Controversial NSW Workers’ Compensation Bill Delayed

The NSW Labor government’s controversial compensation bill aimed at restricting workers’ compensation claims for psychological injuries will now undergo a parliamentary inquiry after a coalition of crossbenchers and the opposition forced the move. 

The bill, which passed the NSW lower house on June 3, sparked criticism after it was revealed that it would make it much harder for employees suffering psychological injuries to receive the support they need. 

The Minns Labor government had insisted the compensation bill was urgent and needed to be passed this week, as part of efforts to implement reforms to the compensation system before July 1. 

On Wednesday a release from the Treasurer, the Minister for Customer Service and Digital Government, and the Minister for Industrial Relations confirmed that the Workers Compensation Legislation Amendment Bill 2025 was expected to go before the upper house.

The NSW Government called on Parliament to pass the legislation to protect workers compensation for “future generations”, describing the current system as “not sustainable”. 

However, the state’s upper house voted to send the proposed changes to a committee the following evening. 

Growing concerns over worker impact and mental health impact

The move is a setback for the Minns Labor government, which released the workers’ compensation bill a week ago, insisting it was extremely urgent and needed to be passed this week.

State Treasurer Daniel Mookhey, who opposed the inquiry, stated that NSW’s compensation scheme was running a daily deficit of $5 million.

Greens MLC Abigail Boyd, chair of the public accounts committee, criticised the government for committing “a complete breach of trust” by obscuring the financial impact of the proposed scheme on various government accounts. 

Boyd argued that the government failed to produce the necessary modelling, making it impossible for committee members to assess the scheme’s potential impact. 

“I don’t like being misled,” Boyd said, as reported by The Guardian. “The treasurer has deliberately confused the nominal fund and the Treasury-managed fund,” she said. 

Workers criticise NSW compensation reforms for psychological injury  

Workers and unions have strongly opposed the proposed reforms, warning that they will drastically reduce access to vital mental health compensation for employees suffering from psychological injuries. 

According to Veritas Law Firm, a firm specialising in personal injury litigation, the Minns-Labor government’s proposed workers compensation law reforms are “pitched as a solution to rescue a failing scheme”, risking the lives of “nurses, midwives, carers, and other healthcare professionals”. 

As the largest group affected by such injuries, Veritas states that healthcare workers are already facing “rising levels of workplace stress, compounded by increasing demand on mental health services”. Additionally, the reforms could “entrench toxic workplace cultures”, both in the public and private sectors, at a time when mental health support is already under immense strain.

What are the key proposals in the NSW Workers Compensation Reform? 

The draft legislation for NSW workers’ compensation reform introduces several cost-saving measures, with a particular focus on reducing psychological injury claims.

Key changes include:

• Employees facing workplace bullying or harassment would need to resolve the issue through industrial tribunals, such as the NSW Industrial Relations Commission (IRC), before being eligible for workers’ compensation.
• The reforms propose a new statutory definition of “psychological injury” and “reasonable management action.” These definitions could exclude valid claims arising from high workloads or legitimate performance management practices.
• The impairment threshold for receiving lump-sum compensation for psychological injury would rise from 15% to 30%, potentially disqualifying many workers from receiving financial support.
• The reforms would grant employers more control, making it easier for them to deny or dispute claims, especially those related to workplace trauma or chronic stress. Critics argue this shift heavily favours employers and could leave vulnerable workers without adequate support or recourse.

The Independent Education Union of Australia NSW/ACT Branch has joined other unions in calling on the NSW government to fix its “ill-conceived overhaul of workers compensation laws”. 

According to the IEU, the changes, driven by NSW Treasurer Daniel Mookhey, will make it “almost impossible” for working people to access long-term care and support for psychological injuries like post-traumatic stress disorder. 

Additionally, a Unions NSW survey of more than 10,000 essential workers (teachers, disability workers, firefighters, nurses and emergency services personnel)  found the proposed changes will put them at extreme risk of further harm or severe financial hardship. 

IEU calls on NSW Government to fix worker compensation laws

The IEU states that cutting off working people from mental health support and care leaves them at a greater risk of “increased debt, as well as stress and anxiety and the breakdown of family relationships”.

“The proposed changes will also force injured workers back to work before it is safe,” the union stated in a media release published on Thursday.

The IEU has called on the NSW government to deliver greater safety and prevention measures, “The NSW government and employers need to do more about eliminating hazards such as workplace violence, racial and sexual harassment, excessive workloads and poor support from supervisors and management.”

“Employers can also reduce psychosocial hazards and the cost of workers compensation by employing more staff, and improving pay and conditions. Employers must face penalties when safety laws are broken. IEU members should not be punished for poor management of the workers compensation system by successive state governments and employers,” the union declared.