This report sets out the results of this Committee’s inquiry into certain amendments to the Workers’ Compensation and Rehabilitation Act 1981 (“Act”) proposed by the Legislative Assembly in its Workers’ Compensation and Rehabilitation Amendment Bill 1997 (“Bill”). The Legislative Council and Legislative Assembly are in disagreement over 3 of the 61 clauses of the Bill and the Council has referred those clauses to this Committee for consideration and report.
The key issue for this inquiry is whether the Council should accept the changes proposed by the Legislative Assembly to the circumstances in which an injured worker can access common law damages under the Act.
Under the Act an injured worker cannot seek damages at common law for a work related injury except where:
•the degree of disability suffered by the worker is at least 30%, based on the statutory scale (“first gateway”); or
The Legislative Assembly proposal for consideration by this Committee has two elements. First, it will restrict the first gateway by excluding what might loosely be called “psychological factors” from counting towards the 30% degree of disability. Secondly, it will close the second gateway altogether.
•the future pecuniary loss suffered by the worker is at least the prescribed amount, currently $106,382 (“second gateway”).
While generally commending Western Australia’s workers’ compensation and rehabilitation system, most witnesses to this inquiry agree that some legislative action is required to stem recent and ongoing increases in the cost of the system, and in insurance premiums payable by employers. Witnesses do not, however, agree on what area of costs is to blame for the cost increases, and consequently should be the focus of legislative change. The continued viability of the system may be in doubt without reform.
By way of background, substantial amendments to the Act in 1993 were intended to shift the focus of the system away from awarding punitive common law damages to the worker, towards getting the worker back to work with compensation for lost earnings. It was expected that an increase in weekly compensation payments, medical costs and rehabilitation costs would occur, but that the increase would be more than balanced by an expected substantial decline in common law payments.
The justification for the Assembly’s proposal is essentially that the anticipated decline in common law payments has not occurred and that further legislative action is required to ensure that it does.
Opponents of the Assembly’s proposal, however, point out that there have been equal or greater cost increases in other areas of the workers’ compensation system. Further, it is generally agreed that a substantial proportion of common law payments falls within this category only because of flaws elsewhere in the legislation, notably the lack of any other avenue by which claims can be finalised, or “redeemed”. They suggest on these grounds that the Assembly’s proposal to cut back workers’ common law rights is an inappropriate, badly directed and probably ineffectual response to the cost increases.
On the basis of these arguments, the Committee has made the following key findings.
1. A difficulty with the operation of the Act since the 1993 amendments has been the blurring of what are conceptually two quite different things:
•the statutory compensation and rehabilitation system for returning injured workers to work and compensating them for income lost during that period, which the employer funds, generally through an insurance company, on a no-fault basis; and
The interaction of the statutory and common law systems leads to anomalies such as the following.
•the common law damages system which identifies and punishes negligence on the part of the employer where that negligence causes serious disability to a worker.
•The common law damages system is used in many cases as a surrogate for statutory compensation as it offers certain procedural advantages to all parties. Many common law settlements are referred to as “de facto redemptions”. This results in a confusing picture of where costs are being incurred.
•The Act sends conflicting signals to a seriously injured worker: on the one hand, it provides for rehabilitation to promote the worker’s return to work, while at the same time the common law can reward the worker who is unable to return to work. One result is that the rehabilitation system is not always effective in more serious cases potentially involving a common law claim.
2. While there have been substantial cost increases in areas other than common law, legislative action to address the common law cost increases is justified because it was in this area that costs were expected to decrease substantially. Employers and insurers legitimately expected in 1993 that they would be able to fund an improved rehabilitation and weekly payments scheme because common law costs would decrease. It is appropriate for Parliament to deal with the difficulties caused by the failure of the 1993 legislation to achieve what was intended.
•Insurance arrangements tend to bundle together the compulsory, or statutory, component of insurance with the non-compulsory, common law or general liability component. If the common law component were separated, a workplace with a good safety record and therefore low common law costs could be rewarded with lower premiums. The complex inter-relationship between common law costs and statutory costs makes it difficult for insurers to accurately assess potential liability and thence offer insurance conditions which reflect a workplace’s safety record.
3. However, there are shortcomings both in the arguments used to justify the Assembly’s proposal and in the actual form taken by the proposal. One important consideration is that employers and insurers need to operate within a predictable, consistent system which does not suffer from violent swings in cost allocation. Workers’ compensation and rehabilitation is a dynamic system wherein the various cost factors are inter-related, so that an alteration to the rules in one area will affect the operation of other areas. Severely restricting common law claims, as the Assembly proposes, could result in costs increasing exponentially in other areas such as weekly payments and rehabilitation.
4. The Committee understands that discussions on differing options for reform of the second gateway have continued between the Government and interested parties during the period of this inquiry. In addition, various witnesses to this inquiry have raised options for reform which appear to be of merit and worth further consideration. Clearly, the Assembly’s proposal is not the only possible model for reform. The Committee has not considered alternative proposals in detail but in this report briefly outlines a number of models to indicate what other approaches might be taken.
While these flaws do not derogate from the need for legislative action, the Committee questions whether the Assembly’s proposal is the most appropriate model for reform of the gateway system.
5. In these circumstances, the Committee has recommended that the Council does not agree to the Assembly’s proposal.
6. Parties should be allowed, as they were until 1993, to agree to finalise a claim through a liberal redemption system in those cases where finalisation is appropriate. Most witnesses agree that liberalising the redemption system under the Act would remove a significant proportion of cases currently brought at common law, thereby going part way towards relieving common law cost pressures and presenting a more realistic picture of system costs.
7. Witnesses before the Committee raised a number of concerns about the operation of areas of the Act other than the second gateway. As noted, the system is dynamic and reform should not be undertaken in isolation. Although reform of the second gateway should remain the priority for Parliament, a general review of the Act, including consideration of the matters discussed in Chapter 12 of this Report, is merited once immediate concerns have been addressed by the Bill.