Settlements: The interplay between WorkCover and employment law

It is natural for questions relating to employment law to surface alongside WorkCover claims and vice versa – the two areas are closely connected.

WorkCover lawyers are often asked questions about termination of employment, just as employment lawyers often find themselves being asked about WorkCover weekly payments. This highlights why employment and WorkCover lawyers should collaborate: they need to handle factors that could affect claims in both areas. This collaboration is never more important than in the context of alternative dispute resolution and settlements – while a result may be satisfactory in one jurisdiction, the resolution may have a significant impact on another.

Generally speaking, it is the employment law case that resolves first, whether through a negotiated exit while the client is still employed or a termination case, which must be filed within 21 days of the date of dismissal. In the event of litigation, common law (negligence) claims can take years to resolve but are potentially more valuable in comparison with an industrial settlement. In Victoria, an injured worker has six years from the date of injury to pursue a common law claim. However, since injuries must be stable, it is not uncommon for claims to be pursued closer to the end of the six-year period.

A WorkCover (workers compensation) lawyer is usually looking for two key elements: whether there is a serious injury and whether negligence can be established. Early on in a case, WorkCover lawyers are more concerned with the medical side of matters, diving deeper into the details as cases progress and, once in the economic loss part of the case, exploring whether the client can establish a 40% permanent loss of earning capacity. A consequence of settling an economic loss claim is that weekly payments cease on the date of settlement so, in certain circumstances, it can be more favourable for the injured worker to continue to receive weekly payments rather than pursuing such a claim.

A problematic section

A section of the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) (WIRC Act) that receives limited attention but can lead to significant consequences if overlooked is s48. This section states that compensation will not be paid for an injury ‘to the extent that compensation has been received for the same injury’ under the laws of another jurisdiction (whether within or outside Australia). If an injured worker has received compensation under the WIRC Act and subsequently receives compensation for the same injury, the Victorian WorkCover Authority (VWA) can recover the lesser amount.

This section becomes particularly problematic in circumstances where a WorkCover case may be at the stage of settling after an industrial settlement and potentially exposing a client to the risk of recovery. In such scenarios, it is essential for employment lawyers and WorkCover lawyers to collaborate on each claim to determine the client’s best course of action. Furthermore, to prevent a potential professional negligence claim, it is vital to acknowledge and understand s48.

As a WorkCover lawyer, if a client has mentioned obtaining an industrial settlement, obtaining a copy of the deed of release is essential to understand the specifics of the settlement. In some cases, it may be in the client’s best interest not to pursue a common law claim. This scenario is more likely to occur in the context of a psychological or psychiatric injury. For example, if a client has settled a matter in the Federal Court of Australia and there are references to ‘bullying’ and ‘harassment’ in the settlement documents (and subsequent references to impact on mental health), and the WorkCover claim relates to the same, it should raise a red flag to reevaluate whether continuing with a common law claim is advisable.

The interplay between workers compensation and the Fair Work Act 2009 (Cth) (FWA) was explored in New South Wales in the case of Leggett v Hawkesbury Race Club Limited (No 4)1.

The applicant sought damages under both the Workers Compensation Act 1987 (NSW) (WCA) and the FWA for a psychiatric injury she sustained. She claimed that, after a new CEO was appointed in May 2016, she experienced micromanagement and bullying, resulting in her suffering a significant depressive disorder with anxiety.

The applicant made a workers compensation claim under the WCA, and she was in receipt of weekly benefits and medical expenses. She also made a claim for lump sum compensation for which she met the threshold and was in turn awarded $46,610.00.

Subsequently, the applicant lodged a claim against her employer, alleging that adverse action was taken against her for exercising her workplace rights. Therefore, she sought compensation for breaches of the FWA, and for her employer’s negligence in failing to take reasonable care and prevent foreseeable injury.2 The employer stated that awarding damages for both claims would result in double compensation and argued for the dismissal of the applicant’s work injury damages claim.

The Federal Court of Australia determined that it was appropriate to deduct the workers compensation previously received by the applicant from the compensation awarded for the employer’s breaches of the FWA to prevent double compensation for the same injury.3 However, the Court held that the applicant’s claim under the FWA was not limited by the cap on work injury damages payments set forth in the WCA. Section 151F of the WCA states that a court may not award damages that contradict the provisions of div 3 of the WCA. In this case, the Court concluded that the applicant was entitled to full compensation under the FWA, and that s151F of the WCA could be disregarded.

Characterisation of payments

The issue of ‘double dipping’ can also arise in the context of the characterisation of payments in unfair dismissal proceedings. It is important for both employment lawyers and workers compensation lawyers to understand the detail from the outset, as issues can arise at each stage of the proceedings.

First, knowing whether the client has an accepted workers compensation claim, and the level of any payments, prior to commencing unfair dismissal proceedings, and advising the client accordingly to ensure they are fully informed and strategies align, is critical for employment lawyers. The receipt of such payments goes directly to any assessment of compensation and outcomes, which a client needs to be aware of prior to any decision to commence an unfair dismissal application.

Likewise, the workers compensation lawyer must know whether their client has made a successful unfair dismissal application and, if so, the quantum of any outcome, which could be anywhere up to six months’ pay.

Second, in the event that the parties can come to terms to resolve an unfair dismissal dispute outside of arbitration, given the characterisation of any settlement as an eligible termination payment, the client’s continued receipt of workers compensation payments could be impacted, and the client may be obliged to disclose the receipt of such a settlement to the insurer. Clients need to be aware of these obligations, including in relation to any agreement about confidentiality.

Third, it is important that lawyers manage their client’s expectations with respect to any outcome. In the unfair dismissal jurisdiction, payments for shock, distress or humiliation cannot be awarded (s392(4) of the FWA). The Fair Work Commission will, in lieu of an order of reinstatement (s391(1)), compensate successful applicants for any lost income based on the factors set out in s392(2). This includes a deduction for any remuneration, wages and income the successful applicant has earned since the dismissal, which includes the receipt of workers compensation payments. As workers compensation payments can be anywhere up to 95% of an employee’s pre-injury average weekly earnings, this can result in a significant reduction in the value of any successful outcome at arbitration, and is likely to have a considerable impact on any cost benefit analysis of such a claim.

Finally, it is important to understand the nature of the characterisation of payments in the unfair dismissal jurisdiction, and the interplay with the receipt of statutory workers compensation payments, in circumstances where a client might have an alternative pathway to pursue a dismissal dispute, such as through anti-discrimination laws or the general protections jurisdiction, as those are jurisdictions that do not have a six-month cap on compensation and where awards for shock, distress or humiliation are obtainable. A client might also seek reinstatement where the monetary value of an unfair dismissal claim is limited by the receipt of statutory workers compensation payments.

Resignations

If an injured worker is unable to perform their pre-injury duties for a period of 52 weeks, their employer is prohibited from terminating their employment. However, after 52 weeks, there is no obligation for the employer to keep their job open.

Conversely, if an employee wishes to resign while being on WorkCover, their entitlement to weekly payments could be impacted. Section 185(2)(e) of the WIRC Act states that if the injured worker has resigned for reasons other than their work-related capacity, the insurer may reduce or determine not to make any weekly payments.

Negotiating an end to employment is often done through the parties agreeing to a deed of release. A common term of any such deed is that the relevant employee be allowed to resign. Employment lawyers need to ensure that their client understands the impact this might have before negotiating any such outcome. While parties are prohibited from contracting out of statutory workers compensation obligations, a voluntary resignation may impact the employee’s entitlement.

Employment lawyers therefore need to be across the issue from the outset, as their client might wish to agree to some other form of characterisation so as to not impact the entitlement, or an increased payment. One other method, in the event the client does wish to resign, is to ensure any resignation letter, as part of such an agreement, includes reference to the injury and their work-related capacity as the reason for resignation – input from a worker’s compensation specialist will ensure the wording is correct.

Key considerations

WorkCover and employment lawyers should keep the following in mind:

1. Understand your client from the outset – ask what legal advice they have received and try to explore their employment and/or WorkCover case in detail.
2. Understand the interplay between the characterisation of payments in certain employment termination cases and the receipt of statutory worker’s compensation benefits, to ensure the client is fully informed and strategies align.
3. Ask for copies of pertinent documents – a deed of release is key to establishing the details of a claim and to assess potential risks before advising your client on further settlements.
4. Open dialogue between lawyers promotes success and favourable outcomes.

This article was co-authored with Sam Nottle, Principal Lawyer of Jewell Hancock Employment Lawyers; and was first published in Precedent, the journal of the Australian Lawyers Alliance, issue 184, September/October 2024.

Footnotes:

[1] [2022] FCA 622 (No 4).

[1] Leggett v Hawkesbury Race Club Limited (No 3) [2021] FCA 1658, [2]–[3].

[1] No 4, above note 1, [54].