Psychological injury at work

The third part of our series for employers on mental health at work explores why taking a supportive approach to workers who claim psychological injury is the best way forward.

Female patient talking to counsellor

Now that I have a claim, what's my best plan?

Psychological injury claims present a special challenge for NSW businesses because on average, they are much more expensive and involve more time off work than physical injury claims. 

icare data for the five years from 2013 to 2017 [1] shows that the average cost of psychological injury claims with weekly payments was twice as high as for physical injury claims with weekly payments — mainly because twice as much work time was lost for the psychological injury claims. 

Despite these results it is also true that in many cases, workers recover from psychological injury and get back to work quite quickly: over the five-year period, one third (33 per cent) of all psychological injury claims resulted in between zero and 14 days off work.

Looking at these two different outcomes, it appears that NSW businesses have a lot to gain when their injured workers sit within the category of early recovery and return to work. Fortunately, the evidence shows that employers can take an active role in achieving this result.

A recent national study of employees with a psychological injury found that the one of the major factors associated with higher return to work results was the employer’s response to the psychological injury. [2] The study found that 79 per cent of employees who agreed that their employer had responded positively to their injury were back at work at the time of the survey interview, compared to only 52 per cent who did not agree. [3]  

These Australian results concur with wide-ranging international evidence showing that the supportiveness of the employer response, perceptions of employer fairness, and the quality of the people management environment significantly “facilitate or hinder” the return to work of individuals with psychological injuries. [4] 

How should I respond?

Claims of psychological injury in the workplace often strike a very personal note with employers and this has led some businesses to automatically fight a claim that something in the work environment had caused harm to a worker’s mental health. 

Manager of Specialised Claims for icare workers insurance, Sam Fewings, believes an adversarial approach can be at odds with best practice: “Just as the general population is changing its thinking about mental illness, a lot of employers are questioning old preconceptions about psychological injury at work and changing their style when workers make a claim. 

“All businesses can benefit from the employer getting on the front foot by talking with the worker and asking what support they need. We need to be very clear that this is not about accepting every claim, it’s about providing support as the first response, rather than isolating the worker.

“Generally, the best outcome for everyone is that the employee gets back to work as quickly as possible, and all the research shows that people recover better in a work environment, where medically appropriate, and return to work more quickly if the employer is supportive. Even where a claim is declined, the benefits of an engaged response from the employer will help in the ongoing management of the situation,” he says.

Provisional liability

Under current legislation, insurers must begin provisional payments within seven days of a claim or “reasonably excuse” the claim. They must then accept or deny the claim within 21 days or take the path of “provisional liability”, which allows 12 weeks for the decision to accept or reject the claim, while the worker receives the necessary medical treatment and income support in the interim.

In the majority of cases, Fewings says, the best initial pathway for everyone is provisional liability, however some employers resist this option because they see it as an admission of fault.

“Provisional liability provides the space to gather information about the claim and work with all parties to get an equitable outcome. It also ensures that workers are able to receive the support and treatment they need as quickly as possible. That’s in line with best practice for early and sustainable return to work, and that’s the best result for both employers and workers.”


Cost benefits of timely service

A 2018 survey by icare workers insurance of the past two years of psychological claims showed that:

  • in the first 13 week-period of a claim, provisional liability psych claims had a 40 per cent higher chance of returning to work than reasonably excused psych claims.
  • within the first year of injury, the weekly benefits paid for claims that initially took the provisional liability pathway were 32 per cent lower than claims that were initially reasonably excused.

Amber Chandler and Stephen Hodges, partners with employment law practice Barker Henley, say that the provisional liability pathway gives employers time to drill down into the events surrounding a psychological injury claim, rather than taking things on face value. 

“Employers should always take the time to do a proper investigation of a psychological injury claim, to interview all the appropriate personnel and prepare factual statements, and seek any appropriate medical advice or assessments. Often you can’t do all of that properly in the 21 days provided, so the best pathway is provisional liability,” Chandler says.

“When a claim goes all the way to court, having all the information is critical”, Hodges says. “For example, where a worker claims to have been bullied by their manager, and where the manager denies such behaviour has occurred, the temptation for the employer may be to take the manager’s assessment on face value and request that the insurer decline the claim outright, without a full investigation. Later the injured worker may bring legal action supported by testimonies from other members of the worker’s team that the manager’s style was abrasive and difficult, as described by the worker. 

“At this point it may be too late for the employer to provide additional testimony because the general rule is that once a claim is rejected and a notice issued attaching all the evidence an employer is relying on, it is very difficult to have further evidence from the employer admitted into legal proceedings,” Hodges says. In the scenario above, the end result is likely to be an expensive claim.

Reasonable excuse

How should employers think about psychological injury claims which they believe are caused by reasonable performance management at work — like justified discipline or dismissal? Does “reasonable action” provide a solid defence?

Under NSW workers compensation legislation an employer can take reasonable action as a defence where a psychological injury is caused by action in the following seven categories: transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal, and provision of employment benefits. If successful, this defence renders the psychological injury claim non-compensable.

Chandler says that reasonable action has and can be used successfully as a defence but adds that a handful of watershed legal decisions over the last decade have confirmed that the onus is on the employer to prove the action was indeed reasonable and that the psychological injury was caused “wholly or predominantly” by the reasonable action — which can be difficult. 

The cases below demonstrate the uncertainties of fighting a claim in court, including using the defence of reasonable action. 

NSW State Transit Authority (STA) 

In one of its key decisions on psychological injury (State Transit Authority (NSW) v Fritzi Chemler 2007), the Supreme Court rejected the STA’s defence of reasonable action because it found that other events in the workplace had contributed to the psychological injury. 

The worker alleged that his psychological injury was the result of harassment and racial vilification, rather than the disciplinary action which had been taking place in relation to his conduct at work. The STA denied that the worker had been treated this way and statements from many co-workers denied that they had ever directed such treatment towards the worker. However, the worker’s evidence pointed to an old hand-written sign in the workplace that had at one time been placed there by some employees and which contained racially derogatory words.

The court found that the employee perceived the sign as a form of racial vilification against him, which caused his psychological injury. Importantly, the court also found that it didn’t matter if the worker’s perception that he was being personally vilified was mistaken: the fact that the sign existed in the workplace was sufficient to link it to causation of the injury.

One of the take-home lessons for employers from this seminal case is that even where an employer has intended no psychological harm, the worker may perceive events and actions in the workplace very differently. “If real and actual events in the workplace lead a person to perceive that the work environment is hostile, and as a result the worker suffers a psychological injury, then that injury is compensable under the workers compensation scheme,” Chandler says. 


In another more recent influential case (Hamad v Q Catering Limited 2017), Qantas accepted that a worker who prepared meals for aircraft passengers had sustained a psychological injury and declined liability on the basis that the injury resulted from reasonable action (disciplining the worker). 

The worker relied on medical evidence from his nominated treating doctor and a psychiatrist that the injury was caused by mistreatment, bullying and intimidation at work, rather than a single incident of discipline.

Qantas relied on lay evidence (a factual investigation report) and on appeal, the Workers Compensation Commission (WCC) found that Qantas had not provided sufficient medical evidence to prove the psychological injury was caused predominantly by the reasonable action. Accordingly, the WCC rejected the defence.

Legal realities of fighting a claim

Given the complexities, what can employers conclude about legal action in case of a psychological injury claim?

Legal action is highly complex and difficult to predict for both employers and employees — much more complex than for physical injury claims. Penalties for the losers of costly court cases can be substantial and the most consistent financial winners are members of the legal profession.

More than with any other type of personal injury claim, the success of a psychological injury claim rests squarely on the employee’s ability to establish a duty of care, a breach of that duty of care, and that the breach caused their psychiatric injury.

Employers are under increasing pressure to provide a safe workplace where employee work stress is adequately managed. While legal protection for employers continues to be provided through the law on reasonable management action, the increasing incidence and awareness of mental health issues in the workplace has introduced new complexity. 

Whatever happens, make sure you offer support 

Work-related harassment or bullying, work-related pressure and exposure to trauma are now significant and recognised causes of injury in the modern workplace. Regardless of whether a psychological injury claim is ultimately accepted or rejected by the insurer, the first response by any employer should always be to listen to the worker and ask what support the employer can provide — even when this feels difficult.  

“In the early days, workers compensation insurance protected workers in case of factory fires and other horrific events that occurred in the many unsafe places where they worked,” Fewings says.

“We’ve come a long way since then, but workers compensation is still the same at its core — it’s about protecting the society by protecting workers who come to harm on the job. Mental health at work is part of that journey.”



[1] This includes all data for the NSW Government’s Nominal Insurer, now represented by icare. 

[2] Wyatt, Cotton, Lane, Return to Work in Psychological Claims – Analysis of the RTW Survey Results, published by Safe Work Australia p. 10 

[3] Ibid, p. 14  

[4] Ibid p. 35