been recommended
as a reasonable time for an application to remain current, with discretion for the VWA to extend
the period.
13.49. Such a limit would not prevent the employer from working on its safety and claims issues
and returning with a new application at the appropriate time. This approach could reduce
the amount of work required and provide clarity for all parties.
13.50. One of the benefits of self-insurance may be the improvement that is driven as part of the
application process. That benefit would be further enhanced by limiting the timeframe for
applications. Any time limit would need to be linked to the time taken for the VWA to approve
an application.
13.51. I recommend that the AC Act be amended to require applications for self-insurance to be
completed within 12 months of the application being made, or longer at the discretion of
the VWA.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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20 WorkSafe Victoria, viewed 8 July 2008. <www.workcover.vic.gov.au/wps/wcm/connect/
WorkSafe/Home/Insurance+and+Premiums/Self+Insurance/Reference+Material+for+Current+%26+
Prospective+Self-Insurers>.
21 OHS Act, ss 12-15.
Modify the calculation of application fees for new entities
13.52. A fee is currently charged to employers for a self-insurance application. The fee is 0.033% of
the employers rateable remuneration paid in the previous year, up to a maximum of $33,000.
22
13.53. However, a new entity (such as a de-merged employer) will have paid no remuneration in the
previous year. Charging no fee in that situation would clearly be inequitable.
13.54. Accordingly, I recommend that the formula for the application fee be modified, to allow
estimates of remuneration to be used where there has been no actual remuneration paid by
the employer in the relevant period. I further recommend that the AC Regulations be amended
to require the employer to provide the VWA with the information on which the VWA can base
its estimate.
Extend the term of approval
13.55. The AC Act allows the VWA to approve self-insurers for three years initially, with subsequent
approvals for four years.
23
Along with Queensland and the Commonwealth, Victorias subsequent
approval term is the longest in Australia, as shown in table 13.1 below.
TABLE 13.1: APPROVAL PERIODS
24
13.56. Ai Group submits that it would support extending the approval period to six years.
29
13.57. The SIAV has gone further, advocating an initial four-year term, followed by a subsequent term
of six to ten years. The SIAV submits
a reduction in the administrative burden would allow greater focus on safety and return to
work.
30
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
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22 AC Regulations, regs 20(2) and 20(4).
23 AC Act, ss 142(4)(b), 142A(3)(b), 142C(3)(b).
24 Comparison of Workers Compensation Arrangements in Australia and New Zealand, Australian Safety
and Compensation Council, June 2007, version as at 14 January 2008.
25 SA WorkCover, Code of Conduct for self-insured employers under the WorkCover Scheme, April
2008, pp 91-93. WorkCover SA, viewed 16 July 2006, http://www.workcover.com/home/employers/
selfinsured/selfinsuredemployers/selfinsuredpublicationsforms.aspx.
26 Workers Rehabilitation and Compensation Act 1988 (Tas), s 108. AustLII, viewed 16 July 2008,
http://www.austlii.edu.au/au/legis/tas/consol_act/wraca1988400/.
27 Workers Compensation and Rehabilitation Act 2003 (Qld), ss 78(1) and (2).
28 Safety, Rehabilitation and Compensation Directions 2002, Part 5 18. Comcare Australia, viewed
15 July 2008, http://www.comcare.gov.au/__data/assets/pdf_file/0015/25233/SRC_Directions_2002.pdf
29 Ai Group, Submission, May 2008, p 98.
30 SIAV, Submission, May 2008, p 32.
State Initial term Subsequent term Comment
Vic 3 years 4 years
NSW 3 years 3 years Shorter terms can be granted
SA
25
Not exceeding 3 years 3 years First term often 2 years
WA N/A
Tas
26
1 13 years Based on audit outcome
Qld
27
2 Not more than 4 years
ACT Up to 3 years 3 years
NT 1 year 3 years 3 years after demonstrating ability to manage claims
and meet requirements
Commonwealth 2 years 4 years If the Commission grants a licence, the Commission
must publish a notice in the Gazette, stating the
period for which the licence is granted
28
13.58. Another option would be to introduce variable terms based on performance. South Australia,
31
Tasmania,
32
Queensland, the Australian Capital Territory and the Northern Territory all have
variable terms. The advantage of that approach is that self-insurers who need to improve their
performance are given shorter licence periods, creating a strong incentive for them to address
identified issues.
13.59. A recent review of Victorias self-insurance arrangements
33
recommended that variable periods
should be examined as part of the overall performance management system. Currently, when
performance issues are identified in Victoria, the VWA has processes in place to inform the
self-insurer and work with the self-insurer to resolve the problems.
13.60. In my view, the current system generally works well. Further, the proposed changes regarding
rights of review
34
will provide the VWA with more appropriate methods for managing any self-
insurers who may not have met their obligations.
13.61. Overall, I believe that the most effective approach would be to allow a term of six years,
following the first approval, to reward good performance.
Amend the review and revocation of approval provisions
13.62. The VWA can review a self-insurers approval in certain limited circumstances,
35
including
where the self-insurer is in financial difficulty, is a takeover target or there are specific changes
to the self-insurers makeup. Following a review, the VWA may revoke the self-insurers approval
and licence if the self-insurer ceases to meet any of the requirements for approval.
36
13.63. There is a range of other situations where it might be beneficial for the VWA to have a right
of review, including where a self-insurer:
becomes a subsidiary of an Australian parent company;
fails to meet any of the requirements for approval as a self-insurer; or
fails to meet any of the prerequisites for approval as a self-insurer.
13.64. Where an employer company has become a subsidiary of an Australian parent, the company
would no longer meet the eligibility criteria for self-insurance.
37
The exclusion of such a
company from self-insurance prevents an employer from manipulating its business to shift
risk from any self-insured part of its operation to a scheme-insured part. It also ensures that
the VWA has a complete view of the organisations financial situation. The VWA can deal with
the top level of the organisation, which controls all safety, finance and claims management
functions.
13.65. Where a self-insurer is unable to meet other eligibility or approval criteria, the self-insurers
approval should be reviewed. Those criteria are intended to manage the possible risks of
self-insurance. For example, if an organisation no longer meets the minimum level of financial
viability or no longer has the appropriate resources in place for managing claims, the risks
to the scheme or workers would increase. It would therefore be appropriate to review the
organisation and its suitability for self-insurance.
13.66. The conduct of a review should be at the discretion of the VWA to ensure flexibility, because
short-term factors may influence the ability of an employer to meet the requirements.
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31 SA WorkCover, Code of Conduct for self-insured employers under the WorkCover Scheme,
April 2008, pp 91-93.
32 WorkCover Tasmania, Self-Insurer Supplement, May 2007, pp 17-20.
33 VWA, Review of Self-Insurance Arrangements in Victoria: Report of the Self-Insurance Review Team,
August 2005, p 43.
34 See paragraphs 13.62-13.70.
35 AC Act, ss 148(4) and 149.
36 AC Act, ss 148, 148(4) and 149(1).
37 AC Act, s 141(1).
13.67. The AC Act prevents the VWA revoking approval of a self-insurer unless the VWA has given the
self-insurer at least 28 days written notice of the intended revocation.
38
13.68. However, where the self-insurer itself has requested revocation and may want its approval to be
revoked promptly, the restraint on the VWA could be counterproductive. It would be appropriate
to relax the requirement for 28 days notice in that situation.
13.69. I recommend that the AC Act be amended to allow the VWA to review a self-insurers approval
where the self-insurer:
becomes a subsidiary of an Australian parent company;
fails to meet any of the requirements for approval as a self-insurer; or
fails to meet any of the prerequisites for approval as a self-insurer.
13.70. I further recommend that the 28-day notice period be removed where the self-insurer requests
revocation.
ONGOING REQUIREMENTS
13.71. Once an employer is approved as a self-insurer, the AC Act and the AC Regulations require
the employer to:
maintain a bank guarantee
39
in favour of the VWA equal to $3 million or 150% of the
self-insurers current, non-current and contingent liabilities (whichever is greater);
40
maintain insurance for contingent claims;
41
make quarterly contributions to the WorkCover Authority Fund to cover certain scheme costs
in proportion to remuneration;
42
meet the terms and conditions of approval as a self-insurer,
43
including:
estimating the cost of new claims and reviewing this estimate every six months;
ensuring that copies of workers compensation claim forms are accessible to workers;
retaining relevant documents on claims;
making recoveries from third parties, where a right of recovery exists;
advising the VWA annually of all common law proceedings and providing additional
information requested by the VWA;
cooperating with audits and providing information on adherence to the AC Act and AC
Regulations;
participating in a self-audit program approved by the VWA, and providing the findings
of the self-audit to the VWA;
providing specified data and information to the VWA;
taking all reasonable measures to ensure that any agent appointed to manage the self-
insurers claims complies with the AC Act and AC Regulations and any audits, self-audits
or information requests made by the VWA; and
notifying the VWA immediately if at any time the self-insurer is unable to pay any of its debts.
13.72. In addition, terms and conditions relevant to a specific self-insurer can be determined and
imposed by the VWA.
Financial requirements
13.73. The current financial requirements for self-insurers are designed to protect scheme integrity.
Multi-State self-insurers face higher compliance costs because each jurisdiction requires a bank
guarantee, and each guarantee requires a separate actuarial report. This has led to the HWCA
to propose streamlining some self-insurance requirements, including bank guarantees.
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38 AC Act, ss 148(5), 149(2).
39 AC Act, s 146(1)(a).
40 AC Act, s 146(5). The amount is estimated annually by an actuary approved by the VWA.
41 AC Act, s 146(1)(b).
42 AC Act, s 33A.
43 AC Act, ss 142(4)(a), 142A(3)(a), 142C(3)(a) and AC Regulations, reg 21 and Schedule 4.
13.74. The HWCA has recommended that a self-insurer must hold:
a bank guarantee amount based on a minimum of 150% of the central estimate of the
outstanding claim liabilities, including a prospective component; or
a bank guarantee amount based on at least 90% probability of the amount being adequate.
13.75. Adopting that approach would simplify administration for multi-State self-insurers and reduce
costs.
13.76. Self-insurers must also hold a policy for contingent liability insurance to cover unforeseen
claims.
44
The policy must provide unlimited cover, with an excess to be paid by the self-insurer
of between $500,000 and $2 million.
45
Stakeholder views
13.77. Ai Group supports a harmonised approach to bank guarantees, subject to actuarial advice.
46
13.78. The SIAV submits that the
. . . quantum aspect of the guarantee should be revisited together with the methodology . . .
SIAV believes that a ground-up re-examination of the issue would result in a better outcome
for the VWA in particular.
47
13.79. In my view, the HWCA-endorsed approach should be adopted, although that approach would
require some changes to the current system.
13.80. Victoria currently requires a bank guarantee of 150% of liabilities or $3 million (whichever is
greater).
48
To adopt fully the HWCA approach, Victoria would therefore need to modify its
current bank guarantee requirements to introduce a prospective component.
13.81. The contingent liability insurance excess was set in 1990 and has significantly reduced in
real terms since that time. In my view, the excess requirement should be relaxed, allowing
self-insurers to choose a higher or lower excess on their contingent liability insurance to suit
their individual needs.
13.82. I recommend that the minimum for a bank guarantee be removed and the maximum increased
to $5 million or an amount advised by actuaries. There is no risk to the scheme in updating this
requirement to fit the current needs of companies.
13.83. The Reviews independent actuaries estimate that the cost impact is negligible for established
self-insurers and will only be considerable for new self-insurers with large numbers of severe
claims.
49
CONTRIBUTIONS
13.84. Self-insurers are required to make a financial contribution to the administrative costs of the
workers compensation scheme. The amount of the contribution is calculated in accordance
with a complex formula set out in the AC Regulations.
50
13.85. Currently, self-insurer contributions cover only the costs of those services from which
self-insurers benefit directly or indirectly. Costs that relate solely to the provision of services
to scheme-insured employers are not taken into account when determining self-insurer
contributions.
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44 AC Act, s 146(1)(b).
45 AC Regulations, reg 22(3).
46 Ai Group, Submission, May 2008, p 98.
47 SIAV, Submission, May 2008, p 34.
48 AC Act, s 146(5).
49 Source: advice from the Reviews independent actuaries.
50 AC Regulations, reg 23.
13.86. The current formula splits the schemes administrative costs into the following three pools:
costs included at 100%: the costs associated with the Magistrates Court, County Court
and Tribunal, Medical Panels and interpreters fees and Accident Compensation Conciliation
Service;
costs included at 60%: WorkCover operating costs (including remuneration of staff and the
Board of Directors and other administration costs and expenses across the VWA) these
administrative costs are arbitrarily discounted by 40% under the current formula;
51
and
costs excluded: actuarial services, IT costs relating to the network used by the VWAs agents,
costs related to compliance audits for premium collection, expenditure on public safety
funded by Consolidated Revenue.
13.87. Self-insurers contribute to the administrative costs in proportion to their share of total Victorian
remuneration covering both scheme insured and self insured employers.
13.88. Self-insurer contributions are allocated amongst the 39 firms based entirely on remuneration.
That is, a self-insurer whose remuneration is 1% of the total remuneration of all self-insurers
contributes 1% of the costs allocated to the self-insurance contribution pool, irrespective of
the self-insurers OHS risk.
13.89. The allocation method for scheme-insured employers is more sophisticated. It is based
on remuneration, the premium rate for the relevant industry and a 2
3
/4 year claims history
adjustment. The last two factors capture the employers OHS and claims risk.
13.90. The total level of self-insurer contributions has generally increased over time, largely because
of growth in the VWAs operating costs and the increased numbers of self-insurers.
13.91. Self-insurer contributions have steadily increased from $3 million in 1998/1999 to $13.7 million
in 2006/2007, although they have been stable for the past three financial years.
Previous reviews
13.92. The formula for self-insurance contributions has been subject to various reviews (without
resolution) in recent years. When the AC Regulations were proposed in 2000, the proposal
was to increase self-insurers share of residual costs from 60% to 100% over the next year.
However, during the consultation process, it was decided to delay any increase to the
proportion of residual costs paid by self-insurers pending a further review.
13.93. In response to rising contributions, in 2002 the SIAV raised with the VWA a number of concerns
about the methodology for calculating contributions and provided the VWA with a set of draft
guiding principles for the calculation of contributions.
13.94. The VWA issued a discussion paper in August 2002 in an attempt to address the SIAVs
concerns.
52
13.95. The VWA discussion paper acknowledged that the level of self-insurer contributions had
increased significantly, reflecting higher operating costs, reduction of the arbitrary discount
from 50% to 40% and increases in the number of self-insurers.
13.96. The discussion paper went on to suggest that self-insurers may in fact be under-contributing
to scheme costs, based on the VWAs assessment of the proportion of operating costs
attributable to self-insurers. The VWA concluded that the contributions pool should have been
approximately $15.5 million for the relevant year, compared to the $12.5 million collected.
13.97. The SIAV challenged the VWAs assessment and applied its own analysis to the financial
information provided by the VWA. The SIAV concluded that a significantly lower charge for
the relevant year $7.59 million was warranted.
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51 They were previously discounted by 50%.
52 Self Insurers Contributions Methodology, Discussion Paper, VWA, 12 August 2002.
13.98. In August 2005, the VWA completed a two-year review of Victorias self-insurance arrangements
aimed at increasing the efficiency and effectiveness of those arrangements and ensuring that
the arrangements are aligned with, and contribute to, the achievement of the VWAs objectives.
13.99. The VWAs 2005 review concluded that the following broad principles should apply to
contributions:
self-insurers should meet a proportionate share of costs incurred by the scheme, excluding
those costs that relate directly to the VWAs support of its authorised agents;
competitive neutrality should be maintained between large scheme-insured employers and
self-insurers (in terms of the groups providing a proportionate contribution to the VWAs
operating costs);
the allocations of contributions to individual self-insurers should reflect both the risk of
each self-insurer and the VWAs relative oversight effort in relation to each self-insurer; and
a relatively simple and transparent methodology for calculating contributions should be
developed.
13.100. However, the 2005 Review recommended that, given the complexity of the issue, the
methodology for calculating contributions should be independently reviewed by the ESC.
The responsible Minister subsequently referred the matter to the ESC for consideration.
13.101. The VWA did not make a submission to the ESC Review. The SIAV made a submission and
noted that
. . . in establishing the contribution fee, the first task is therefore to determine what parts of
the total pool of costs covering all of VWAs activities are necessary and efficient. The second
task is to establish which of these are attributable to self insurers and the third is to ensure
that the pool of costs attributed to self insurance is distributed efficiently and equitably across
self insurers.
53
13.102. In relation to the first point, the SIAV noted that estimates of the size of the total pool of
VWA costs should be recognised as being inflated.
54
13.103. In relation to the second point, the SIAV noted
SIAV supports an activity-based costing approach. However, SIAV notes that even with direct
activity based costing there will always remain the question of how to treat the unallocated
common costs . . . It is generally accepted that an efficient allocation of common costs lies
within the range of incremental and stand alone costs . . . it illustrates that for self insurers
to pay zero contribution to common costs is extreme and requiring them to pay 100% is
equally extreme. The current cap of 60% essentially recognises this position.
55
13.104. In relation to the third point (the allocation of contributions between self-insurers), the SIAV
referred to its submission to the VWAs Review of Self-Insurance, in which it had proposed that
self-insurers be allocated to one of four groups with different percentage contribution rates, and
pay contributions in proportion to their remuneration.
56
The SIAV stated that the advantages of
this allocation method were that
it introduces an element of performance and user-pays . . . A higher charge is applied to
self-insurers with Major Hazard Facilities . . . Larger self insurers will tend to pay a lower
contribution rate than smaller self insurers. The internal infrastructure and resources available
to larger companies, through scale, will make them proportionately less reliant on information
and services provided by WorkCover . . . Self insurers with relatively low outstanding claims
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53 SIAV Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees Payable to the Victorian WorkCover Authority, March 2006, p. 6.
54 SIAV, Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees Payable to the Victorian WorkCover Authority, March 2006, p. 6.
55 SIAV, Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees Payable to the Victorian WorkCover Authority, March 2006, p. 7.
56 SIAV, Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees Payable to the Victorian WorkCover Authority, March 2006, p. 20.
liabilities will pay a lower contribution than those with relatively high claim liabilities. Self
insurers with a heavier claims experience are more likely to be users of WorkCover services
for example through being the subject of higher numbers of WorkSafe site visits.
57
13.105. The ESC made the following recommendations:
the VWA should develop a more rigorous approach and more precise mechanism for
identifying its costs and in particular, those that relate to self insurers. An activity based costing
approach to assist with the calculation of the contributions pool for self insurers represents the
most accurate mechanism and would enhance the VWAs ability to base costs on actual usage
of services by self insurers . . .
The VWA should develop regulations that outline its methodology for calculating the
contributions pool, including the basis and proxies used to allocate some proportion
of overheads to self-insurers. The RIS process should be used to ensure that:
(i) An appropriate activity based costing model has been followed; and
(ii) Consultation has been undertaken with self-insurers and the SIAV.
The regulations should come into effect for the financial year commencing 1 July 2007
and should sunset after a defined period, preferably three years . . .
The current methodology for calculating and allocating the contributions pool for self insurers
should be retained until a more sophisticated methodology is developed. The VWA should
endeavour to replace the current approach by 1 July 2007 . . .
The SIAVs model for allocating the contributions pool to individual self insurers on the basis
of an annual assessment of the ratio of outstanding claims to remuneration and whether the
employer operates a major hazard facility, is superior to the current approach in that it is likely
to align payments more closely with the VWAs costs. The Commission recommends that this
model should be considered, although it notes that further refinement of the model will be
necessary following the changes to fees relating to major hazard facilities.
The Commission is also aware that the VWA is undertaking further analysis of its regulation
of self-insurance, including the policy framework and the methodology for calculating
the recovery of its costs through the contributions of self-insurers. A possible outcome
of this review is a change to the Governments policy framework with implications for the
development of an alternate calculation methodology. Should this occur, the Commission
would recommend that any significant initiatives or developments should be subject to
independent review or scrutiny; a possible example being a further subsequent review by
the Commission.
58
13.106. In January 2008, the VWA released a further proposal for the calculation of contributions.
The VWAs preferred model uses the Efficient Component Pricing Rule (ECPR) principles. In
essence, the ECPR approach is based on the principle that an employers decision to self-insure
must not undermine the integrity of the scheme or leave scheme-insured employers worse off.
13.107. Under the ECPR model, contributions would take into account revenue forgone (for example,
premium) and costs avoided (for example, administrative costs) by the VWA and include costs
relating to the regulation of self-insurers.
13.108. The VWA model also incorporates a risk component. Self-insurers contributions would, in part,
be a function of their claims performance and claims liabilities. Improvements in safety and
claims performance would lead to decreases in contributions and vice versa.
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57 SIAV, Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees Payable to the Victorian WorkCover Authority, March 2006, pp. 21-22.
58 ESC, Final Report: Review of Self Insurer Contributions to the WorkCover Authority Fund, June 2006,
pp 45-47.
13.109. Under the VWAs model, a self-insurers risk adjusted remuneration would be derived from the
self-insurers individual benchmark premium rate based on its claims experience. That approach
would provide an inbuilt incentive to improve OHS because the amount of contribution would,
in part, be a function of the self-insurers actual claims performance.
The approach would also align self-insurers contributions with the approach taken to the
calculation of premium for large scheme-insured employers, for whom the total premium
payable varies, not only according to their remuneration level, but also according to their
industry rate and claims experience.
Stakeholder views
13.110. In its submission to this Review, the SIAV states:
SIAV supports the findings of the ESC that the allocation methodology proposed by SIAV
should be used and more importantly, that following this Review, the ongoing supervision
of the Contributions Fee should be returned to the ESC.
In any of the models and as the ESC found, it is essential that costs be allocated correctly into
the different buckets, as inaccurate allocations will compromise efficiency. Each cost item
for the VWA should be divided into four parts:
costs that are specific to self insured firms;
costs that are common to scheme insured and self insured firms;
costs that are specific to scheme insured firms and are fixed;
costs that are specific to scheme insured firms and are variable.
Under the recommended pricing methodology, self insured firms should be required
to contribute their share of the first three cost groups only
. . .
SIAV recommends that an independent audit of VWAs cost structure be undertaken
to correctly assign costs to each category, with particular attention being paid to the
determination of fixed costs.
59
13.111. The SIAV also
. . . rejects the VWAs subsequent model proffered earlier this year and which has effectively
escaped the scrutiny of the ESC . . .
SIAV reiterates its position that the ESC is the only competent body with capacity to resolve
this issue . . .
60
13.112. Ai Group is the only other stakeholder to comment on the contribution issue
Self-insurers should be required to make a contribution to the operation of the scheme,
based on the services/resources that are directed toward their businesses, whether through
enforcement/governance activities or the strategic activities of the Authority. Ai Group has
been party to discussions with the Authority regarding their preferred model. It is our
recommendation that the Authoritys preferred model is put on the table for broader industry
discussion.
61
13.113. The Review commissioned Access Economics (AE) to examine the models proposed by the
SIAV, the ESC and the VWA. A copy of the AE report is attached to my report (Appendix2).
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59 SIAV, Submission, May 2008, p 39.
60 SIAV, Submission, May 2008, p 38.
61 Ai Group, Submission, May 2008, p 103.
13.114. AEs conclusions can be summarised as follows:
The ECPR method is the appropriate pricing methodology for self-insurer contributions.
Activity-based costing is not appropriate.
The ECPR method includes costs not directly imposed on the VWA by self-insurers in the
interests of economic efficiency. That approach contrasts with the SIAVs preferred pricing
principles which seek only to recover costs directly attributable to self-insurers.
The ECPR method promotes economic efficiency. It avoids costly duplication of public
monopoly services and ensures that a firm opts to self-insure if, and only if, the firm reduces
the true social costs of insuring its employees below VWA costs.
Under the ECPR method, self-insurers would be required to contribute their share of the
following:
a. self-insured specific total costs (fixed and variable costs imposed on the VWA by services
specific to self-insured employers) presently estimated at $2.8 million;
62
b. common costs (overheads not directly attributable to either self-insured employers or
scheme-insured employers such as the VWAs workplace safety services) presently
estimated at $158.9 million; and
c. scheme-insured specific fixed costs (fixed costs involved in running services specific
to scheme-insured employers) presently estimated at $27.2 million.
To ensure competitive neutrality individual contributions should be allocated based on a
combination of remuneration and risk, consistent with the allocation method for scheme-
insured employers.
In applying this methodology, it will be important to ensure that costs are properly identified
and categorised and that there is independent scrutiny of the process. It will be particularly
important to ensure that fixed costs are appropriately identified. Over-allocation of fixed costs
will lead to inefficiently high charges to self-insurers and may also provide incentives for VWA
to gold plate its operations and may insulate it from the consequences of past business
decisions.
To promote efficiencies within the VWA, it may also be desirable to incorporate an efficiency
dividend in the formula, ensuring costs do not increase by more the than inflation rate (or
even the inflation rate less a particular value).
13.115. I provided an initial draft of the AE report to the SIAV and other members of the Stakeholder
Reference Group. In response, the SIAVs consultant economists, Marsden Jacob Associates,
commented
ECPR rule is well known and controversial.
Produces results least satisfactory from the perspective of competition and demand-side
efficiency.
Produces results most satisfactory from the perspective of productive efficiency and the
encumbent.
Frequently advanced by monopoly encumbents as a method to set prices for third-party
access . . .
Does not require that costs are necessary and efficient. Indeed accepts and endorses
all existing cost inefficiencies, monopoly rents and cross-subsidies.
Therefore, rejected or prohibited out-of-hand by regulators or governments, especially
in Australia, New Zealand and the UK.
63
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62 Estimates provided by PwC.
63 Marsden Jacob Associates Self Insurers Association, ECPR validity and applicability: PowerPoint
briefing to Peter Hanks QC, 22 May 2008, included in correspondence from SIAV to Peter Hanks,
28 May 2008.
13.116. I sought advice from AE on the points made by the SIAV and Marsden Jacob Associates.
AE has advised me
We . . . agree with the statement . . . provided by the SIAV, that the ECPR does not require that
costs are necessary and efficient However, this will be true of any pricing rule if the costs to
be recovered include such inefficiencies . . .
We note throughout the paper that inefficiencies may be present in VWAs operations and
argue for checks to be placed on this aspect of VWA pricing. We recommend an independent
audit of VWAs cost base be undertaken and that a (CPI-X) rule be imposed on increases in
VWAs cost base over time so as to force an efficiency dividend from its operations.
It should also be recognised that the problem of being charged for inefficiently incurred
costs is not unique to self-insured firms, as scheme-insured firms are similarly affected if
inefficiencies are present. Inefficiencies in VWAs operations are a problem for all insured
firms in Victoria, and should not provide valid grounds for self-insured firms alone to refuse
to pay their share.
we note that theoretical research has been conducted on the applicability of the ECPR in
regulatory rulings . . .This research highlights that many of the constraints in the use of ECPR
occur in situations where the marginal cost of a good or service is being determined. This is
not the case for the current exercise, where instead the objective is to allocate the costs of a
public good among users.
64
13.117. I provided AEs advice to the SIAV, whose consultant economists Marsden Jacob Associates
have observed
The [AE] report claims that ECPR will maximise economic efficiency because it ensures that
when a firm leaves the scheme, that firm will continue to contribute to the fixed costs that are
specific to the activities of scheme-insured firms . . . This logic is persuasive from the point
of view of allocative efficiency, that is, it encourages individual firms to select the product
(scheme insurance or self insurance) that will impose the lowest marginal cost to society as a
whole, but only if it is assumed that the ongoing (dynamic) efficiency of the incumbent will not
be improved through competition . . . By increasing the level of competition in any industry we
will necessarily see a duplication of certain fixed costs such as administration and marketing.
However, the duplication of fixed costs is typically seen as a small price to pay for the
innovation and efficiency that can be harnessed through competitive pressure over the long
term . . .
ECPR does not deliver competitive neutrality between the VWA and self insurers. ECPR
protects the incumbents dominant market position by imposing costs on its competitors that it
would be unable to charge in a competitive environment. VWA scheme insurance would have
a significant advantage over self insurance if the VWA were able to charge self-insurers for
fixed costs incurred for the benefit of scheme insured firms. Firms that sought to compete
by self insuring would need to meet not only their own fixed costs, but also the fixed costs
of their competitor . . .
As noted, ECPR promotes allocative efficiency, but does not promote dynamic efficiency.
ECPR is therefore not appropriate in cases where it is possible for substantial competition
to develop, or even just the threat of competition, which would thereby place downward
pressure on the ongoing costs of the incumbent and encourage innovation and efficiency
throughout the industry. In the case of self-insurance, it is evident that substantial competition
(or the threat of competition) could easily emerge. The [AE]report notes that in other
jurisdictions the number of self insured employers represents a large proportion of the market
(40% in the case of South Australia) and that there are around 500 large employers in Victoria,
of which only 39 currently self insure. These statistics demonstrate that there is significant
scope for self-insurance to continue to develop and place further competitive pressure
on the incumbent.
65
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64 AE Memorandum to ACA Review Secretariat, 4 June 2008.
65 Advice by Marsden Jacob Associates, 6 July 2008, included in correspondence from SIAV to ACA
Review Secretariat 8 July 2008.
13.118. The economic advice from AE and Marsden Jacob Associates highlights that, in setting
self-insurer contributions, there are two key issues:
first, how costs should be allocated between scheme-insured and self-insured firms;
secondly, whether the costs that should be allocated should be efficient costs or actual costs.
13.119. In relation to the allocation of costs, Marsden Jacob Associates note that the selection of
pricing rule comes down to the choice of objective:
whether it is to promote economic efficiency in a static sense (allocative efficiency) by
ensuring that firms make the decision whether to self-insure based on the option that
minimises total costs for all employers, both for scheme-insured and self-insured; or
whether it is to promote economic efficiency in a dynamic sense by promoting competition
and creating competitive pressures on VWA to drive efficiencies and reduce costs.
13.120. This leads me to ask the question: Is the primary purpose of providing self-insurance in the
scheme to promote competition in the workers compensation market to drive innovation by
the VWA and other market participants, or to provide a choice for some employers to meet
their own workers compensation liabilities?
13.121. The Victorian Governments submission to the Review of Comcare Self-Insurance states
Victoria believes employers that self-insure enjoy a unique position that delivers them benefits
(they do not pay premium) and privileges (in Victoria, the employers make decisions under
local compensation laws that would otherwise be made by an authorised Agent of WorkSafe
Victoria). These benefits should only be available to those employers recognised as top
performers in their safety performance, return to work performance and in comparison with
their industry peers. In short, the granting of a self-insurance approval in Victoria is considered
a privilege; not a right.
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13.122. In my view, the primary purpose of offering self-insurance in Victoria is to provide choice for
those large firms with the capacity to self-insure. If the primary purpose of self-insurance was
to promote competition so as to drive innovation in workers compensation (dynamic efficiency),
I consider that the Government would have liberalised access to self-insurance, rather than
viewing it as a privilege.
13.123. The market (that is, access to self-insurance) could have been opened up more broadly by
allowing private insurers to offer workers compensation insurance to employers, as occurs in
Western Australia. Rather, the Government has opted to exclude private insurers and to give the
VWA a statutory monopoly over workers compensation insurance with the exception of those
companies that self-insure.
13.124. It follows that the appropriate pricing rule is one that ensures that a firms decision to self-insure
does not increase costs for scheme-insured firms. Therefore, I consider that the ECPR method
is the appropriate pricing methodology for self-insurer contributions.
13.125. On the second issue of whether efficient costs or actual costs should be allocated to self-
insurers, I note the SIAVs concerns about increases in the VWAs costs.
13.126. The VWA is in the unusual position of being a monopoly government service provider with
access to its own revenue stream through premiums, which may provide the opportunity for
cost padding. However, I note that the VWAs operational costs are reviewed by the Department
of Treasury and Finance as part of the Governments annual oversight of the financial
performance of Government entities.
13.127. AE has noted that applying a CPIX formula
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to increases in the VWAs total pool of costs used
to calculate contributions may put some pressure on VWA to control costs. On the other hand,
if VWA did not control its costs, then a CPIX approach would mean that costs would be shifted
to scheme-insured employers.
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66 Victorian Government submission to the Review of Comcare Self-Insurance, February 2008, p 18.
67 That is, a formula that holds increases to a fixed proportion of inflation.
13.128. On balance, I favour applying a CPIX approach to VWAs costs, both to address the legitimate
concerns of self-insurers, and to create pressures on the VWA to control costs. However, I also
agree with AEs advice that
. . . the costs of self-insured firms be collected over time and collated into a self-insurance
cost index which would be a weighted average of the costs these firms face in providing
workers compensation. This cost measure could then be compared to the costs of similar
services provided by VWA. The rate of increase in the self-insurers share of VWA costs would
then be limited to the rate of increase in the self-insurance cost index. In this way, self-insurers
would be insulated from cost increase incurred by the VWA which were in excess of those
incurred by the self-insurers themselves . . .
This approach removes the arbitrary nature of the efficiency factor by tying it down to realised
costs by firms which have an incentive to operate efficiently. It is not inconsistent with the
CPI-X approach, and a combination of the two may be an appropriate method for pricing
over time . . .
There are two caveats to this approach. First, it must be feasible to collect and collate the
costs of self-insured firms in a meaningful fashion. It is important to note that self-insured
firms will have an incentive to under-report their cost increases and a mechanism must be
found to counter this. We understand that VWA currently collects information on the costs
of self-insured firms, and tracking changes in an index of these costs over time should be
straightforward, although this assertion would need to be tested.
Secondly, it is important that the cost comparisons are meaningful. The operations of the
VWA are necessarily different in some respects to those of self-insured firms, and it must be
checked that cost differences are due to inefficiencies in operations and not differences in
operations. In other words, it is important to ensure that like is compared with like.
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13.129. I also support AEs recommendation that an independent audit of the VWAs cost base should
be undertaken, to ensure that costs are properly identified and categorised and that fixed costs
are appropriately identified.
13.130. I note the SIAVs recommendation that ongoing supervision of the contributions should be
returned to the ESC.
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In Chapter 11, Employer Premiums, I recommended the introduction
of a statutory requirement for review of the VWAs premium-setting by an independent expert
body, such as the ESC.
70
13.131. The purpose of the premium review is to address employers concerns about transparency, to
promote information sharing, to enhance employer and public trust in the quality and integrity
of the premium setting process, and to provide a process whereby stakeholder concerns about
premium could be openly and independently addressed.
13.132. In Chapter 11, Employer Premiums, I note that I do not envisage that a review body could
override premium proposals made by the VWA and approved by the Governor in Council. The
advice of the independent body would not be binding on the relevant Minister or the VWA.
However, the VWA would be expected to have regard to the findings of the review body.
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13.133. I consider that there would be merit in self-insurer contributions being included in the scope
of issues that could be reviewed by this independent body. That approach would promote
transparency, understanding, independent oversight and pricing expertise in the setting of
self-insurer contributions.
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68 AE Memorandum to ACA Review Secretariat, 4 August 2008, pp 1-2.
69 SIAV, Submission, May 2008, p 39.
70 See Chapter 11, Employer premiums, paragraph 11.255-11.257.
71 See Chapter 11, Employer premiums, paragraph 11.259.
13.134. When I met with representatives of the SIAV on 30 July 2008, they raised a further concern
about AEs advice to me. The SIAV is concerned that allocating costs to self-insured firms based
on a risk weighting may cause excessive volatility in the workers compensation costs of self-
insured firms. For example, a firm which experiences a larger than expected number of claims
in a given year will be penalised for that experience in two ways
through higher compensation and rehabilitation costs directly related to the claims; and
through higher contributions to VWA if the increase in claims moves the firm into a higher
risk category.
13.135. AE responded to the concern raised by the SIAV in the following manner
There would appear to be merit in the argument that claims risk can be more efficiently borne
by VWA which benefits from diversification across a large number of firms, and that at the
individual firm level operations could be conducted more effectively in the presence of greater
certainty around costs.
Countering this concern are the arguments for a risk component in the allocation. These . . . are:
that the costs which self-insured firms place on VWA are driven to some degree by the relative
level of oversight, which is in turn based on the perceived level of risk of these firms; and
that scheme-insured firms face fees which are adjusted for claims performance, and
competitive neutrality dictates that self-insured firms be charged in a similar manner.
Hence, whether allocations are adjusted for risk should reflect which concern is greater
out of these competing issues . . . [G]iven the [Reviews] stated preference for the pricing
formula to perform strongly against the efficiency and competitive neutrality criteria . . .
Access Economics recommends that a risk component should be included.
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13.136. I agree with AEs recommendation. I also note that the SIAV previously appeared to favour
including a risk component to self-insured firms contributions. For example, in its submission
to the ESC in March 2006, the SIAV submitted
The SIAV Allocation Model proposes that:
self-insurers be divided into four groups, each group paying a different proportion of their
remuneration, or contribution rate . . .;
self-insurers would be assigned to their respective groups on the basis of whether the self-
insurer operates a major hazard facility; the ratio of the self-insurers claims liabilities to its
remuneration; and level of remuneration . . .
This SIAV allocation model therefore recognises:
the higher level of inspection and oversight of major hazard facilities compared to other
sites;
the greater level of oversight given to self-insurers which higher relative level of claims as
indicated by the ratio of their claims liabilities to remuneration. This information is calculated
by actuaries advising the self-insurers and therefore is a precise measure of risk for each
individual insurer. It avoids the need for and destroys the relevance of industry risk
classifications; and
the need for equity between self-insurers to ensure that the larger self insurers whose
remuneration levels are increased by white collar and executive salaries (for instance in
the finance sector), are not unduly penalised.
73
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72 AE Memorandum to ACA Review Secretariat, 4 August 2008, p 3.
73 SIAV, Submission to the Essential Services Commission Issues Paper: Ministerial Reference on
Contribution Fees payable to the Victorian WorkCover Authority, March 2006, p. 32.
Summary of recommendations
13.137. I recommend the contributions formula be changed to the following proposed by AE:
Recovery from self-insured (SI) firm I equals:
[SI Specific Costs + (Scheme-insured specific fixed costs + Common Costs) Y/Z] (Xi /Y) ri
where:
Y is total remuneration for self-insured firms;
Z is total remuneration for scheme-insured and self-insured firms;
Xi is self-insured firms remuneration; and
ri is the self-insured firms risk weighting.
13.138. I recommend that a CPIX cap be applied to increases in VWAs costs (with factor X initially
set at 2% and refined over time by reference to the self-insurer cost index I endorse at
paragraph 13.128 above).
13.139. I also recommend that an independent audit of VWAs cost base be undertaken to ensure
that costs are properly identified and categorised.
13.140. Finally, I recommend including self-insurer contributions in the issues that could be reviewed
by the independent expert body that reviews premiums.
AUDIT PROGRAM
13.141. The AC Regulations require self-insurers to comply with an audit program,
74
covering:
claims management and occupational rehabilitation;
financial, prudential and data requirements; and
occupational health and safety.
13.142. New self-insurers are required to conduct annual self-audits and are audited by the VWA at the
end of their first three-year term if they apply for renewal. Self-insurers must then continue to
carry out annual self-audits for three years, with the VWA conducting an audit every fourth year.
13.143. The inclusion of OHS requirements in the audit program ensures that self-insurers promote the
VWAs key overall objective of improving OHS performance. However, to comply with those
requirements, self-insurers may incur additional costs compared to scheme-insured employers
(although all large firms are expected to have OHS management systems in place that require
ongoing auditing).
13.144. Removing OHS from the audit program could significantly reduce compliance costs for self-
insurers, particularly multi-State self-insurers, who need to comply with different State-specific
requirements.
13.145. However, the removal of the OHS audit requirement could lead to a reduction in OHS standards.
Although the VWA can choose not to reapprove a self-insurer if there is a significant reduction
in the self-insurers OHS performance, such a reduction would be difficult to determine in the
absence of an OHS audit. OHS audits are a more immediate indicator of OHS performance
other measures, such as claim and injury rates, involve a time lag.
13.146. The most useful data to assess the long-term OHS performance of self-insurers are aggregated
claim rates. Self-insurers have similar rates (to other large employers) for claims longer than
20 days. However, self-insurers have higher rates for claims of 10 days or less and claims
involving medical costs only.
13.147. Overall claim rates for both self-insurers and other large employers have shown improvement
over time. That improvement suggests that the current model is working well and the OHS
requirements should not be reduced.
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74 AC Regulations, reg 21, and Schedule 4, clauses 6 and 7.
13.148. If the OHS audit requirements were retained, one option would be to implement the national
OHS audit tool, which was endorsed by the HWCA in 2007 and was designed to reflect
Australian Standard AS 4801 for OHS management systems.
13.149. That option would have a mixed impact on the compliance costs of self-insurers. It is likely to
increase compliance costs for some self-insurers because it extends the scope of the current
Victorian standard audit from 82 to 117 criteria. It may also require some self-insurers to alter
or extend their existing safety management systems to bring them into line with the Australian
standard.
13.150. However, the option is likely to reduce compliance costs for multi-State self-insurers.
Stakeholder views
13.151. In a submission to the VWA, the SIAV has provided feedback on the proposed national audit
tool and its implementation.
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The SIAV is concerned that there will be duplication if all self-
insurers are required use the tool, and has requested that a regulatory impact study be
completed to assess the proposed approach.
13.152. Ai Group submits
In principle Ai Group welcomes changes which increase harmonisation and reduce
administrative burden. Adoption of a nationally harmonised audit tool many have significant
merit. However, Ai Group has not looked at the detail of the audit tool and would rely on the
views of the individual Victorian self-insurers regarding its relevance and adequacy.
76
13.153. VECCI questions the need to meet VWA benchmarks and sees little value in the audit program.
It would like to see fewer barriers to self-insurance.
77
13.154. In the interests of ensuring safety standards are maintained and consistent with other Australian
jurisdictions, I recommend retaining the OHS audit requirement and implementing the national
OHS audit tool.
CLAIMS MANAGEMENT
13.155. A key regulatory challenge is to ensure that self-insurers strong incentive to minimise costs
does not compromise their responsibility to provide injured workers with their entitlements to
compensation. The law provides many protections against that risk, including:
the audit program prescribed by the AC Regulations;
78
the terms and conditions of approval prescribed in the AC Regulations (including a
requirement that self-insurers supervise the conduct of any appointed agents);
79
the provisions allowing for revocation of a self-insurers approval if the self-insurer fails
to comply with the AC Act, AC Regulations or terms and conditions of its approval; there
is also a provision that an employers history of compliance is considered in any renewal
of approval;
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and
the services offered to all injured Victorian workers to ensure they are informed of their rights
under the scheme, including the WorkCover Ombudsman, the Accident Compensation
Conciliation Service, WorkCover Assist, the WorkCover Advisory Service, workers rights to
make complaints to the VWA and the VWAs publications on workers rights and the scheme.
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75 SIAV, Submission, February 2008, p 8. (Referring to attachment Towards Rational OH&S Regulation:
National Audit Tool Implementation in Victoria. Response to VWA Implementation Proposal, April
2007.)
76 Ai Group, Submission, May 2008, p 99.
77 VECCI, Submission, February 2008, p 40.
78 AC Regulations, reg 21, and Schedule 4, clauses 6 and 7.
79 AC Regulations, reg 21 and Schedule 4.
80 AC Act, s 149(1)(6).
13.156. Overall, injured workers satisfaction with the claims service they receive from self-insurers
and agents is relatively low. Over the last four years, there has been a modest improvement
in injured workers satisfaction with agents, but little change in injured workers satisfaction
with the service that they receive from self-insurers.
13.157. In 2006/2007, injured workers rated the service they received from agents at 7.0/10 (based
on a mean satisfaction score on a 10-point scale), but rated the service they received from
self-insurers at 6.1/10.
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The main drivers of overall customer satisfaction can be summarised
under three headings:
responsiveness (for example, responding promptly to queries);
empathy (for example, treating injured workers with dignity and respect); and
information provision (for example, providing injured workers with information about their
rights and clear explanations).
82
13.158. One way that the VWA has sought to improve service levels for injured workers is by making
its claims manual publicly available. However, there is no requirement on self-insurers to
develop and publish a claims manual or to follow the VWAs claims manual, reducing the
transparency and certainty for some injured workers about how their claims will be managed.
Stakeholder views
13.159. Ai Group submits that the claims manual is
. . . designed to tell the Authoritys Agents how they expect claims to be managed. It is not
appropriate for a self-insurer to comply with the detail of that manual. Self-insurers are required
to comply with the AC Act; this can be checked through the current audit process and does
not require any further bureaucracy.
83
13.160. One option would be to require self-insurers to document their policies and make those policies
available to workers and their representatives. That option would benefit injured workers, who
would be more informed about the services that they could expect to receive and have greater
certainty about their entitlements. Better informed injured workers could lead to improved
quality in claims administration by self-insurers.
13.161. Requiring self-insurers to document their policies would increase their compliance costs.
However, the cost of developing policies could be reduced if self-insurers adopted the VWAs
claims manual and developed their own policies by way of exception to, or supplementation
of, that manual. That approach could benefit self-insurers if documented policies led to greater
consistency in service provision as well as higher quality services.
13.162. A further option would be to require self-insurers to comply with the VWA claims manual.
That would have similar costs and benefits, but would be more restrictive for self-insurers.
13.163. I recommend that self-insurers be required to document their claims management policies,
provide the policies to the VWA and make them available to workers to ensure greater
transparency and accountability in decision-making.
Remove redundant reporting requirements
13.164. The AC Regulations impose terms and conditions of approval as a self-insurer.
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Additional
terms and conditions have been imposed administratively.
13.165. In relation to common law proceedings, the regulations require self-insurers to advise the
VWA annually of all proceedings and to provide any additional or revised information that
is reasonably requested. The value of obtaining annual reports is not clear.
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81 Source: VWA.
82 Source: VWA.
83 Ai Group, Submission, May 2008, p 100.
84 AC Regulations, reg 21; Schedule 4, clause 5.
13.166. A self-insurers licence also requires timely notification of strategically significant litigation to
the VWA. This condition is intended to avoid the setting of adverse common law precedents.
13.167. The SIAV opposes any introduction of a regulatory requirement to notify strategically significant
cases. The SIAV submits that such a requirement
. . . may result in self insurers not fully acting to protect their own interests if for some reason
the VWA objects. The VWA has almost immediate Ministerial access to legislative change if
any case brought and won by a self insurer influences the scheme.
85
13.168. Given the need to ensure the ongoing viability of the scheme, including in the context of
common law actions, it is reasonable to require that the VWA be notified within a specified
time of common law proceedings commencing, rather than annually as is currently required.
13.169. Self-insurers should also be required to provide any additional information relating to those
proceedings within a specified time. These requirements should be explicit and elevated to
a term or condition of approval as a self-insurer.
13.170. The AC Regulations also require self-insurers to pursue recoveries from third parties, with
revocation of approval if a self-insurer fails to comply.
86
As self-insurers have strong financial
incentives to pursue recoveries, and only disadvantage themselves if they fail to do so,
imposing this requirement in the AC Regulations seems redundant.
13.171. Unnecessary reporting requirements should be removed from the AC Regulations, reducing
compliance costs for employers and administrative costs for the VWA. Where the VWA makes
little or no use of the information, removing the requirements would not reduce regulatory
protections for injured workers or adversely affect the VWAs management of the scheme.
13.172. I recommend removing a self-insurers requirement to advise the VWA annually of common law
proceedings and pursue recoveries from the AC Regulations.
13.173. I also recommend, as a condition of approval, that self-insurers notify the VWA within 28 days
of commencement of common law proceedings and provide any additional information relating
to those proceedings as requested and within any specified time.
Make data provision requirements consistent
13.174. Self-insurers must provide a range of information to the VWA by 31 August each year, including
workplace locations, number of workers, predominant industry and estimated remuneration.
Self-insurers are required to provide their rateable remuneration by 30 September each year.
13.175. The information is requested by the VWA under its general power to request information
under clause 9 of schedule 4 to the AC Regulations. However, it may be more convenient
for self-insurers to provide all required information to the VWA at the same time each year.
13.176. Accordingly, I recommend aligning the provision of rateable remuneration with other data
provision requirements, so that it is due by 31 August in each year.
Retain the current arrangements for accessing information
13.177. In addition to information about their own claims, VWA agents have access to information about
claims managed by other agents. Agents can view summary information on all current and past
claims in the scheme through the VWAs computer system. However, self-insurers dont have
access to that system.
13.178. Self-insurers can obtain information about a particular workers other claims by making a written
application to the VWA. The VWA aims to provide this information within 48 hours.
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85 SIAV, Submission, May 2008, p 38.
86 AC Regulations, reg 21; Schedule 4, clause 4.
13.179. The information provided by the VWA is more limited than the information available to agents.
For example, self-insurers do not have access to the names of a workers previous employers,
occupation at the time of any injury, or the reason why any claim was finalised.
13.180. Having access to information about a workers claims history may be relevant where the
worker has had more than one employer. In that situation, liability might involve more than
one employer or it might be difficult to determine which employer is liable. The information
may also assist in assessing the claim, such as where a similar claim has been recently
submitted and rejected. In such a situation, it may be appropriate for a self-insurer to have
access to additional information.
13.181. The SIAV submits that the information available to claims agents needs to be available to
self-insurers claims managers.
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13.182. However, in my view, extending self-insurer access to all claims would raise significant
privacy issues and could create the risk that the information might be misused to discriminate
in employment.
13.183. I therefore recommend that self-insurers should continue to have limited access to workers
claims information.
THE NEED FOR GREATER FLEXIBILITY
13.184. In recent years, the self-insurance environment has become more complex because of the
increased frequency of corporate mergers, acquisitions and divestments by large companies.
The ability of some non-government organisations to enter the Commonwealth scheme as
self-insurers has also provided additional choice for some multi-State employers.
13.185. When the self-insurance legislation was originally drafted, this kind of environment was not
contemplated and, as a result, the current legislative provisions lack flexibility and create issues
for self-insurers and the VWA.
Introduce more flexible provisions for corporate restructures
13.186. Changes in corporate structure can create particular issues in relation to self-insurance. It may
be difficult for an employer to meet the VWAs requirements for a short period of time while it
is in the process of changing its structure.
13.187. One option would be to allow agreements between the self-insurer and the VWA to enable
greater flexibility during the period of change. For example, where a self-insurer becomes a
subsidiary of an Australian parent company for a short time, and then is restructured, an
agreement may allow claims management to continue and the situation to be managed without
terminating the self-insurers licence.
13.188. The VWA would need to develop clear guidelines about the scope of any such agreements
and the conditions under which the agreements would be made. Those matters could be set
out regulations or guidelines to provide clarity for all parties.
13.189. A second option would be to allow for a short extension of the re-approval period for a self-
insurer to accommodate corporate changes. That process would cover the situation where a
company is undergoing a major change, such as acquiring new businesses, close to the time
when its reapproval is due. Currently, in that situation, the company may have to reapply twice,
once at the specified time and again on restructure, creating significant costs for both the
self-insurer and the VWA.
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87 SIAV, Submission, February 2008, p 6.
13.190. An extension for a limited time (three to six months) could enable the company to complete its
structural changes and provide all the necessary data, such as financial statements, for the new
company structure.
13.191. Such an amendment to the AC Act would introduce a degree of flexibility and allow for a single
assessment of newly structured companies in most cases.
13.192. There would need to be certainty about the date on which the relevant corporate activity was
due to be finalised. The VWA would also need to have sufficient lead time to assess the merits
of continuing self-insurance. The range of foreseeable corporate activities is very wide and the
timeframes for the various types of corporate activity, including mergers, acquisitions and
takeovers, will vary. This may lead to delays in finalisation as well as delays in the review and
reapproval process. Any amendment to the AC Act would need to address these timeframe issues.
13.193. The application process could also be modified to improve flexibility. There have been examples
in recent years of an entity de-merging from a self-insurer and wishing to become a self-insurer
in its own right on the date of de-merging. It appears that, under the current requirements, the
entity cannot apply for self-insurance before being de-merged, because it does not meet the
eligibility requirement of not being a subsidiary of another company.
13.194. In such a situation, the employer de-merging from the self-insurer takes out a workers
compensation policy and all claims from that date are managed by an agent. The company then
applies for self-insurance. If approval is granted, the entity becomes a self-insurer. However, its
workers would have the inconvenience of either a change in claims manager (if the claim is
taken on by the self-insurer) or remaining with the agent. This means all the companys workers
would not be treated alike.
13.195. In some circumstances the de-merging entity may be operating a claims management function
and in every aspect be appropriate for approval as a self-insurer.
13.196. One solution would be to allow an entity to apply for self-insurance even though it does not
meet the eligibility requirements. An application could be accepted if there is a reasonable
expectation that the entity will meet the requirements within a specified time, such as when
the entity ceases to be a subsidiary. That approach would allow the preparatory work to be
done, with the self-insurance approval to take effect on the date when the entity does meet
the eligibility and approval requirements.
13.197. On one view, there is nothing in Part V of the AC Act that would preclude early engagement
between a subsidiary and the VWA to occur informally before de-merger or divestment. In fact,
the VWA could execute an administrative response to bring about this change. That type of
action is within the VWAs general functions of administering the WorkCover fund and regulating
self-insurers.
88
13.198. Guidelines or rulings issued by the VWA could prescribe the circumstances in which early
informal engagement would be appropriate. The circumstances could include the situation
where a group is committed to divesting a subsidiary in a scheme of arrangement or selling
a subsidiary after board approval. That would provide maximum flexibility for dealing with
future unforeseen circumstances, because the VWA could issue revised guidelines or rulings
in response to new scenarios.
13.199. Alternatively, section 141(1) of the AC Act could be extended to permit an application for
approval of a body corporate as a self-insurer where the VWA determines that the body
corporate will imminently cease to be a subsidiary of an existing self-insurer.
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88 AC Act, s 20(1)(a) and (c).
13.200. I recommend that the AC Act be amended to allow increased flexibility for self-insurance in
the event of major corporate restructures. Specifically, the following should be allowed:
the extension of licence periods for specific times; and
a non-eligible entitys application for self-insurance in limited circumstances.
Clarify requirements for moving between schemes
13.201. Where employers move between different scheme arrangements, there are several
consequences for their claims and liabilities.
13.202. In moving from scheme-insurance to self-insurance, employers have often taken on
responsibility for claims incurred before becoming self-insured.
13.203. There are no legislative provisions governing this process. In some cases, the VWA has entered
into a contract for the self-insurer to assume responsibility for the liability and administration of
these claims.
13.204. In my view, there should be a legislative basis for such contractual arrangements
and I recommend that the AC Act be amended to allow employers, who move from
scheme-insurance to self-insurance, to elect to retain responsibility for their existing claims.
13.205. There are also issues when Victorian self-insurers move back to the scheme or when they
self-insure under the Commonwealth scheme.
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Currently, the provisions governing those
moves are not fully aligned. Successive legislative amendments have led to different
requirements when companies cease to be self-insurers in relation to:
the period over which liabilities are measured (three or six years);
the right of employers to review actuarial valuations; and
the requirement to maintain a bank guarantee.
13.206. In the situations referred to in the preceding paragraph, I propose that a single period (of six
years with an interim step at three years) be set. The Reviews independent actuaries consider
that by 6 years the overall cost of most tail claims upon exit will be known with reasonable
certainty.
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I also recommend the introduction of a defined process for resolving disputes about
the value of those liabilities, to ensure certainty for self-insurers and the VWA.
13.207. Employers who intend to cease operating as self-insurers should be required to maintain a bank
guarantee equivalent to 50% of outstanding liabilities for the period during which the liabilities
are estimated to fall due. That would ensure that the VWA was not exposed to adverse
movements in liabilities and did not have to incur legal costs to recover the liabilities.
13.208. These recommendations would have a mixed impact on compliance costs for self-insurers.
Self-insurers returning to scheme insurance would benefit from a review process for measuring
liabilities, but would incur higher compliance costs in maintaining a bank guarantee.
13.209. However, the VWA has not encountered significant costs in implementing a similar process
for self-insurers moving to the Commonwealth scheme.
13.210. One other situation to be considered is where the VWA revokes a self-insurers licence. In that
situation, the VWA bears the cost of the actuarial services used to determine the outstanding
liabilities at the time of revocation. For equity reasons, that cost should be borne by the self-
insurer and it would be appropriate to include a provision in the AC Act to ensure that the VWA
is able to recover those costs.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 13 SELF-INSURANCE
PAGE 464
89 Corporate employers who compete with Federal agencies or former Federal agencies can apply to
self-insure under the Commonwealth scheme: Safety, Rehabilitation and Compensation Act 1988 (Cth),
s 100.
90 Source: advice from the Reviews independent actuaries.
Maintain the licensing requirements for subsidiaries
13.211. A self-insurance licence applies to all workers of self-insurers as well as the workers of all
its subsidiaries.
91
13.212. A particular issue has arisen regarding self-insurance for local councils. The City of Melbourne
has raised concerns that coverage of subsidiaries prevents it from applying for self-insurance
because it has no operating control over a number of its wholly-owned subsidiaries.
92
13.213. Although the City of Melbourne may be able to gain self-insurance through an application by
the MAV,
93
the MAV has not applied for self-insurance. Further, participation in any MAV scheme
would expose the City of Melbourne to the OHS and claims performance of other participating
councils, diluting the benefits of self-insurance. If access to self-insurance were gained via this
pathway, it might exclude subsidiaries of the local council, as the relevant provisions refer to
workers employed by MAV and participating companies only.
13.214. There is an argument that the legal and financial structures of local councils mean they should
be exempt from the requirements to include workers employed by their subsidiaries as part of
their self-insurer licences.
13.215. However, there are a number of similarities between local councils and companies, including
the same broad powers to incorporate a subsidiary company under the Corporations Act.
The legal ownership and control of subsidiaries is therefore not unique to local councils.
13.216. Where a local council does not have operational control over its subsidiarys operations, the
local council, as the sole shareholder, would still be able to exercise formal legal control over
the board and management of the subsidiary. In addition, the council stands to benefit from
the financial performance of its subsidiary. From an equity perspective, there may well be other
companies that would want the same benefits as those afforded to the City of Melbourne if
an exemption was allowed.
13.217. For these reasons, I consider that it is not appropriate to make an exception for this class of
employer, especially given that the AC Act already makes special provision for the MAV.
13.218. I recommend that the requirement for subsidiaries to be covered by a self-insurance licence
be retained.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 13 SELF-INSURANCE
PAGE 465
91 AC Act, ss 141(1) and 141A(1).
92 City of Melbourne, Submission, 8 February 2008, p 2.
93 AC Act, s 141A.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
CHAPTER 13 SELF-INSURANCE
PAGE 466
This page has been left blank intentionally.
APPENDIX 1:
AMENDMENTS TO
INOPERATIVE,
IRRELEVANT OR
SUPERFLUOUS
PROVISIONS
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
APPENDIX 1 AMENDMENTS TO INOPERATIVE, IRRELEVANT OR SUPERFLUOUS PROVISIONS
PAGE 468
TABLE OF MISCELLANEOUS ISSUES
Issue Recommendation
Definition of a
medical service
Redraft the definition of a medical service in s 5(1) of the AC Act, including
streamlining the descriptions of services provided by or at the request of a
medical practitioner or other health practitioners in paragraphs (b) to (i) of the
current definition.
Inclusion of
share farmers
Redraft section 11 of the AC Act to clarify that the deemed remuneration in
section 11(3), which is used for premium calculation, includes only monetary
amounts paid to the share farmer by the deemed employer (the landowner). By
contrast, the income used in the threshold test to determine if the share farmer
is deemed a worker under the AC Act may be in cash or in kind, or both.
Simplification of
appeals process
If the County Court is to retain its section 39 AC Act jurisdiction to hear and
determine disputes arising out of statutory benefit decisions, either:
redraft sections 51 and 52 of the AC Act to resolve the uncertainties and
anomalies identified by the Court of Appeal, and to harmonise with the
procedure for appeal in section 74 of the County Court Act 1958, including:
clarifying the terminology used;
replacing the two stage process with a single 28 day period within which
appeals must be commenced;
requiring leave for appeals from interlocutory judgments and orders;
retaining the restriction that appeals be limited to a question of law;
or:
repeal sections 51 and 52 of the AC Act, substituting section 74 of the County
Court Act 1958 as the governing appeal provision for County Court judgments
and orders in section 39 AC Act proceedings, but incorporating the restriction
that:
appeals from County Court section 39 jurisdiction proceedings be limited to
questions of law.
Review of
proclaimed
diseases
Review proclaimed diseases list, taking into account the views of the AMA or
specialist medical practitioners about what diseases should be added and any
claims data showing links between particular occupations and diseases that are
not currently proclaimed diseases.
Employer
misappropriation
of a workers
weekly payments
Amend section 114D of the AC Act to impose an obligation on an employer,
who receives payments from the VWA under section 114D(1), to use the
payments to make weekly payments to the worker in accordance with section
114D(6).
Sanction for delayed
reimbursement by
the VWA
Specify the prescribed rate in regulations for the purpose of section 114D(5).
Granting of
indemnities
To conform to current government policy, amend section 248C of the AC Act to
provide that the VWA may make recommendations to the Director of Public
Prosecutions, rather than to the Attorney-General, that appropriate indemnities
be given for the purpose of obtaining information about alleged offences.
Instituting
proceedings
Consult with the Senior Conciliation Officer as to whether the institution of
proceedings for offences against Division 2 of Part III of the AC Act should
remain with the Senior Conciliation Officer.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
APPENDIX 1 AMENDMENTS TO INOPERATIVE, IRRELEVANT OR SUPERFLUOUS PROVISIONS
PAGE 469
TABLE OF MISCELLANEOUS ISSUES continued
Issue Recommendation
Information and
secrecy provisions
Streamline the various provisions of the AC Act relating to the collection, use
and disclosure of information by the VWA, its agents, self-insurers and third
parties into a provision or provisions which more clearly confer power on the
VWA, its staff and agents to provide information to third parties in appropriate
circumstances.
Premium refunds
(ACWI Act, section
31A)
Amend section 31A of the ACWI Act to ensure that it expressly provides for the
VWA to off-set a refund amount due to an employer against any debt owed by
the same employer and a group employer to the VWA in relation to different
policy periods.
Definition of a
business (ACWI
Act, section 66)
Include the carrying on of a trust in the definition of business under section 66
of the ACWI Act.
Recovery of
premium or penalty
(ACWI Act, section
68)
The VWAs rights of premium-related debt recovery (currently section 68(1)
contemplates rights of recovery under both the ACWI Act and the WorkCover
insurance policy) should be dealt with exclusively in the primary legislation.
Amend section 68(2) of the ACWI Act to clarify that a reference to premium is
to any premium payable by an employer for a WorkCover insurance policy.
Amend section 68(5) of the ACWI Act to clarify that a proceeding brought in the
County Court or the Supreme Court will be a statement of claim, not
particulars of demand.
Premium late
payment penalty
(for ACWI Act)
Insert provision in the ACWI Act for the imposition of penalties for the late
payment of premium, including adjusted premiums, at a rate or rates specified
by a premiums order, preferably harmonising with the equivalent New South
Wales provisions.
TABLE OF DRAFTING ISSUES
Issue Recommendation
Taxi drivers
remuneration
Amend section 7 of the AC Act to clarify its relationship with section 5 of the
AC Act and section 3 of the ACWI Act and to bring the wording into line with
the legislative intention. Section 7 could state that it is a deeming provision, to
be read as having an additional rather than limiting effect on other definitions in
the Acts, particularly section 5 of the AC Act and section 3 of the ACWI Act.
Two subsections
(1A) in section 5A
of the AC Act
Renumber, as subsection (1AAA), subsection (1A) inserted into section 5A of
the AC Act by the Transport Accident and Accident Compensation Acts
Amendment Act 2007.
Obsolete references
to Part VII of the
AC Act
Repeal references to Part VII of the AC Act.
Obsolete provisions
on dispute
management
Repeal sections 42, 42A and 42B of the AC Act.
Meaning of
adjacent area
Amend section 80 of the AC Act to refer to offshore area as defined by the
Offshore Petroleum Act 2006 (Cth) instead of adjacent area as defined in the
Petroleum (Submerged Lands) Act 1967.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
APPENDIX 1 AMENDMENTS TO INOPERATIVE, IRRELEVANT OR SUPERFLUOUS PROVISIONS
PAGE 470
TABLE OF DRAFTING ISSUES continued
Issue Recommendation
Use of and or or
in relation to suitable
employment
Redraft section 93CB(3)(c) of the AC Act so that a worker to whom section
93CB(2)(c) applies must either:
participate in an occupational rehabilitation service or return to work plan and
make every effort to return to work in suitable employment at their place of
employment, or
make every effort to return to work in suitable employment at another place
of employment and participate in assessments of capacity, rehabilitation
progress and future employment prospects when required by the VWA or
self-insurer.
Injury after retirement
age
Redraft section 93E of the AC Act to clarify that workers are entitled to weekly
payments when they are injured at any time (not only within 130 weeks) after
reaching retirement age.
Removal of reference
to Conciliation
Officer
Remove the reference to Conciliation Officer from section 103(1)(d) for clarity
and continued consistency with New South Wales and Queensland.
Recovery of
overpayments
If the up-front payment of excess is not abolished, redraft section 114F of the
AC Act to clarify that an agent can recover compensation overpayments made
to a worker by the workers employer, and then reimburse the employer for the
overpayment.
Voluntary settlement
(redemption of
weekly benefits)
in specific
circumstances
Redraft section 117(b) of the AC Act to clarify that these settlements are
available only to workers whose injury occurred between 1 December 1992 and
11 November 1997.
Incorrect reference
to section 137(2)
Replace the references to section 137(2) in section 137A(1) of the AC Act with
references to section 137(1).
Liabilities of self-
insurer to be
guaranteed
Amend section 146 of the AC Act to ensure that the multiplier attaches to
the bank guarantee rather than to the calculation of a self-insurers assessed
liability.
Review and
revocation of
approval of
self-insurer
Amend sections 148 and 149 of the AC Act so that revocation of the approval
of a self-insurer is covered solely in section 149.
Revocation of a
self-insurers licence
Redraft sections 149 and 150 of the AC Act to clarify the requirements for
revocation of a self-insurers licence.
Incorrect reference
to section 181
Change the reference to section 181(5) in section 186(2)(a) of the AC Act to
section 181.
Recovery of
overpayments by
the VWA
Redraft section 249A of the AC Act to extend the right to recover
overpayments, using section 114 of the Safety, Rehabilitation and
Compensation Act 1988 (Cth) as a model.
Definition of officer Amend the definition of officer in section 250A(3) of the AC Act to reflect the
meaning given in section 9 of the Corporations Act.
There are also strong grounds for recasting subsections (1) and (2) of section
250A, following division 4 Offences by Bodies Corporate in Part 11 of the
Occupational Health and Safety Act 2004.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
APPENDIX 1 AMENDMENTS TO INOPERATIVE, IRRELEVANT OR SUPERFLUOUS PROVISIONS
PAGE 471
TABLE OF DRAFTING ISSUES continued
Issue Recommendation
General penalty
provision
Retain section 251 of the AC Act as a general penalty provision to apply where
no specific penalty is otherwise prescribed.
Review the penalties in the AC Act and ACWI Act to ensure consistency and
adequacy of penalties.
Updating Supreme
Court sections
Rationalise sections 252C-252G of the AC Act into one provision and, when
new principal or amending legislation is before Parliament, include the
necessary statement in the Ministers second reading of the Bill.
Make any necessary consequential amendments to the Constitution Act 1975.
Correct the duplicate numbering of section 252E.
Duplication of
offences
Consolidate the powers to seek a warrant to search and enter in the AC Act
and the ACWI Act into one of the two Acts, taking into account the
recommendations of the Law Reform Committee of the Victorian Parliament.
Unify the obstruction provisions and remove duplication.
Institution of
prosecutions
Redraft section 252(5) of the AC Act to clarify that it authorises the VWA to
issue general guidelines for or with respect to the prosecution of offences
under both the AC Act and the ACWI Act.
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
APPENDIX 1 AMENDMENTS TO INOPERATIVE, IRRELEVANT OR SUPERFLUOUS PROVISIONS
PAGE 472
This page has been left blank intentionally.
APPENDIX 2:
TAYLOR FRY
REPORT
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APPENDIX 3:
ACCESS
ECONOMICS
REPORT
Proof 1 13 August 2008
Commercial-in-Confidence

4 August 2008
Pricing Methodology for Self-insurers
Contributions to the Victorian
WorkCover Authority
Report by Access Economics Pty Limited for the
Accident Compensation
Act Review Secretariat
Commercial-in-Confidence Self-insurers Contributions



While every effort has been made to ensure the accuracy of this document, the uncertain nature of economic data, forecasting
and analysis means that Access Economics Pty Limited is unable to make any warranties in relation to the information
contained herein. Access Economics Pty Limited, its employees and agents disclaim liability for any loss or damage which
may arise as a consequence of any person relying on the information contained in this document.
CONTENTS
Executive Summary ..............................................................................................................i
1. Background.................................................................................................................1
1.1 History of the current negotiations .......................................................................................1
1.2 The stakeholders..................................................................................................................1
1.3 The current formula..............................................................................................................3
1.4 Schemes in other jurisdictions .............................................................................................3
1.5 Reasons for and consequences of self-insurance...............................................................4
2. Pricing principles........................................................................................................6
2.1 Principles of cost recovery...................................................................................................6
2.2 Good design principles ........................................................................................................6
2.3 The Efficient Component Pricing Rule.................................................................................8
2.4 Price setting over time .......................................................................................................10
3. Policy targets and instruments ................................................................................11
3.1 What should pricing try to achieve?...................................................................................11
3.2 Externalities imposed on scheme-insured firms by self-insured firms...............................11
4. The contributions to be recovered from self-insured firms ...................................16
4.1 Separating the costs ..........................................................................................................16
4.2 How these should be divided between scheme-insured and self-insured firms................17
4.3 Could more costs be recovered through fee collection?....................................................18
5. Dividing the pool between individual self-insured firms........................................19
5.1 The current method............................................................................................................19
5.2 How good of a proxy is the current approach....................................................................20
5.3 Should allocations be risk weighted...................................................................................20
6. Pricing formula..........................................................................................................22
6.1 Recommended parameters ...............................................................................................23
6.2 Effect of the chosen formula on the self-insured firm contributions pool ...........................25
6.3 Comparison to other models..............................................................................................26
6.4 Pricing over time ................................................................................................................27
6.5 Review period ....................................................................................................................28
7. References.................................................................................................................29



Commercial-in-Confidence Self-insurers Contributions


i
EXECUTIVE SUMMARY
Access Economics was commissioned by the Accident Compensation Act Review
Secretariat (the Secretariat) to review the current formula for determining contributions by
self-insured firms to the Victorian WorkCover Authority (VWA) workers compensation
scheme. Specifically, Access Economics was asked to:
decide on an appropriate pricing methodology on which to base a formula;
review the relevant documents and preferred pricing models provided by VWA and the
Self-Insurers Association of Victoria (SIAV); and,
recommend a pricing methodology and formula to apply to self-insured firms
contributions. This formula should perform strongly against the criteria of simplicity,
transparency, competitive neutrality and economic efficiency.
The debate over an appropriate framework and formula to determine self-insurers
contributions to VWA has continued for nearly a decade. While the preferred models of the
various stakeholders share little agreement on a desired approach going forward, there
appears to be general agreement that the current formula is inadequate.
Submissions to the original Essential Services Commission (ESC) inquiry, the ESC Report
itself and more recent documents from the main stakeholders identify key areas of
disagreement. These include:
the methodology for determining a contributions pool for self-insurers; and,
how the contributions pool should be shared among individual self-insured firms.
Recently, the VWA has proposed the use of the Efficient Component Pricing Rule (ECPR) as
an appropriate basis for determining which of the schemes costs should be shared by self-
insured firms. Access Economics endorses this approach on the grounds that it promotes
economic efficiency. Specifically, the ECPR ensures that a firms decision to self-insure is
guided by the social rather than private cost of doing so. Firms deciding to self-insure reveal
that the private benefit to them at least covers the social cost of their departure from the
scheme, and that their decision is therefore socially optimal. So long as self-insurers
consider only their private costs in deciding to leave the scheme, their decision to leave
imposes external costs on those firms who remain and the socially optimal mix of scheme-
insured and self-insured firms is not achieved.
Accordingly, the ECPR requires self-insured firms to pay a fee equivalent to the costs
imposed on remaining scheme-insured firms by their decision to self-insure. This amounts to
self-insured firms contributing to fixed costs specific to the activities of scheme-insured firms.
Such costs remain with scheme-insured firms upon the departure of self-insurers, increasing
the share borne by each scheme-insured firm. By ensuring that such costs continue to be
shared among self-insurers as well as scheme-insured firms, the imposition of higher
average fixed costs on scheme-insured firms by the departure of self-insurers is avoided.
This also ensures that a self-insured firms decision to leave the scheme is welfare-
enhancing, since it will only do so if the benefits of self-insurance outweigh the costs
imposed on those who remain.
Use of the ECPR constitutes a fundamental difference between the VWA and SIAV pricing
models. SIAV does not recognise an obligation on self-insurers to meet costs imposed on
the scheme other than those from which self-insurers derive a benefit. Yet the ECPR
requires self-insurers to share costs specific to scheme-insured firms from which self-
Commercial-in-Confidence Self-insurers Contributions


ii
insurers derive no benefit. The difference between the two approaches is that ECPR seeks
to enhance economic efficiency, which involves a comparison of social costs and benefits
rather than private costs and benefits. Without the ECPR, the duplication of fixed costs by
self-insurers may not be socially efficient. The ECPR ensures that such duplication occurs if
and only if the total costs of insurance activities are reduced.
The current pricing formula recovers some VWA costs from self-insured firms on a
proportional basis and some on a discounted proportional basis but recovers no costs
unrelated to the provision of services to self-insured firms, including fixed costs specific to
scheme-insured firms. The 60% discount applying to some charges was an arbitrary
measure intended for repeal at some point. So long as costs are allocated accurately by the
formula, there are no grounds for a discount. Relative to the current formula, the ECPR
would recover a higher proportion of scheme costs from self-insured firms, partly because
there would be no discount and partly because self-insurers would contribute to the fixed
costs specific to scheme-insured firms.
SIAV proposes activity-based costing as an alternative method for allocating costs among
scheme-insured and self-insured firms. This approach aims to align charges with the cost of
services specifically provided by VWA to self-insurers. The ESC (2006) concluded that an
activity-based costing approach is preferable, stating that:
The VWA should develop an activity based costing approach to assist with the
calculation of the contributions pool for self-insurers. This will enhance the
VWAs ability to base costs on actual usage of services by self-insurers.
While aligning charges with usage contributes towards economic efficiency, activity-based
costing falls short in two respects:
a substantial proportion of VWAs costs appear to be fixed and therefore unrelated to
its activities; and,
activity-based costing fails to fulfil the efficiency requirements of the ECPR firms are
not faced with the full social cost of a decision to self-insure rather than remain in the
scheme.
As a method for determining the split of total VWA costs between scheme-insured and self-
insured firms, Access Economics strongly recommends use of the ECPR and not activity-
based costing.
Nevertheless, it is essential that costs be allocated correctly into the different buckets, as
inaccurate allocations will compromise efficiency. Each cost item for the VWA should be
divided into four parts: (i) costs that are specific to self-insured firms; (ii) costs that are
common to scheme-insured and self-insured firms; (iii) costs that are specific to scheme-
insured firms and are fixed; and (iv) costs that are specific to scheme-insured firms and are
variable. Under the recommended pricing methodology, self-insured firms should be
required to contribute their share of the first three cost groups only.
We are aware of recent work undertaken by PricewaterhouseCoopers (PwC) which divides
costs along the lines described above. The results of this study are given below:
PWC ESTIMATES OF COSTS TO BE RECOVERED FROM SELF-INSURED FIRMS
Self-Insured-Specific Common Costs Scheme-Insured-Specific-Fixed
PwC Estimates $2.8 million $158.9 million $27.2 million

Commercial-in-Confidence Self-insurers Contributions


iii
While we cannot comment on the accuracy of the numbers obtained by PwC, the general
approach to determining the correct level of self-insurers contributions we believe to be
correct. We recommend that an independent audit of VWAs cost structure be undertaken to
correctly assign costs to each category, with particular attention being paid to the
determination of fixed costs. It is important that costs which are determined to be fixed costs
indeed do not vary according to the number of scheme-insured firms; it is not sufficient that
such costs are merely sticky downwards.
Having identified which costs are to be recovered from self-insurers as a group, it remains to
determine how such costs should be allocated among individual firms. The current pricing
methodology contains the following features:
the proportion of costs recovered from each self-insured firm is based only upon its
share of total remuneration;
scheme-insured firms are charged based upon their share of total remuneration
weighted by past claims performance and an industry risk-weighting factor; and,
the risk-weighting applies to both their insurance costs and non-insurance costs, such
as scheme overheads.
While the current formula does not allow for individual self-insured firms contributions to be
adjusted for risk, all major stakeholders argue for a risk-weighted approach. Whether this is
optimal depends on three potentially conflicting questions:
to what extent are the costs imposed on VWA by self-insured firms driven by the
riskiness of individual firms?;
would adopting one approach over the other detract from the competitive neutrality of
the pricing formula?; and,
would a risk-weighted approach based on claims performance lead to excessive
volatility in the costs of self-insured firms, who in the event of higher than usual claims
in a period would not only face higher insurance and rehabilitation costs but also higher
fees?
With regard to the former, it appears that the riskiness, or at least the perceived riskiness, of
an individual firm does drive VWAs oversight efforts to a substantial degree, implying the
need for risk to be taken into account in the pricing formula. Competitive neutrality requires
that firms be charged the same amount whether they choose to self-insure or remain in the
scheme. Given that scheme-insured firms are charged on a risk-weighted basis for all costs,
competitive neutrality requires that self-insured firms be charged on a similar basis. Hence
we recommend that a risk-weighted remuneration pricing methodology be applied to self-
insurer contributions. If however, it is judged that this may lead to excessive, and damaging,
levels of volatility in claims-related payouts by self-insured firms, then the risk-weighted
approach could be modified, or dropped entirely from the pricing formula.
The following table summarises key features of the various preferred models, along with
Access Economics recommended model:




Commercial-in-Confidence Self-insurers Contributions


iv
A COMPARISON OF THE PROPOSED MODELS
Current AE SIAV ESC VWA
Calculation of
cost pool
SI specific and
common costs
only
Efficient
Component
Pricing Rule
Activity based
costing
Activity based
costing
Efficient
Component Pricing
Rule
Determination
of self-insured
firms' share
Remuneration
only
Risk-weighted
remuneration
basis
Risk-weighted
remuneration
basis
Risk-weighted
remuneration
basis
Risk-weighted and
remuneration basis

The recommended pricing formula for self-insured firms contributions is as follows:
Recovery from self-insured firm i = ( )
i
i
r
Y
X
Z
Y
D C A |

\
|
(

\
|
+ +
where:
A = self-insured-specific costs
C = total common costs
D = total fixed costs specific to scheme-insured firms
X
i
= remuneration of firm i
Y = total remuneration of self-insurers as a group
Z = total remuneration of scheme-insured and self-insured firms
r
i
is a term allowing for risk adjustment for firm i relative to the average.
This formula differs from the current pricing formula in three key respects:
it includes the term D which is the fixed cost component required by the ECPR;
it removes the arbitrary 60% discount factor from the current formula; and,
it includes a risk weighting for each firm.
The recommended formula essentially endorses the preferred model of VWA. We believe it
is neither more complex nor less transparent than the current formula but dominates the
current formula in respect of competitive neutrality and economic efficiency. It is important,
however, that careful attention be paid to allocating costs into their correct categories so that
self-insured firms are charged only those costs which efficiency demands be recovered from
them. An independent auditor should be engaged to establish this framework and estimate
the costs.
It is also important that self-insured firms be charged only those costs which are efficiently
incurred by VWA. SIAV has previously argued that VWA does not run its operations
efficiently. It is difficult to determine how closely VWA operates relative to a minimum cost
frontier but an incentive can be built into the pricing formula to induce VWA to realise cost
efficiencies over time. One common approach is to fix VWAs aggregate recoverable costs
at some initially determined level, and to increase the cap annually at the rate of price
inflation less a margin to reflect a built-in efficiency dividend. Such a pricing rule is referred
to as CPI-X pricing where X is the percentage increase in efficiency that the regulated entity
Commercial-in-Confidence Self-insurers Contributions


v
is required to achieve between review periods. The efficiency dividend could be set at a
level which, over time at least, would guard against cost-padding or gold-plating behaviour
by VWA.
While a CPI-X rule will place incentives on VWA to increase efficiency over time, it is
acknowledged that this may be a somewhat blunt instrument given the arbitrary nature of the
efficiency factor X. This factor must be tied to a reasonable approximation of the potential
efficiency gains and may need to be changed over time. To increase the accuracy of this
approach, Access Economics proposes measuring the increase in costs of self-insured firms
between periods. These cost increases could then be compared to the cost increases of
VWA to assess whether it has met reasonable efficiency improvements. Self-insurance fees
could then rise over time according to whichever is the lower of the CPI-X and cost
comparison approaches. The feasibility of this comparison approach would likely need
further analysis.
Access Economics
June 2008
Commercial-in-Confidence Self-insurers Contributions


1
1. BACKGROUND
1.1 HISTORY OF THE CURRENT NEGOTIATIONS
The Accident Compensation Act Review Secretariat (the Secretariat) engaged Access
Economics to review pricing models for contributions from self-insured firms to the Victorian
WorkCover Authority (VWA) and to recommend a preferred pricing model.
The current contribution formula has applied in the regulations since 2000. Since then,
several reviews have been undertaken and alternative pricing models developed, reflecting
stakeholder concerns with the current formula. However, no new formula has been adopted.
The determination of the right price for self-insured firms both the total amount to be
recovered and the amount recovered from each self-insured firm depends on a range of
factors:
the underlying objectives for the contribution (such as competitive neutrality or equity);
the need to provide signals for efficient investment or efficient entry;
the underlying costs and asset base which are being funded by the contribution; and
the risks inherent in the cost recovery process.
1.2 THE STAKEHOLDERS
THE VICTORIAN WORKCOVER AUTHORITY
VWA is the administrator of Victorias workplace safety system. In broad terms, VWA is
charged with the responsibility for:
helping avoid workplace injuries;
enforcing Victorias occupational health and safety laws;
providing reasonably priced workplace injury insurance for employers;
helping injured workers back into the workforce; and,
managing the workers compensation scheme by ensuring the prompt delivery of
appropriate services and adopting prudent financial practices.
1

In addition to safety services, VWA provides workplace injury assistance to Victorian
employers through the operation of Victorias compulsory statutory workers compensation
scheme. VWA insures scheme-insured firms against the cost associated with injury or
illness incurred by workers in the course of their employment. Premiums for scheme-insured
firms are based on a combination of remuneration, industry risk ratings and claims history.
SELF-INSURED FIRMS
Although there is a preference by the State government to have all companies insured with
VWA, eligible organisations are able to opt for self-insurance. However, companies cannot

1
http://www.workcover.vic.gov.au/wps/wcm/connect/WorkSafe/SiteTools/About+WorkSafe/About+Worksa
fe/
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opt out of the safety services provided by VWA (or OH&S laws more broadly), and hence
VWA has a monopoly over the provision of safety services. Several of these services have a
public good
2
nature, where monopoly government provision can be appropriate (provided
there are checks and balances).
Depending on their eligibility, firms can choose to either insure with ComCare or self-insure
through the provisions in the Victorian legislation. However, there are strict conditions on
employers seeking to do this.
3
If firms become self-insured, they manage their own workers
compensation claims, thereby assuming full responsibility for handling and paying for all their
employees claims for work-related fatality, injury and illness, rather than paying premiums to
insurers to take on those responsibilities. The main eligibility requirements for such self-
insurance are that the organisation is a body corporate, not a subsidiary of another body
corporate, sufficiently large to manage claims, and meet prescribed minimum prudential
requirements.
In 2006, the Victorian scheme had 39 self-insured firms out of a pool of over 500 eligible
large companies. Hence, it is possible that over time more companies opt for self-insurance.
Based on remuneration, around 8% of the States employees work for self-insured firms.
While employers are able to select between self- or scheme-insurance, they are not able to
opt out of their OH&S obligations. That is, firms are still subject to VWA oversight of OH&S
laws, even if they are self-insured.
While self-insured firms do not pay insurance premiums to WorkSafe Victoria, they have a
legislative obligation to make a financial contribution towards the administrative costs (both
self-insured firm specific costs as well as common) of the VWA scheme as well as the costs
of safety services (from which both scheme-insured and self-insured firms benefit).
For scheme insurers, the contribution to these non-insurance services is embedded in the
insurance premium. That is, while the insurance premium is largely a pure insurance
premium, a component of it relates to a contribution by scheme insurers to safety services.
While beyond the scope of this brief, a more transparent separation of the charges for
insurance services and safety services across all VWAs customers (both scheme insurers
and self-insured firms) may foster greater understanding and comparability of services
provided to VWAs different customer groups.
Companies that have workers located in Victoria but self-insure under ComCare do not
currently contribute to the safety services provided in Victoria by VWA. However, this
anomaly relates to the Commonwealth legislation, and so is beyond the scope of this review.
The Accident Compensation Act 1985 provides that the VWA may determine the amount of
contributions to be paid to the WorkCover Authority Fund by each self-insured firm, in
accordance with the methodology set out in the Accident Compensation Regulations 2001.
The current contribution formula has applied in the regulations since 2000.

2
A public good refers to a good or service that is non-excludable and non-rivalrous. That is, one person
consuming the service does not exclude another person from also consuming that service, nor does it reduce the
benefit they receive from the simultaneous provision of that service to someone else. Public goods are not
amenable to charging on a fee-per-usage basis due to the non-excludable nature of the service, it results in a
free rider problem. Examples include the provision of general public information on workplace safety and
oversight of the workplace safety system. Examples in other areas include the provision of: the defence force, the
law and order system, the ABC television channel and firework displays.
3
In order to insure with ComCare, an employer has to meet s100 requirements of being in competition with a
current or former Commonwealth Authority.
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1.3 THE CURRENT FORMULA
The pricing formula currently applied to determine the contribution of self-insured firms
recognises the distinction between:
(i) costs relating exclusively to scheme-insured firms;
(ii) costs relating to self-insured and scheme-insured firms alike; and,
(iii) residual costs.
It is the latter two of these that the self-insurance contribution seeks to cover.
The contribution payable by a self-insured firm is determined by estimating the costs of those
activities from which self-insured firms derive a benefit, (ii) and (iii) above, and attributing a
proportion of these costs to each self-insured firm based on their remuneration as a
proportion of total Victorian remuneration. The estimated contribution associated with item
(iii) is then discounted, somewhat arbitrarily, by 40%. The 60% cost allocation is based on a
combination of historical issues and lobbying from self-insured firms and it is not evident that
the 60% cost allocation matches either the cost to WorkSafe of administering and overseeing
the particular services or the benefits that self-insured firms derive from the operation of
these aspects of the Scheme.
1.4 SCHEMES IN OTHER JURISDICTIONS
In 2006, there were 242 self-insured firms in Australia: NSW had 66 self-insured firms,
South Australia had 68, Victoria had 38, Western Australia had 28, Queensland had 25 and
Tasmania had 17 (Workcover WA, 2006). Hence, South Australia and NSW are the States
with by far the highest number of self-insured firms. The high number of self-insured firms in
SA is significant, noting that the Victoria labour market is around three times its size. As in
the case of Victoria, WorkCover WA charges self-insured firms a fee when opting for self
insurance. That fee differs from the contribution of the scheme-insured firms.
In South Australia, where around 40% of employees work for self-insured employers, self-
insured firms (known as exempt employers) must pay a levy as a contribution to the
overheads of the Workcover SA scheme which includes a provision to cover the liabilities of
self-insured firms in the event of insolvency. This levy is a small percentage of what the
employer would pay if it was not self-insured. The levy is determined by WorkCover SA and
aims to raise:
a fair contribution towards the administrative expenditure of the Corporation;
a fair contribution towards the cost of rehabilitation funding;
a fair contribution towards the costs of the system of dispute resolution; and,
a fair contribution towards actual and prospective liabilities of the Corporation arising
from the insolvency of employers.
South Australia uses an activity-based costing approach to recover costs related to self-
insured firms. The South Australian method involves an estimate of the usage of services by
self-insured firms of individual components of the scheme. Then costs of administration are
allocated based on remuneration. In addition, South Australia adjusts the contribution levy
by industry (something that Victoria does not do) (Clayton and Else, 2004).
NSW uses a notional premium pool method in which self-insured firm costs are attributed
on the basis of the proportion of notional premiums across the scheme. Self-insured firms
are accorded a deemed insurance premium calculated on their industry rate as if they were
not self-insured. A contribution rate is applied to the deemed insurance premium to
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determine the amount of the self-insured firms contribution. However, industry adjustments
are based on the performance of scheme-insured firms and may not be representative of the
performance of self-insured firms (Clayton and Else, 2004).
1.5 REASONS FOR AND CONSEQUENCES OF SELF-
INSURANCE
It is not altogether clear why self-insured firms opt out of VWAs insurance service, but it
could be because of cost considerations, a desire for autonomy, cash flow reasons or a
combination of these. If the reason was a cost consideration, then three explanations are
possible:
(i) the self-insured firm was over-charged in the scheme (e.g. due to incorrect risk
ratings);
(ii) self-insured firms are more efficient in providing insurance services than VWA;
and,
(iii) VWA under-charges self-insured firms for common costs, so that self-insured
firms are able to free ride when opting for self-insurance and pay less for the
same services.
Of the above reasons, only (iii) can be addressed through the self-insurance contribution
model. The first two factors place valid, healthy, competitive pressure on VWA. If VWA is
concerned about the first two factors, they are best addressed by offering a more competitive
product with more accurate risk ratings.
According to the Australian Industry Group, self-insurance may hold broad advantages, as it
can provide strong incentives for employers to provide safe workplaces, since a greater
proportion of the costs are borne internally. It encourages ownership of the process of
rehabilitation and return to work and facilitates the development of an internal culture that
prioritises safety, minimising work-related injury and illness (PC, 2004).
Given that there are around 500 large companies in Victoria and that States such as South
Australia and NSW have a larger number of self-insured firms, there is some concern that
more companies will opt for self insurance. The question is what happens if too many
companies leave the pool. According to VWA this would not have a significant impact on the
structural stability of the scheme, as there are enough small and medium size companies to
ensure risk diversification and a large enough pool. In any case, a natural break exists
based on eligibility criteria, as not every company can opt for self insurance. Being a large
state, with over 2 million employees in the VWA scheme, this structural stability aspect
appears to be a non-issue in the case of Victoria.
Furthermore, it is not only the good risks that are leaving VWAs insurance service, but a
range of large companies with different risk profiles. Hence, adverse selection does not
appear to be a problem. Although small and medium-size companies are usually riskier and
have a higher-than-average number of injuries compared with large companies in the same
industry, VWAs view was that cross-subsidisation (companies with different risk profiles
mixed into one pool) has not been a major driver of the move towards self-insurance.
Industry risk profiles are typically accurate for large companies, mainly because these
companies often account for most of the industry in which they operate. That said, industry
risk profiles may become less accurate once large firms leave, leading to more averaging
and a higher risk of mischarging companies within the scheme, possibly causing more
companies to exit VWAs insurance service if they are being over-charged.
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As with any insurance product, it is important to use all the available evidence to ensure
premiums reflect as closely as possible the actuarially fair risk profile of each insured. The
only exception would be a policy objective of community rating, though in that case, options
such as self-insurance and different risk weightings for each industry and employer would not
be permissible. That is, the existence of the option to self-insure and different premiums for
scheme insurers implies that a policy objective such as community rating has been ruled out.
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2. PRICING PRINCIPLES
The goal of this consultancy is to advise the Secretariat on a pricing formula for contributions
from self-insured firms. This has two elements to it:
a decision on the methodology and structure of the formula; and,
a discussion to inform the parameters in the formula.
This section provides an introduction to the former by discussing the principles behind cost
recovery and regulatory pricing.
2.1 PRINCIPLES OF COST RECOVERY
Efficiency principles in regulation require costs of services to be recovered by the users of
the service, at a price which reflects the cost each consumer places on the provider. In
particular, these prices will reflect both the marginal cost the consumer imposes as well as
part of the fixed cost which is not directly attributable to any one individuals consumption.
This typically raises a number of issues when this principle comes to be applied in practice:
the marginal cost of each unit will vary depending on the unit, and is often difficult to
measure in practice. Marginal cost pricing is instead often based on approximate
methods that usually involve dividing total costs amongst a forecast level of
consumption; and,
when the service for which the costs are being recovered is just one part of the
functions of the regulated entity, it is often difficult to separate which costs are
attributable only to this service, and what part of the fixed costs of the entity should be
included.
The former has lead to several pricing methodologies used across the regulatory sphere.
Examples include, but are not limited to, the Total Service Long Run Incremental Cost
(TSLRIC), and the Efficient Component Pricing Rule (ECPR) methodologies. These are
similar, and use the average incremental cost as a proxy for the marginal cost. They ensure
that revenues are sufficient to cover the entirety of the costs, including components for risk
and depreciation. In doing so, these pricing methodologies can lead to an optimal outcome
which emulates the outcome that a competitive market would have produced, thus resulting
in an efficient level of consumption and provision of the service.
It is the latter point with which this report is predominantly concerned. That is, taking the total
costs to be recovered as given, how should these be split between the two user groups?
The ECPR, discussed in more detail below, has been used in the past to determine the
efficient level of contribution for access to one component of a monopolists services. This
pricing rule has been suggested by the VWA and is used to inform the pricing in this report.
2.2 GOOD DESIGN PRINCIPLES
While efficiency is the main goal behind prices, policy makers may decide to place some
preference on a variety of principles. Eight common pricing principles are listed below.
1 Efficiency: raising revenue in a way that causes the smallest possible distortions (or
efficiency losses) in the economy, resulting in appropriate signals for investment and
the allocation of resources;
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2 Equity: raising revenue so that people engaging in similar activities encounter a similar
fee (in this context, it is relevant mainly in the context of ensuring SMEs are not
disadvantaged relative to large businesses);
3 Competitive neutrality: raising revenue in a way that people using different business
models or production methods to supply the same goods/services face similar
government charges (this issue often arises in the area of charges on road versus rail
transport, and is likely to be important for competition between self-insured and VWA-
insured businesses producing similar outputs);
4

4 Simplicity: raising revenue in a way that is administratively simple for governments to
collect and with paperwork that is easy for industry to comply with;
5 Enforceable: charges should be readily enforceable, difficult to avoid, with a high rate
of compliance;
6 Transparency: it should be clear what the charges are based on and why the chosen
methodology or pricing formula has been selected;
7 Cost Reflection: any charges should reflect the costs of providing the service
(including fixed and variable costs); and,
8 Consistency: any charges should be consistent with the policy objectives of the
government.
The Secretariat identified efficiency and competitive neutrality as the main principles to be
addressed by a pricing formula, followed by simplicity and transparency.
2.2.1 SIMPLICITY AND TRANSPARENCY
Simplicity requires the administrative burden, both on the government and industry, to be
light. The current formula, which is largely the formula suggested by this report, is believed
to meet this requirement, imposing no undue complexity on either party.
Transparency perhaps requires more consideration. Loosely speaking, transparency
requires for it to be clear to individuals what they are paying for and why. The current
formula breaks the total costs to be recovered from self-insured firms into two broad
categories: those costs for which self-insured firms receive equal benefits to scheme-insured
firms, and those costs from which self-insured firms receive only some benefit. However,
what these in turn contain is unclear. This will be a criticism of any formula that includes only
broad categories, and one of the main recommendations of this report is for a more
transparent methodology for calculating the contributions pools to be devised.
Finally, the role of the 60% in the current pricing formula is confusing. It is an arbitrary
discount which was intended to be removed after a short period, however it continues to
provide a point of argument between stakeholders. It is unclear what this 60% is meant to
represent, if indeed it represents anything precise at all, and its role needs to be further
clarified.

4
Competitive Neutrality is also used in a different context for public sector businesses (such as Australia Post)
competing with private businesses (such as parcel delivery companies). The context here is relates to companies
using different production methods to produce the same outputs.
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2.2.2 COMPETITIVE NEUTRALITY
Loosely speaking, competitive neutrality ensures that self-insured firms and scheme-insured
firms compete on an equal footing. Competitive neutrality is a necessary, but not sufficient,
criterion for achieving efficiency. That is, to achieve efficiency the playing field needs not
only to be level, but also to be at the right level. Competitive neutrality only requires the
playing field to be level.
In other words, businesses that are self-insured firms must not receive an unfair advantage
from the pricing of contribution from self-insured firms relative to that of scheme-insured
firms. Several factors may potentially lead to such distortions:
prices which are not reflective of the true costs imposed by firms on the scheme. Note
that this imprecision may manifest itself as either driving firms towards self-insurance or
away from it;
cross-subsidies imposed on scheme-insured firms. These may drive low risk firms to
leave the scheme, even when their costs under self-insurance would be higher than the
costs which they impose on VWA; and,
other competitive disadvantages between the scheme and self-insurance.
It is clear that competitive neutrality lies at the heart of the pricing problem. Prices need to
be accurate at two levels: firstly within the scheme to ensure that the cross-subsidy issue is
minimised, and secondly between the scheme and self-insurance, to ensure that the decision
whether to self-insure or remain within the scheme is based on efficiency decisions alone.
The first can be addressed through adequate measures to target premiums to the true risk of
firms, and is discussed in more detail below. The second relies on an accurate pricing
formula.
2.3 THE EFFICIENT COMPONENT PRICING RULE
The Efficient Component Pricing Rule (ECPR) was first proposed in 1979 and has become a
popular method of pricing access arrangements. It may be stated in several ways; however,
all definitions include the notion of opportunity cost. For example Economides and White
(1995) define the ECPR as specifying that:
the access fee paid by the rival to the monopolist should be equal to the
monopolists opportunity costs of providing access, including any foregone
revenues from a concomitant reduction in the monopolists sales of the
complementary component
Although the ECPR is typically used for marginal cost pricing, in this context it is employed
as an organising principle for cost allocation rather than marginal cost pricing.
5
As a pricing
formula for contributions from self-insured firms, the ECPR is an appropriate pricing rule,
meeting the design principles previously discussed.

5
As a marginal cost pricing rule, the ECPR is controversial and has been criticized in cases where its application
was not appropriate (Economides and White, 1995; Albon, 2007). Since the ECPR only holds as a first-best
principle under stringent assumptions, it is not a universal rule but must be applied carefully on a case-by-case
basis.
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The monopolist is the VWA
6
, the component in question being its non-insurance based
activities, and the complementary product is its insurance services. The rival is the self-
insurance scheme and its members. The interpretation of the rule has previously been that
firms which choose to exit the scheme and self-insure have denied VWA some of its
revenues, whilst simultaneously reducing its costs. Where the reduction in its costs is less
than its foregone revenues (in other words the opportunity cost of allowing a firm to become
a self-insured firm is positive) it would, under the ECPR, be entitled to recover this excess
from the firm. This ensures that on the one hand VWA (and the scheme-insured firms from
whom it recovers its costs) will not be made worse off by a firm becoming a self-insured firm.
On the other hand, a firm will only become a self-insured firm if it can supply insurance
services more efficiently than can VWA, and to such an extent that this improvement in
efficiency more than covers the costs to society of duplicating services. It is this efficiency
argument that has driven the use of the ECPR as the pricing principle for the calculation of
self-insured firms fees.
In some sense the ECPR may be interpreted as a method of assigning property rights over
the obligation to pay the scheme costs. It obliges firms which have voluntarily exited the
scheme to ensure that existing firms are made no worse off by its decision to leave, and in so
doing internalises any externality created by its decision to self-insure.
One consequence of the ECPR is that self-insured firms may be required to pay for services
for which they receive no benefit, if by leaving the scheme there is no reduction in the costs
of these services. For example, if VWA was providing a marketing campaign which targeted
only the insurance aspects of its operations, it could be argued that the cost of this campaign
is largely independent of the number of scheme-insured firms. A firm which exits the scheme
would leave fewer members from which to recover the cost of the campaign, and would be
obliged to pay its proportion of the costs, even though it receives no benefit.
It is likely that this would only apply to a small portion of the VWA cost base: those costs
which are fixed and specific to scheme-insured firms (Table 2-1).
TABLE 2-1: CONTRIBUTIONS BASED ON THE ECPR
Cost Type Common Costs Self-insured-Specific Scheme-insured Specific
Variable N/A N/A N/A
Fixed N/A N/A ECPR Applies
That is, the portion of common costs to be recovered from a firm will be independent of
whether that firm is self-insured or scheme-insured. All self-insured-specific costs will be
recovered from self-insured firms alone. Hence, the ECPR rule will only apply to those costs
which are specific to scheme-insured firms, and only that portion which does not vary upon
exit.
However, it could be argued that a wide range of costs are fixed, when the reality is that
VWA may be able to scale many of its activities according to the size of its customer base.
The extent to which this is possible is ultimately an empirical question. To avoid cost
padding, a high hurdle should be used when determining fixed costs.

6
The fact that VWA is a statutory monopoly was taken as given in the preparation of this report. The issue of
whether this is the appropriate structure for the provision of workers compensation insurance was considered
beyond the scope of this advice.
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2.4 PRICE SETTING OVER TIME
The costs to be recovered, and the efficient prices, will change over time. Indeed, the costs
incurred by VWA appear to demonstrate substantial volatility. For example, costing data
provided by VWA show self-insured-specific costs nearly doubling over the period 2004-05 to
2006-07. A regular review of the costs will be needed to ensure that prices adjust to reflect
these movements, ensuring ongoing efficiency is achieved. Provision may be made in the
Act for sunset reviews every three to five years to review costs and the pricing formula.
Independently of regular pricing reviews, regulators often impose additional structure to
prices to ensure that the regulated entity continues to strive for efficiency in operations.
CPI-X
7
style arrangements which allow for prices to increase with inflation, less some amount
X which may be thought of as an efficiency factor, is an example of such a dynamic pricing
tool. The next section discusses the existence of externalities in the scheme. Whilst these
are currently judged to be irrelevant for pricing for all intents and purposes, an externalities
term could be added to the pricing formula to allow for these to be accounted for in the future
should the need arise.

7
CPI-X is short-hand for consumer price index minus an efficiency factor of X. If the measure of inflation is (say)
3% per annum and the regulator decides the monopolist has to achieve an efficiency gain of (say) 5% per annum,
then the monopolists prices would have to reduce by 2% per annum (on average, across the basket of products
sold by the monopolist). The formula (deliberately) does not specify which products in the basket should reduce
in price and by how much, or where in the business the cost savings are to be found, since the monopolists
management are in a better position than the regulator in deciding these matters.
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3. POLICY TARGETS AND INSTRUMENTS
This section discusses the objectives of a pricing formula. The ECPR principle states that
prices should recover the costs that self-insured firms impose on the scheme, as well as any
additional costs they place on remaining scheme-insured firms by exiting.
3.1 WHAT SHOULD PRICING TRY TO ACHIEVE?
Prices in competitive markets reflect the costs of production, and in so doing, ensure that
goods or services are purchased only when the benefit they provide outweighs the costs of
supplying the product. When competition is eroded, so too is this disciplinary effect on
prices. Regulation attempts to reinstate discipline by allowing non-competitive firms to price
such that costs, and no more, are recovered.
Of course, prices can affect a whole manner of behaviour, and this has meant that in some
applications they have been seen as something of a panacea. Achieving economic
efficiency requires prices to follow strict criteria (discussed above) and deviating from these
criteria to achieve other objectives will result in hybrid prices which achieve no policy
perfectly. Where goals other than efficiency are set, these should be achieved through non
price instruments. For example, whilst prices could be used to stem the flow of firms
between the scheme and self-insurance, they should not be used for this goal unless out of
concern for the overall efficiency of the scheme.
Efficiency dictates that firms should be made to bear the costs of their actions. These
include the totality of costs, including the operating costs they impose on VWA, the fixed
costs involved in establishing the scheme, and any costs that a firm imposes on other firms
in the scheme. Section 4.2 discusses the latter category.
3.2 EXTERNALITIES IMPOSED ON SCHEME-INSURED FIRMS
BY SELF-INSURED FIRMS
The previous section discussed the rationale for prices to reflect the costs of production,
where these costs include the costs that self-insured firms would place on scheme-insured
firms when they opt for self-insurance. This section discusses whether any such costs are
likely to be present in the case at hand, and therefore, whether the pricing formula should
account for this. The three possible externalities that have been identified are:
the same fixed costs being recovered by fewer remaining scheme-insured firms;
an increase in the aggregate claims risk by spreading this risk over fewer firms; and,
an increase in premiums as low risk firms leave the industry to become self-insured
firms.
These are discussed in turn below.
3.2.1 FIXED COSTS
3.2.1.1 WHAT ARE FIXED COSTS
Total costs may be divided into two broad categories:
those costs which are dependent on the number of firms in the scheme. These are
known as variable costs; and,
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those costs which are independent of the number of firms in the scheme. These are
fixed costs.
Fixed costs are often taken to be the infrastructure necessary to provide a service, before
any units are produced. Examples from the regulation of utilities abound and include
runways at airports, docks for shipyards and dams for water utilities. For service providers
such as VWA they are perhaps more subtle, and include the costs of drafting legislation and
marketing expenses.
That noted, self-insured firms continue to contribute proportionally to VWAs safety services
and general oversight and legislation services after they opt for self insurance. Hence, the
fixed costs relating to VWAs safety and oversight roles continue to be recouped when a firm
opts for self-insurance. It is only the fixed costs relating to VWAs insurance services that
need to be included in the ECPR.
Regulated entities may be lax in what they attribute as fixed costs, and oversight of this
allocation is necessary. Premises, whether rented or otherwise, should not be included as
fixed costs as it is likely that they could be downsized over time as demands on the service
fall. Other costs such as IT would fall in a similar fashion.
Contracts which lock a monopolist into purchases of goods or services over a period of time
should also not be included in fixed costs. In competitive markets, firms bear the risk of
demand not matching forecast supply, and customers should not be made to pay for risky
management decisions which do not bear fruit.
Some costs will reduce in a stepwise manner, and these should not be included in fixed
costs. For example many costs will not change upon the exit of a single firm, but will vary as
numerous firms leave the scheme.
In summary, it is important that fixed costs are clearly identified when deciding on which
costs are to be allocated in this pool. Over-allocation will result in inefficiently high charges
to self-insured firms, and may also provide incentives for VWA to gold plate its operations
and may insulate it from the consequences of past business decisions. The costs discussed
in future sections of this report assume that fixed costs have been allocated appropriately.
3.2.1.2 THE RELEVANCE OF FIXED COSTS TO THE PRICING FORMULA
The relevance of fixed costs for the case at hand is that a firm exiting the scheme only
reduces the variable costs incurred by the VWA, leaving fixed costs unchanged. In essence
this imposes an externality on scheme-insured firms by reducing the pool of firms from which
the VWA may recover the fixed costs of its insurance services (to the extent that underlying
growth in the Victorian economy does not offset the exits). The ECPR, however, dictates
that these costs should continue to be borne by self-insured firms, in essence internalising
the externality.
VWA were consulted to ascertain the size of their fixed costs. The response was that these
were not large, and provided the breakdown of operating costs shown in Table 3-1 as
evidence.
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TABLE 3-1: VWA OPERATING COSTS JULY-DECEMBER 2007
Cost Type Value % of Costs
Staffing $56m 57%
IT $7m 7%
Professional services, actuaries, and consultants $5m 5%
Marketing $10m 10%
Occupancy and utilities $7m 7%
Grants $4m 4%
Depreciation $3m 3%
Other costs $7m 7%
Total $98m 100%
Staffing is clearly the largest cost item for VWA, followed by marketing, with occupancy and
utilities accounting for only 7% of operating costs. These fall into the category of recurrent
operating costs not fixed costs. It would appear that fixed costs are low in the sense that
VWA if faced with an increase in firms opting for self-insurance could reduce costs
commensurately over a relatively short period of time, probably through natural attrition.
However, of relevance here is not whether VWA could reduce costs easily over time, but
whether they would reduce costs in response to a reduction in scheme-insured firms. This
question does not relate so much to the fixed nature of capital formations as such, but more
to the fixed nature of the functions provided.
There are certainly some functions which are fixed in the sense that their costs may be
independent of the size of the scheme. As discussed, the ECPR dictates that these costs
should be partially recovered from firms exiting the scheme, even when they receive no
benefit from them. Importantly, fixed costs will continue to be collected from self-insured
firms after they leave the scheme so long as they form part of the common costs which are
recovered by both scheme-insured and self-insured firms. Hence, the fixed costs of
relevance are those which are specific to the services which only benefit scheme-insured
firms. This was noted in the discussion of the ECPR.
PwC (2007) provided an estimate of $27.2 million attributable to scheme-insured-specific
fixed costs which are to be recovered proportionally from self-insured firms. This is further
broken down as shown in Table 3-2.
TABLE 3-2: BREAKDOWN OF PREMIUM SPECIFIC FIXED COSTS (PWC)
Cost Category Amount Fixed
Actuarial services $1.2 million
IT $5.4 million
License and performance management $1.1 million
Litigation and prosecution $2.1 million
Other $12.6 million
Premium management $4.7 million
Total $27.2 million
It is difficult to comment on these estimates in great depth without knowing the details of how
they were calculated. However some of these costs do not seem to belong under the fixed
Commercial-in-Confidence Self-insurers Contributions


14
cost category. For example, it seems unlikely that such a large portion of IT costs are fixed.
Staffing in this area could reduce over time, and redundant equipment could be sold. It is
likely that a tighter, more accurate, definition of fixed costs would lead to a lower estimate. It
is recommended that these costings be considered more closely in future pricing reviews in
regard to whether they are truly fixed costs as described above.
3.2.2 INCREASE IN THE AGGREGATE RISK
Reducing variability in claims by pooling risk is a basic function of insurance markets. As the
size of the pool of risky individual firms falls, this diversification benefit decreases. The
question is one of how much the pool has to fall before these benefits are substantially
reduced. More specifically, does the decision of a firm to exit the scheme result in a non-
negligible increase in risk for VWA, and if not, is there some point at which this may occur if
sufficient numbers were to leave.
VWA were consulted on this issue and replied that recent modelling had been conducted on
this issue. The results of the modelling were that the effects on risk of exiting firms are
negligible. Further, these results were deemed to be robust even with a substantial number
of exits. Hence, exiting firms do not place additional costs on remaining scheme-insured
firms by reducing the size of the risk pool, implying that prices should not be adjusted for this
effect.
3.2.3 ADVERSE SELECTION
It is at least possible that imprecision in the pricing of premiums may lead to higher numbers
of firms wishing to become self-insured firms. Premiums based on rough averaging rules or
which fail to target the true cost drivers of insurance will inevitably result in some inaccuracy
in fees being charged. The upshot will be some firms being charged more than the
actuarially fair amount, with others being charged less. This amounts to a cross-subsidy,
with low risk firms subsidising the premiums of high-risk firms. The ESC notes that:
the incentives for relatively large employers to become self-insurers are strong,
as they tend to avoid problems of adverse selection and cross-subsidy that can
arise through scheme-insurance.
8

Low risk firms exiting the scheme will increase the overall risk level of the remaining pool,
driving up premiums for the remaining firms to a level that is closer to their actual risk. Whilst
it may be argued that this is an externality being placed on the remaining firms, this would be
overstating the problem. It would merely be a market-driven response to imprecise pricing
with the result that, in a new equilibrium (with more self-insured firms), firms remaining in the
scheme now pay fees more closely aligned to their actual risk levels.
If this aspect is a concern, it is best addressed through more tailored pricing for scheme
insurers rather than through changes to the self-insurance contribution formula.
3.2.4 SUMMARY
This section has discussed reasons why exiting firms may place additional costs on the
remaining scheme-insured firms. Where this is the case, these firms should be made to bear
these costs in recognition of the true costs of leaving the scheme. It appears that there is

8
ESC (2006) page 41.
Commercial-in-Confidence Self-insurers Contributions


15
little justification for imposing additional costs on exiting firms with regard to these
considerations:
fixed costs related to the self-insured firm specific or common cost categories will
continue to be recovered from firms even once they exit the scheme. Hence, the fixed
costs of interest are those specific to insurance services. PwC (2007) places this cost
at $27.2 million although this would need to be considered in detail;
modelling has revealed that even with a substantial increase in exits, the remaining
pool would be large enough to be unaffected from a claims risk point of view; and,
whilst low-risk firms leaving the scheme will result in higher premiums for the remaining
firms, this is merely a result of premiums being more closely aligned with risk. Exiting
firms have no obligation to cross-subsidise the remaining members.
In terms of a pricing formula, this means that the basic structure of the existing formula can
be maintained without adding an additional term for recovering externalities. In essence, the
ECPR guards against the need for such a term by incorporating the fixed costs of the
scheme into the self-insured firms contributions pool. Whilst this may result in self-insured
firms paying for services from which they receive no benefit, this is consistent with efficient
pricing principles. However, as will be discussed below, care must be taken when
calculating the magnitude of these costs in order to ensure that self-insured firms are
charged fees only commensurate with the costs that cannot be lessened when they leave the
scheme.


Commercial-in-Confidence Self-insurers Contributions


16
4. THE CONTRIBUTIONS TO BE RECOVERED FROM
SELF-INSURED FIRMS
4.1 SEPARATING THE COSTS
Services provided by VWA can be split into several categories based on their relevance to
self-insured firms:
1. Purely related to prudential oversight and administration of self-insured firms (eg
the Self-insurance Management Unit). This component is entirely the
responsibility of self-insured firms.
2. Purely related to insurance services (eg administering the insurance agents).
This component is entirely related to scheme-insured firms.
3. Other insurance-related services that benefit both self-insured and scheme-
insured firms (eg provision of general actuarial information). These costs would
be shared between scheme-insured and scheme-insured firms.
4. Safety services that benefit both self-insured and scheme-insured firms (eg
workplace inspections and public awareness of safe working practices). These
costs would be shared between self-insured and scheme-insured firms.
5. Joint costs / overheads related to both insurance services and safety services.
Self-insured firms should certainly be made to recover the specific costs which they impose
on the scheme. The area of contention relates to the extent to which they should recover
costs from the other categories. The ECPR can provide guidance in this regard. It specifies
that the contributions sought from self-insured firms should be given as:
(Lost revenue to VWA Cost savings to VWA) + Self-insured-Specific costs
The first term is the loss in revenue which VWA must be compensated for, and the second is
the reimbursement to self-insured firms for the variable costs which they no longer impose on
VWA. The terms inside the bracket are hence a measure of the fixed and common costs
which must be recouped from firms which opt for self insurance. As discussed previously,
this pricing rule ensures that firms opt out of the scheme only when the total costs to society
will be reduced by doing so. This may result in self-insured firms paying for services for
which they receive no benefit, but in doing so avoids costly duplication of services.
The question of the size of the terms in the bracket, the fixed costs that need to be recovered
upon exit, is ultimately an empirical one and has been discussed above. CRAI (2006)
produced estimates of these costs and stated, for example, that:
A preliminary assessment of the VWAs costs suggests that 20% of claims
management expenses, 50% of license and performance measurement costs,
50% of premium/levy management costs and 50% of litigation and prosecution
costs associated with insurance/claims management could vary with respect to
the number of insureds. If this is true, it means that around 20% (i.e. around
$52 million in 2004-05) of total costs specific to premium-paying participation are
variable with respect to the number of insureds and, hence, potentially avoidable
Commercial-in-Confidence Self-insurers Contributions


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The implication is that the fixed costs of the insurance function of VWA are substantial. The
task of assigning costs between fixed and variable is important and detailed. It is important
that only those costs which are truly fixed are identified in this process. Both the CRAI and
PwC allocations to fixed costs appear to be high and include categories which do not appear
to be strictly fixed in nature. Close attention should be paid to this allocation in future to
ensure that self-insured firms are not over-recovering their costs.
4.2 HOW THESE SHOULD BE DIVIDED BETWEEN SCHEME-
INSURED AND SELF-INSURED FIRMS
The previous section discussed the need to systematically review the costs incurred by VWA
to determine which costs are independent of the number of firms in the scheme, and those
that will vary as scheme-insured firms exit. Once this process has been carried out there are
two ways in which the formula for self-insurance calculations can be structured:
only those costs which are fixed plus the costs which are specific to self-insured firms
could be included in the contributions pool, of which self-insured firms are made to bear
a proportion of 100%; or,
the total costs of VWA be included in the contributions pool, with the percentage of
which is due to be recovered from self-insurance then reported separately. This
percentage would be based on the proportion of common and scheme-insured-specific
costs which are fixed.
Currently it appears that the first methodology is chosen by VWA. For example, 11% of
those costs which are deemed to be specific to scheme-insured firms is placed in the self-
insured firms contributions pool
9
. That is, in its contributions pool to be recovered from self-
insured firms it includes only those costs which cannot be reduced upon exit: that is, the fixed
costs. This is commensurate with the formula discussed in section 4.1. If this process of
assigning fixed and variable costs is accurate, there appears no justification for self-insured
firms to be charged anything less than 100% for these costs: anything lower than this would
amount to a discount to self-insured firms and under-recovery from these firms.
It should be clear that whilst it is simple to identify the broad cost buckets that self-insured
firms should be asked to recover, it is crucial to ensure that costs are allocated to these
buckets accurately. Much of the focus has previously been on the allocation of fixed costs.
However, the allocation to common costs should also be an area of close scrutiny.
Administrative costs and other overheads appear to be predominantly allocated to common
costs. However, it is not clear that these could not be allocated more closely between the
services afforded to scheme-insured and self-insured firms. For example, the percentage of
board time spent on insurance versus non-insurance related matters could be monitored
more closely, as it would seem unlikely that this follows a divide proportional to remuneration.
Hence, overall there appears to be little disagreement as to what a pricing formula should
contain:
all self-insured firm specific costs to be recovered by self-insured firms;
a proportion of the common costs, with this proportion based upon a largely arbitrary
measure such as remuneration; and

9
In other words, 8% of the 11% is recovered from self-insured firms.
Commercial-in-Confidence Self-insurers Contributions


18
an additional ECPR related component allowing for the recovery of fixed costs not
captured in the other two categories above. This will be a portion of the fixed costs
specific to the costs of scheme-insured firms.
The two approaches discussed above are essentially identical in the empirical requirements.
That is, both require the detailed estimation of the fixed costs of VWAs operations, and the
specific self-insured firm costs. The first approach includes only these in the contributions
pool, whilst the second works out their proportion of total costs and applies this proportion to
the total cost base. Both arrive at the same end figure.
Which is to be preferred is perhaps a matter for transparency. Including the entirety of
VWAs costs in the formula and applying percentages of these to be recovered from self-
insured firms may lack transparency if it is not clear how these percentages were derived. In
this case it may be preferable to adopt the former approach: report only the costs which self-
insured firms are being asked to recover. So long as the methodology for assigning these
costs is clear, so will this approach.
4.3 COULD MORE COSTS BE RECOVERED THROUGH FEE
COLLECTION?
The ESC (2006) discusses the opportunities for more of the cost based to be recovered
through fees for services as they are incurred. This is appealing as a method for more
closely aligning charges with usage where possible. However, according to consultation with
VWA, there is little scope for substantial costs to be recovered in such a way only a
relatively small part of the safety services are one-on-one services amenable to fee-for-use.
Further, there are areas in which fees are charged for services where they occur. Oversight
of major hazard facilities, for instance, is already charged as a specific cost through the
licence process.
Where fees for service can be charged it would appear to be beneficial to do so, as long as
the fees recovered are large enough to outweigh the additional administrative costs from
doing so. In any case, it would be a worthwhile exercise to ensure on an ongoing basis that
the fees that are currently charged do in fact accurately recover the services to which they
relate.
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5. DIVIDING THE POOL BETWEEN INDIVIDUAL SELF-
INSURED FIRMS
Having decided on the total amount of costs to be recovered from self-insured firms, the next
step is to arrive at an allocation mechanism between individual firms. There are two
overarching principles to be considered in this regard:
costs should be borne by firms in proportion to which they are imposed on VWA. That
is, firms which impose proportionally more of the costs should be charged
proportionally more of the allocation; and,
the allocation mechanism should ensure competitive neutrality between the competing
schemes. That is, firms should not be unduly influenced by the allocation mechanism
when deciding which scheme to join.
With regards to the former of these points, it is important to ascertain the main cost drivers of
VWA. That is, are the costs which a firm impose on VWA a function of, for example, their
size, remuneration, number of claims made, or some other factor? Preliminary discussion
with VWA revealed that the major cost driver is the size of the firm, although the intensity of
some oversight services will depend on the perceived riskiness of the individual firm.
Although the number of claims will drive the total cost of a firms workers compensation
activity, the majority of these costs are borne by the firm and not by VWA. Hence it appears
appropriate to base allocation on a joint remuneration and risk based mechanism. However,
the risk factor may need to be dampened as it is not a primary cost driver.
Competitive neutrality relies on the allocation not distorting the decision of which scheme to
join and the cost structure of a scheme firm competing with a self-insuring firm. It is
interesting to note then that the cost allocation method differs between scheme-insured and
self-insured firms, with scheme-insured firms allocations being based on more intricate data
regarding risk. Of course, given that the cost drivers of self-insurance are largely not based
on risk, this may be entirely appropriate. This is discussed in more detail below.
5.1 THE CURRENT METHOD
Currently the self-insured firm contributions are divided amongst the 39 firms based entirely
on remuneration. That is, a self-insured firm whose remuneration is 1% of total self-
insurance remuneration contributes 1% of the costs allocated to the self-insurance
contribution pool. The allocation method for scheme-insured firms is more tailored, and
contains more of a risk focus. It is based on three factors:
remuneration;
the industry risk weighting for the industry (or industries) which the firm is a member;
and,
a 2 year claims history adjustment.
The choice of remuneration is in some sense arbitrary, and this has been noted in previous
documents. However, as there is no clear objective alternative to dividing the fixed costs of
running the work safety scheme, and variable costs depend on the size of the firm under the
scheme, remuneration is likely to be a good method for allocation.
Commercial-in-Confidence Self-insurers Contributions


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5.2 HOW GOOD OF A PROXY IS THE CURRENT APPROACH
The extent to which firms cross-subsidise other firms under the scheme will depend on
whether the fees charged are actuarially fair, and this will be influenced by the degree of
accuracy of the allocation methodology. That is, if the three-pronged approach to
determining risk described above is inaccurate, firms may be overcharged and have an
incentive to exit the scheme. General efficiency and competitive neutrality principles dictate
that firms should only leave when this will result in a reduction in costs for the insurance
activity. This precludes firms leaving based on imprecise pricing of risk.
Whether firms have perverse incentives to leave the scheme will depend on how good a
proxy the current allocation method is. Of most concern is the extent to which the industry
risk-rating is indicative of the risk inherent in the individual firms within the industry. This
rating is based on the mean claims of the industry over a five year period. These issues
were discussed with VWA. The methodology is not necessarily accurate, but there are four
caveats to this assertion:
for larger firms it is likely to be accurate, as they make up a larger part of the industry;
for smaller firms it may be inaccurate, but these firms often do not face the option of
becoming self-insured firms;
whilst it may be inaccurate and give firms incentives to leave the scheme, they are
benefited somewhat by the larger risk pool, adding more certainty to their premiums;
and,
smaller industries exhibit more variation in their claims record due to the lower
frequency of claims, but this is accounted for by damping the industry rating.
More attention needs to be given to determining whether the current allocation methodology
achieves actuarially fair prices, whether this is driving the decision of scheme-insured firms to
exit, and whether a better system can be employed. Of more importance is whether the
different allocation approaches applied to scheme-insured and self-insured firms is
hampering the competitive neutrality objective. This is discussed below.
5.3 SHOULD ALLOCATIONS BE RISK WEIGHTED
As noted, the current formula does not allow for the allocations amongst self-insured firms to
be risk-weighted, despite calls from stakeholders for this to be the case. A move to risk-
weighting should be based on two considerations: evidence that the risk of a firm significantly
impacts on the costs it imposes on VWA, and whether these would impinge on competitive
neutrality between the schemes.
In consideration to the former, VWA were asked the extent to which their costs are driven by
the number of claims made by self-insured firms. The response was that costs are largely
independent of the claims made by a firm, although the degree of relative oversight effort will
differ depending on perceived riskiness. In relation to the recovery of fixed and common
costs there appears to be little justification for risk weighting. By definition, the fixed costs of
the scheme will not be altered by the number of claims, or risk levels of individual firms, and
this is also likely to be true for a large amount of the common costs. Hence, a remuneration-
only allocation, or one that is only partially adjusted, could be justified.
Perhaps of more importance is the impact the allocation mechanism could have on
competitive neutrality of the competing insurance methods. If the allocation method is not
consistent between scheme members and self-insured firms, then this may influence the
decision to opt for self-insurance. Hence, it is important to consider how common and fixed
Commercial-in-Confidence Self-insurers Contributions


21
costs are currently allocated between scheme-insured firms, as these are the costs which will
also be recovered from self-insured firms. If they are allocated based on a risk-weighting,
then this should be carried over to the allocation method in the pricing formula. This ensures
that a firm will recover equal amounts of the fixed and common costs under either insurance
method.
Consultation with VWA revealed that this is indeed the case. That is, overheads are
currently allocated between scheme-insured firms based on a risk-adjusted approach.
Hence, competitive neutrality requires that self-insured firms contributions are likewise
based on a risk-adjusted approach to ensure that they pay equal fees to VWA independently
of how they choose to insure.
Finally, it is worth noting a concern that a risk-weighting may lead to larger variations in the
workers compensation costs of self-insured firms. A firm which in a given year records a
higher than expected number of claims may be penalised in two ways: through higher
claims-related costs in that year, and through higher fees charged by VWA if those claims
move the firm into a higher risk category. Increasing the uncertainty of costs for self-insured
firms may impose further costs in terms of disrupting planning and effective operations.
Further, it may be argued that claims risk would be more efficiently borne by VWA which
benefits from the diversification of this risk across a large number of firms.

Commercial-in-Confidence Self-insurers Contributions


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6. PRICING FORMULA
Depending on the objectives of the self-insurance contribution, the pricing formula will
contain various combinations of the following items:
Self-insured firm specific costs;
Costs of safety services that are of a public good nature, some portion of which is to be
recovered from self-insured firms;
Safety services that are able to be charged at a fee-per-usage rate;
Fixed costs related to the scheme-insured firms specific services that cannot be
avoided when an employer opts for self-insurance, some portion of which is to be
recovered from self-insured firms;
A mechanism for dividing common and fixed costs between scheme and self-insured
firms; and,
A mechanism for dividing the total contributions pool amongst individual self-insured
firms.
Access Economics has developed a generalised pricing formula, which subsumes all the
current and proposed pricing formulae as special cases:
Recovery from firm i = ( ) ( ) Ext e B r
Y
X
Z
Y
mD kC A
i i
i
+ + |

\
|
(

\
|
+ +
Where:
A = self-insured-specific costs
B
i
= common costs that can be recovered on a fee-per-usage basis from firm i
C = total common costs of a public good nature, and k is the proportion of these to be
recovered from self-insurers (currently k=60%)
D = total fixed costs specific to scheme-insured services, and m is the proportion of these to
be recovered from self-insured firms
X
i
= the remuneration of firm i
Y = total remuneration of self-insurers
Z = total state remuneration
r
i
is a term allowing for risk adjustment for firm i relative to the average, normalised so that
the average r term is 1
Ext is a term to reflect any externalities which self-insured firms are deemed to place on
scheme-insureds and e is the proportion of this recoverable from self-insured firms.
The terms inside the square brackets are the total contributions to be recovered from self-
insured firms: the total of self-insured firm specific costs, plus their part of common and
scheme-insured-specific fixed costs to be recovered based on remuneration. The term mD is
Commercial-in-Confidence Self-insurers Contributions


23
essentially the ECPR surcharge to be recovered from self-insured firms. The term in round
brackets is the mechanism to allocate this contributions pool amongst self-insured firms.
The penultimate term allows for recovery of specific services, such as inspections or
applications, if it is decided that these are to be recovered separately. The final term allows
for any externalities
10
to be recovered from self-insured firms.
The term r adjusts for the risk of an individual firm. The current formula does not apply a
risk-weighting to self insurers, although stakeholders appear to agree on the need for its
inclusion. The rationale for the inclusion of a risk-weighting is discussed above, and Access
Economics favours its inclusion. The oversight efforts of VWA do appear to be correlated
with the perceived riskiness of a firm. Further, the fact that overheads are allocated among
scheme-insured firms based on a risk-weighting makes a similar approach for self-insured
firms desirable from the point of view of competitive neutrality.
Competitive neutrality also dictates that r be calculated in the same way as the risk
adjustment for scheme-insured firms. This is based on a combination of the industry risk-
weighting and an individual firms claims history. Applied multiplicatively as above, the
remuneration-weighted average of all firms risk terms must equal 1, so that the total
contributions from self-insured firms amount to their contributions pool. Firms riskier than the
average for self-insured firms will have a risk-weight greater than 1, while those firms less
risky than the average will have a risk-weight less than 1.
Hence, there are two steps involved in calculating a firms risk-weighting:
calculate the risks of firms relative to one another, according to the current risk-
weighting procedure for scheme-insured firms; and then
scale the relative risk-weights so that they recover an amount precisely equal to the
self-insurer contributions pool.
The latter step requires the risk-weights r
i
to satisfy the following equation:
1 =
i
i
i
r
Y
X

Note that a simple remuneration-weighted formula (setting r
i
= 1 for all i) automatically
satisfies the condition since:
1 =

i
i
Y
X

Is true by definition.
6.1 RECOMMENDED PARAMETERS
In deciding on the final form of the pricing formula, it is necessary to choose values for the
parameters used. This section sets Access Economics recommendations.

10
Such externalities were discussed earlier in the report. Note that the recovery of fixed costs is already included
in the D term and would not be included as an additional externality. The Ext terms could be used to stem exits
from the scheme if these were deemed to place additional costs on the remaining scheme-insured firms.
Commercial-in-Confidence Self-insurers Contributions


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6.1.1 SELF-INSURED FIRM SPECIFIC COSTS A
All self-insured firm specific costs should be recovered. PwC (2007) places this value at
$2.8 million, or 0.7% of total VWA costs.
6.1.2 FEE PER SERVICE COSTS B
A few major costs are already recovered through fees, such as the licensing fee for a major
hazard facility.
Whilst it is preferable that various other costs are recovered on a fee-per-use basis to ensure
accuracy in cost recovery, it appears that there is little scope to recover substantial costs in
this method and the total amount collected is unlikely to be worth the administration cost.
Even if it were decided that more services should be recovered through a fee per service
method, there appears to be little need to include this in the pricing formula. Instead these
fees could be recovered as incurred through invoicing self-insured firms directly after the
service. As such, we recommend that the term B not be included in the model.
6.1.3 COMMON COSTS C
The main common costs as allocated by PwC (2007) are given in Table 6-1.
TABLE 6-1: MAIN COMMON COSTS DETERMINED BY PWC
Cost Category Amount that is
common
Percent that is
common
Percent of total VWA
costs
OHS inspection and marketing $77.6 million 99.2% 19.0%
Corporate administration $46.0 million 98.6% 11.3%
Dispute resolution $20.3 million 100% 5.0%
Depreciation $6.4 million 76.6% 1.6%
In total it is estimated that $159 million, or 39%, of VWAs costs are common. The totality of
these costs should be recovered on a proportional basis from self-insurers. That is, C should
be estimated and k set to 1 (currently it is 60%).
6.1.4 SCHEME-INSURED SPECIFIC FIXED COSTS
The fixed costs issue has been treated at depth in this report, as it is perhaps the main area
of contention in deciding the contributions pool. Estimates of this cost pool are substantial,
with PwC estimating this at $27.2 million. As discussed earlier, much care must be taken to
ensure that the costs allocated are truly fixed costs. However, once these costs are decided
on, the ECPR principle applies and self-insured firms should be charged their proportional
share of these costs. That is, m should be set equal to 1.
6.1.5 ALLOCATING THE CONTRIBUTIONS POOL TO INDIVIDUAL SELF-INSURED
FIRMS
Much has been made of alternative methods to allocate the contributions pool amongst self-
insured firms. The question is essentially that of whether VWAs oversight efforts and safety
services are driven by claims to a large part, and whether a risk-weighting will be consistent
with the principles of competitive neutrality. As discussed previously, Access Economics is
Commercial-in-Confidence Self-insurers Contributions


25
in favour of the risk weighting currently applying to scheme-insured firms also applying to
firms opting for self-insurance. However, if it is judged that a risk-adjusted allocation would
lead to excessive volatility in self-insured firms workers compensation costs, and that this
outweighs the importance of competitive neutrality, then a simple remuneration weighting
could be used, i.e., setting r
i
= 1 for all i.
6.1.6 INCLUDING EXTERNALITY TERMS
At this stage it is not felt that self-insured firms place any additional costs on scheme-insured
firms (once all the factors above are taken into account). Hence, in the initial pricing formula
the externality term should be set equal to 0.
6.1.7 FINAL FORMULA
Given these parameters, the final formula is:
Recovery from firm i = ( )
i
i
r
Y
X
Z
Y
D C A |

\
|
(

\
|
+ +
This can be calculated as a two-step process, with the components calculated separately as
follows:
the terms inside the square brackets represent the total contributions to be recovered
from self-insured firms; and,
the terms outside the square brackets then indicate how the total sum to be recovered
is apportioned among all self-insured firms.
The former requires an assessment of the cost lines of VWA in relation to the activities of
self-insured firms, while the latter requires an analysis of the risk profile of each individual
self-insured firm.
The formula has an alternative but equivalent expression by expanding the brackets:
Recovery from firm i =
i
i
i
i
i
i
r
Z
X
D r
Z
X
C r
Y
X
A + +
The implications of this formula are discussed in the remainder of this section.
6.2 EFFECT OF THE CHOSEN FORMULA ON THE SELF-
INSURED FIRM CONTRIBUTIONS POOL
The chosen formula is different to the pricing formula currently applied in two main regards:
the arbitrary 60% term is removed, with self-insured firms instead recovering 100% of
common costs. There appears to have been no justification for the 60% figure, and it
was always intended to be removed in time; and,
the proposed formula asks for self-insured firms to recover their share of the scheme-
insured-specific fixed costs.
That is, the proposed formula will result in a larger amount of costs being recovered
from self-insured firms than is currently the case. The estimates provided by PwC
(2007) will need to be recast given our preferred definition of fixed costs. With:
Commercial-in-Confidence Self-insurers Contributions


26
Self-insured firm specific costs equal to $2.8 million;
Common costs equal to $158.9 million;
Scheme-insured-specific fixed costs equal some amount less than $27.2 million; and,
Self-insured firms accounting for 8% of state remuneration.
Then the costs recoverable from self-insured firms under the current model would be equal
to $10.4 million, whilst under the proposed model they would be up to $17.7 million. The
difference of $7.3 million can be broken between the affect of removing the 60% term, and
adding the scheme-insured-specific fixed costs. The impact of removing the 60% from the
current formula would raise the contributions pool by 8% of 40% of $158.9 million, or $5.1
million, whilst the impact of including scheme-insured-specific fixed costs would raise the
contributions pool by $2.2 million. That is, the dominant difference between the current and
proposed formula is the affect of removing the 60% term from common costs.
6.3 COMPARISON TO OTHER MODELS
The various stakeholder documents, and ESC discussion papers, have not contained
specific pricing formulas with which to compare the formula proposed by this model.
However, the table below sets out their views with regard to the two broad issues of cost pool
calculation and the determination of self-insured firms share of costs.
It appears to be generally agreed upon that a risk and remuneration based approach should
be applied to the calculation of allocations. Discussion with VWA revealed that they are
placing increased emphasis on improving the method in which it is calculated and that
applying this to both scheme-insured and self-insured firms should improve the accuracy of
the allocation method. However, VWA have also claimed that much of the costs relating to
self-insured firm oversight are independent of the claims made by an individual firm. Hence,
the risk shares may need to be dampened to the extent that risk is only relevant to some of
the costs imposed on VWA.
A summary of the proposed models is presented in Table 6-2.
TABLE 6-2: SUMMARY OF THE PROPOSED MODELS
Current AE SIAV ESC VWA
Calculation of
cost pool
SI specific and
common costs
only
Efficient
Component
Pricing Rule
Activity based
costing
Activity based
costing
Efficient
Component Pricing
Rule
Determination
of self-insured
firms' share
Remuneration
only
Risk-weighted
remuneration
basis
Risk-weighted
remuneration
basis
Risk-weighted
remuneration
basis
Risk-weighted and
remuneration basis

Both the SIAV (2006) and ESC (2006) argue for an activity-based costing. While more
closely aligning charges with usage is attractive, an activity-based costing approach has
shortfalls. Specifically, it is unclear that a large portion of VWAs costs can be identified
through this approach, and more importantly it precludes the use of the ECPR which his vital
for maintaining scheme efficiency. However, in any case VWA should collect more data to
aid with the accuracy of cost division between the relevant cost pools. The largest cost to
VWA is in salaries, and staff timesheets could be used to accurately account for time spent
on various tasks. The formula above provides guidance on how to efficiently recover costs
from self-insured firms, however it will only be effective if the costs included in the
contributions pool are accurate to begin with.
Commercial-in-Confidence Self-insurers Contributions


27
The current formula is simple as it contains a minimum of terms in a simple structure and
contains broad cost groups. However it does perhaps lack transparency. It is not clear what
the role of the 60% is and by lumping all costs into two broad pools it may be unclear exactly
what self-insured firms are being charged for. We believe that the proposed formula is
neither more complex nor less transparent than the current formula but dominates the
current formula in respect of competitive neutrality and economic efficiency. It is important,
however, that careful attention be paid to allocating costs into their correct categories so that
self-insured firms are charged only those costs which efficiency demands be recovered from
them. An independent auditor should be engaged to establish this framework and estimate
the costs. This would aid in the transparency of the pricing framework
Ultimately the greatest lack of transparency is potentially in the calculation of the contribution
pool. Whilst it is generally agreed upon what type of costs should be recovered from self-
insured firms (although there is contention over whether the ECPR should apply) a method of
dividing line items among the relevant buckets is less clear. It is recommended that a clear
and transparent methodology be developed for dividing costs between self-insured firm
specific, insurance variable, insurance fixed, and common costs. As mentioned above, this
process would be improved by more accurate collection by VWA of data reflecting effort
spent on each of these categories. Given that salaries are by far the largest portion of
operating costs, this could be brought about in part by, for example, implementing staff
timesheets.
6.4 PRICING OVER TIME
Whatever formula is chosen, self-insured firms will necessarily bear the costs of a large part
of VWAs operations. This is fair and efficient so long as VWA is itself operating in an
efficient manner. If not, that is, if VWA could provide the same services for a lower cost, then
self-insured firms should not be made to bear these costs.
This is common in regulatory situations where monopolies do not face competitive pressures,
and where therefore cost recovery places little discipline on achieving ongoing operative
efficiency. To combat this issue, costs to be recovered are often lowered in real terms over
time to provide an incentive for ongoing efficiency. This CPI-X mechanism was discussed
in Section 2. It is recommended that prices are adjusted between years according to this
principle. The value for X, the degree of efficiency to be targeted, should be set by the
Secretariat after consideration of the likely degree of cost savings available.
While a CPI-X rule will place incentives on VWA to increase efficiency over time, it is
acknowledged that this may be a somewhat blunt instrument given the arbitrary nature of
choosing the efficiency factor X. As noted, it is important that the chosen efficiency factor
reflects as closely as possible the potential cost reductions available to VWA.
To increase the accuracy of this approach, Access Economics proposes measuring the
increase in costs of self-insured firms between periods. These firms have a greater incentive
than VWA to ensure that operations are conducted efficiently, and as such their costs can be
taken to be a reasonable proxy for the efficiency improvements available to the Scheme.
These cost increases could then be compared to the cost increases of VWA to assess
whether it has met reasonable efficiency improvements.
Self-insurance fees could then rise over time according to whichever is the lower of the CPI-
X and cost comparison approaches. As such, this approach places a check on the value of
X chosen, ensuring that it is not too lax in the pressure it places on VWA, and ties cost
increases over time to realised efficiency improvements by self-insured firms.
Commercial-in-Confidence Self-insurers Contributions


28
The feasibility of this comparison approach would likely need further analysis. First, cost
data would need to be collected from self-insured firms, and an index of average self-insured
firms costs would need to be constructed for comparison with VWA costs. Self-insured firms
would face an incentive to under-report their true costs and some mechanism would need to
be found to circumvent this. It must also be ensured that cost comparisons are fair and
based on genuine like-for-like comparisons of efficiency options open to Scheme- and self-
insured firms.
Whichever approach is adopted, there should also be a pass-through mechanism for policy
changes. For example, if a new OH&S standard is developed, which requires VWA to do
extra work in order to enforce it, the cost of its safety services should be allowed to rise by
more than the CPI minus X rule (in the year the new standard is introduced) to allow for that
extra work.
6.5 REVIEW PERIOD
The brief asked for a recommendation of the review period for the pricing methodology.
Review periods and sunset clauses should be set depending on the expected volatility in
underlying costs. Where costs are not expected to change substantially, and current pricing
is therefore regarded as accurate, a longer review period is preferred. In general, it is
necessary to weigh the costs of regular reviews against the possibility of charges falling out
of sync with actual costs.
As noted earlier, the costs for some of VWAs services have exhibited substantial volatility
between years, and where this is the case charges to self-insured firms will either under or
over-recover actual costs. Further, movements of firms between the scheme and self-
insurance will need to be monitored, as will the initial performance of the pricing model. As
such, we recommend a review period of three years.
Commercial-in-Confidence Self-insurers Contributions


29
7. REFERENCES
Albon R (2007) The Use and Abuse of the Efficient Component Pricing Rule, Network (A
Publication of the Utility Regulators Forum) 25:2-7.
Clayton A, Else D (2004) Review of the Criteria for the Exempt Employer System in South
Australia.
CRA International [CRAI] (2006) Calculation of self-insurer contributions using an ECPR
framework.
Economides N, White LJ (1995) Access and Interconnection Access Pricing: How Efficient is
the Efficient Component Pricing Rule? The Antitrust Bulletin XL:557-579.
Essential Services Commission [ESC] (2006) Review of self-insurer contributions to the
Workcover Authority Fund.
PriceWaterhouseCoopers [PwC] (2007) Approach to determination of self-insurer
contributions and review of calculations.
Productivity Commission [PC] (2004) National Workers Compensation and Occupational
Health and Safety Frameworks, Report No. 27, Canberra.
Self-insurers Association of Victoria [SIAV] (2006) Submission to Essential Services
Commission Issues paper.
Workcover Western Australia (2006) Self Insurance in Western Australia A History and
Current Overview. Scheme Development Division.


SUBMISSIONS
Accident Compensation Conciliation Service
Air Conditioning and Mechanical Contractors Association of Australia
Allan Aitchison
Andrew Helps
Anna Dominguez Smith
Anthea MacTiernan
Anthony Smeaton
Australian Automotive Air Pty Ltd.
Australian Education Union
Australian Higher Education Industrial Association
Australian Industry Group
Australian Lawyers Alliance
Australian Manufacturing Workers Union Metals Division
Australian Manufacturing Workers Union Vehicles Division
Australian Meat Industry Employees Union
Australian Medical Association
Australian Nursing Federation
Australian Physiotherapy Association
Australian Rehabilitation Providers Association
Australian Services Union
Australian Workers Union
Barrett Burston Malting Co. Pty Ltd.
Brendon Johnston
Brighton Spinal Group
Chelgrave Consulting
Chiropractic and Osteopathic College of Australasia
City of Melbourne
Common Law Bar Association
Community and Public Sector Union
Compensation Law Bar Association
Conciliation Assistants Representing Employees
Convenor of Medical Panels
Country Fire Authority
County Court of Victoria
Dave Holland
Department of Education and Early Childhood Development
Director of Public Prosecutions
Dr Anthony Buzzard
Dr Helen Sutcliffe
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
SUBMISSIONS
PAGE 524
Edith Knight
Edward Nini
Elsa Underhill
Evelyn Field
Evert Van Der Steeg
Farshad Khajenouri
Frank Moodie
Freehills
Furnishing Industry Association of Australia
Geoff Provis
Geoffrey Piper
Glenn Pullin
Gordon Merigan
Harwood Andrews Lawyers
Holding Redlich
Huan Walker
Industrial Deaths Support and Advocacy Inc.
Injured Nurses Support Group
Jeremy Harvey
Job Watch Inc.
Joseph Gagliano
Judith Willis
K E Forbes
Kathleen Grayson
Keith Kerr
Law Institute of Victoria
M OLoghlen
Magistrates Court of Victoria
Master Builders Association
Maritime Union Australia
Master Grocers Australia
Master Plumbers and Mechanical Services Association of Victoria
McGrath Consulting
Melbourne Audiology Centre
Michael Roche
Michelle Westwood
Middletons
Municipal Association of Victoria
National Union of Workers
NewCare Group
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
SUBMISSIONS
PAGE 525
Ombudsman Victoria
Oncall Personnel
Recruitment and Consulting Services Association Ltd.
ResWorks The Foundation for Research into Injury and Illness in the Workplace Inc.
Robert Kernohan
Self Insurers Association of Victoria
Shop, Distributive & Allied Employers Association
Sue Hosking
Textile Clothing and Footwear Union of Australia
The Australasian Faculty of Occupational and Environmental Medicine and The Australian
and New Zealand Society of Occupational Medicine
Tim Johnston
Timber Merchants Association
Vatmi Industries
Victoria Police
Victorian Automobile Chamber of Commerce
Victorian Brain Injury Recovery Association
Victorian Employees Chamber of Commerce and Industry
Victorian Farmers Federation
Victorian Independent Education Union
Victorian Local Governance Association
Victorian Trades Hall Council
Workers Occupational Health Centre
WV Management
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
SUBMISSIONS
PAGE 526
NOTES
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
NOTES
PAGE 527
NOTES
ACCIDENT COMPENSATION ACT REVIEW FINAL REPORT
NOTES
PAGE 528
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aCCIDENt
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