Wilson, Geoff; Redpath, Bill --- "10 things we hate about the SRC Act" [2014] PrecedentAULA 62; (2014) 125 Precedent 36

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10 THINGS WE HATE ABOUT THE SRC ACT

By Geoff Wilson and Bill Redpath

Given proposals to open up the Comcare scheme nationally to more employers, it is important to address its current flaws.

The Howard government saw the expansion of the Commonwealth Safety, Rehabilitation and Compensation Act 1988 (the SRC Act) as the solution to the demand by larger national employers for a national workers’ compensation scheme.

From 1 April 2002, the SRC Act was amended to allow eligible corporations to apply for a licence to operate under the scheme.

Section 100 of the SRC Act provided that eligibility was open to Commonwealth authorities, former Commonwealth authorities and to corporations that were carrying on business in competition with such authorities. This became known as the 'competition' test.

Labor was sceptical about the opening up of the scheme, and from 11 December 2007 a moratorium was placed on the granting of new applications received from private corporations for licences.

The Abbott government has recently returned to the Howard vision. In late 2013, the federal government lifted the moratorium on licences and, in March 2014, the Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (Cth) (SRC OLA Bill) was introduced into the federal parliament. The Bill will significantly amend the SRC Act to open up the gates for eligibility to the scheme by replacing the competition test with a 'national employer' test (being a corporation operating in two or more states’ jurisdictions).^[1]

At the time of writing, the Bill is before the Senate. Labor, the Greens and a number of independents are committed to opposing the Bill.

As practitioners in the field, we argue that the SRC Act is not the appropriate vehicle for a national scheme. By way of explanation, in this article we identify ten serious flaws in the current scheme that produce injustice and unfairness.^[2]

1. COMMON LAW ACCESS

The SRC Act provides a 'Clayton’s'^[3] access to common law. If an injured worker can show a 10 per cent whole person impairment (WPI) under the guide for the Assessment of the Degree of Permanent Impairment (the Guide),^[4] then they can elect to receive a lump sum for permanent impairment or to sue at common law for general damages only.

The amount of general damages is limited to $110,000.^[5] This has not changed since 1 December 1988 when the legislation was enacted.

The election is irrevocable and, as a permanent impairment of 10 per cent will attract a lump sum of about $30,000,^[6] it is hardly surprising that few injured people access the common law option.

As has been noted in many ALA publications, common law provides the fairest means of recompensing individual loss in the form of a final resolution of entitlements.

Even if the option is taken under the SRC Act, other benefits continue to be managed by Comcare on an ongoing basis.

Importantly, in terms of scheme design, access to common law provides a safety valve on scheme costs and reserves.

It is no coincidence that workers’ compensation schemes that are entirely 'long-tail' or pension-based are historically the schemes that have produced financial problems, as demonstrated by schemes in South Australia, NSW and the Comcare scheme. All of these schemes have trimmed the benefits paid to injured workers in a perpetually failing effort to reduce their prospective liabilities. The losers are the injured workers, sacrificed to fiscal rectitude.

2. THE LACK OF REDEMPTIONS/COMMUTATIONS

The Comcare scheme fails to provide adequate mechanisms for redemptions or commutations.

Section 30 of the SRC Act provides that incapacity payments will be redeemed if the weekly amount is less than $110.65^[7] gross per week.

Commutations or redemptions are an agreement between an injured worker and the insurer to pay a lump sum in full and final satisfaction of workers’ compensation entitlements.

It is an opportunity for the worker to be able to self-manage his or her entitlements and for the insurer to make administrative savings and settle reserves by closing the claim.

It is clearly preferable for workers and insurers to be allowed to agree to commute or redeem future statutory entitlements for amounts beyond the present $110 ceiling. However, no meaningful ability exists in the present legislation for this to occur. Despite this legislative deficiency, some licensees^[8] work hard, beyond their legislative power, to achieve such outcomes.

There is no capacity under the SRC Act to redeem anything but incapacity payments, so the further effect of this is that any redemption is subject to taxation and treated as if it were income in one year – attracting a high tax bracket, which further diminishes the benefit.

Currently Comcare is conducting a campaign against all long-term recipients of physiotherapy. It would have been less costly and probably more agreeable to recipients if they had received a redemption of this years ago.

From experience, we know that many injured workers in the Comcare scheme would be prepared to accept a commuted lump sum, which would also return a savings and reduction in prospective liabilities and administrative costs.

The legislative landscape should change so as to allow and perhaps even encourage such outcomes on the basis that they are better for the worker, employer and insurer.^[9]

3. THE UNFAIRNESS OF HART v COMCARE^[10]

The SRC Act provided that compensation is not payable if the disease, injury or aggravation was a result of ‘reasonable administrative action taken in a reasonable manner’.^[11]

The concept of ‘reasonable’ denotes some fault-based criteria in what is supposed to be no-fault legislation.

As a result of the interpretation of this section by the Federal Court decision of Hart v Comcare, this exclusionary provision is even more dire.

The case decided that if a single significant contributing factor to the injury or disease can be identified as a broadly defined ‘reasonable administrative action taken in a reasonable manner’ then it is non-compensable, no matter what the other circumstances might be.

Unfair situations are routinely created where workers are cost-shifted away from Comcare coverage in situations where there may be a plethora of compensable and significant contributing factors to the development of a psychiatric injury, but Comcare is able to rely on the existence of a single excluded significant contributing factor to deny liability for the claim – for example, failing to obtain a transfer out of a toxic work environment, or reacting to performance counselling or management after decompensating in a workplace.^[12]

A fairer solution to overcome the unfairness of Hart would be for claims to be denied only when the sole or dominant significant contributing factor to the injury or disease is excluded under the SRC Act.^[13]

4. ADDING IMPAIRMENTS – OVERCOMING CANUTE V COMCARE^[14]

Like all Australian workers’ compensation schemes, the SRC Act makes provisions for lump sum compensation for permanent impairment for loss of bodily function or use.

The Comcare-approved Guide allows a lump sum for impairment if there is a 10 per cent or more WPI. Like most other jurisdictions, the definition of what constitutes 10 per cent impairment has become increasingly restrictive.

There is provision for a further payment if a person’s overall WPI impairment deteriorates by a further 10 per cent WPI or more. It is common for a person to suffer a subsequent injury with its own 10 per cent rating after being paid 10 per cent for an initial injury. However, the interpretation of the combined tables in the Guide meant that as 10 per cent + 10 per cent = 19 per cent, then the overall increase is only 9 per cent and therefore no additional compensation is payable.

This outcome was clearly absurd and the High Court decision in Canute determined that each and every injury should be assessed separately.

Unfortunately, the Canute decision has produced two injustices. The first is that in circumstances where there are two or more separate impairments arising from the same injury and each meet the 10 per cent threshold, then the injured worker is probably overcompensated for such injury. More significantly, it is possible to have a series of compensable injuries, none of which reach the 10 per cent threshold, but together may far exceed it. In those circumstances, the injured worker is not compensated for permanent impairment at all.

It should be possible to combine impairments arising from the same injury to get over the 10 per cent threshold while overcoming the original problem in interpreting subsequent impairments that Canute sought to correct.

5. INCLUSION OF SUPERANNUATION TO REDUCE INCAPACITY PAYMENTS

The SRC Act^[15] is the only workers’ compensation legislation that takes into account superannuation entitlements in order to reduce incapacity payments.

Specifically, if an employee is retired so as to become eligible for superannuation benefits (either in the form of a pension, lump sum or combination of the two), these are deducted to ensure that a totally incapacitated worker receives no more than 70 per cent of pre-accident earnings.^[16]

The rationale provided is 'double-dipping', because an injured person could obtain 100 per cent or more of their pre-injury salary if they received both incapacity and superannuation benefits.

The result is that workers are forced to use superannuation funds for everyday living costs, when such benefits are intended to be used at a time when wages and incapacity payments have ceased – that is, post-retirement. This is particularly true in respect of lump sum superannuation payments.

Even if superannuation is 'rolled over', there are circumstances that cause its value to be 'deemed' to reduce incapacity entitlements.

In effect, the Comcare scheme gets a saving in incapacity payments as a result of the private arrangement of injured workers.

It is notable that the inclusion of superannuation payments in the calculation of incapacity payments was criticised in the recent review of the SRC Act by Peter Hanks SC.^[17]

The SRC Act needs to be amended to encourage rollover of superannuation, or where this is not possible, to allow 'top-up' of up to 100 per cent of pre-accident earnings.

6. THE ABSENCE OF COMCARE FROM THE REHABILITATION PROCESS

Given the prominence of rehabilitation in the title of the Act, it is ironic that while Comcare accredits rehabilitation-providers, the obligation to provide actual rehabilitation programs remains with the employing agency. Unsurprisingly, the results are extremely variable.

Comcare does have a role in reviewing a rehabilitation program at the request of an injured employee (but not if they are employed by a licencee).^[18]

However, there are situations (such as psychological injuries) where the employee is not able to return to the employer because of the circumstances leading to the condition, or where the employee is no longer employed, in which case it would be more appropriate for Comcare rather than the employer to oversee rehabilitation.

There is certainly scope for Comcare to be given a more active role in this area.

7. THE IMPAIRMENT GUIDE GENERALLY AND TABLES 9.7 AND 9.14 SPECIFICALLY

There are nonsensical limitations in the Guide, such that objectively impaired workers do not receive their fair entitlement despite clearly satisfying the 10 per cent or greater WPI criteria.

One of these is in the area of spinal injuries, and the tables relating to these (9.15 – 9.17) have been the subject of considerable litigation and a revision of the Guide.^[19]

These tables deal with diagnostic assessment rather than range of movement or loss of function, assuming a mechanical equivalent of injury to impairment.

Another problem is that while the Guide provides assessments of individual joints in the upper extremity (wrists, elbows, shoulders) and in the lower extremity (ankles, knees, hips) it is not effective in measuring impairments that reduce the use of the arms or legs as a whole but fall short of amputation.

This task is left to Table 9.7 (legs) and Table 9.14 (arms).

However, the introduction to Table 9.14 indicates that it cannot be used if ‘there is no radiologically demonstrated joint instability or arthritis or arthroplasty’.

It is difficult to understand why these additional criteria are required.

It means that overuse injuries are effectively excluded from assessment.

In respect of Table 9.7, the introduction states if only one leg is affected then the tables relating to joints rather than this table should be used.

Nor is it possible under this Table (or Table 9.6) to measure impairments of lower limbs due to nerve root compromise in the lumbar spine.

Again, there is no rationale for why this should be the case.

These limitations, and prohibitive language such as that in Table 9.7 and 9.14 of the Guide, need to be reviewed to remove such results.

8. A LACK OF INSPECTORS

Nationally, Comcare has work, health and safety (WHS) responsibilities for 438,000 employees, but only 53 authorised inspectors.^[20] There is a concern that workers covered by the Comcare scheme in some states are not adequately covered when compared to their white collar colleagues in Canberra.

Without substantially increasing this capacity, Comcare simply cannot properly fulfil its responsibilities, particularly if the scheme is expanded. Alternatively, WHS obligations should be disentangled from the compensation side of the scheme and left instead to state/territory jurisdictions, given the uniformity of laws achieved in this area.

9. A LACK OF TIME LIMITS ON THE DECISION-MAKER

While the SRC Act prescribes times for injured workers to notify injuries, lodge claims and seek internal and external review of decisions, there are precious few time obligations on the part of Comcare scheme decision-makers themselves.

As part of their obligations as licencees, the self-managing employers are expected to meet standards regarding the timeliness of their decision-making. For Comcare, these are ‘aspirational’ guidelines.

Comcare’s lack of timeliness can leave the injured worker in a precarious financial position while waiting for a decision.

Whether it is 'deemed accepted' or 'deemed denied', there ought to be some legislative mechanisms to ensure timely decisions from decision-makers.

10. CALCULATING INCAPACITY PAYMENTS

As a result of a number of key decisions over the last ten years, the process of calculating ‘Normal Weekly Earnings (NWE)’, which forms the basis for determining incapacity payments, has improved.

It nevertheless remains a complex one, particularly when factoring in changes to entitlements over time, and in radically different labour markets.

It is noteworthy that while the means of increasing entitlements is prescribed,^[21] the means of decreasing entitlements is much broader.^[22]

Other workers’ compensation Acts make the process of calculating earnings at the time of injury much easier and less arbitrary.

CONCLUSION

The ten examples we have provided illustrate only some of the difficulties injured workers experience in navigating the SRC Act.

As you would expect from a long-tail scheme, the experience of those in it is characterised by regular review, constantly changing case officers, delays, misunderstandings and mistakes from time to time.

What our excursion through some of the flaws of the SRC Act illustrates is a need for significant reform of the legislation before it can be considered to be the 'standard' that should be rolled out across Australia.

Geoff Wilson is a Special Counsel with Maurice Blackburn Lawyers, and is head of his Firm’s Comcare National Practice Group. EMAIL [e-mail].

Bill Redpath is a solicitor at Blumers Lawyers, ACT ALA Director (and trying to wean himself off SRC Act cases). EMAIL [e-mail].

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^[1] Proposed amendment to s100 of the SRC Act in SRC OLA Bill, p4.

^[2] This is leaving aside the financial uncertainty for state and territory workers as large and small employers exit their workers’ compensation schemes.

^[3] For those unfamiliar with this colloquialism, it refers to the name of a non-alcoholic beverage (brand name Clayton’s), which was advertised as ‘the drink you have when you are not having a drink’. It means false, fake or pseudo.

^[4] This is a stand-alone Guide enacted under the SRC Act. The current version is the fourth – 2.2.

^[5] Section 45(4).

^[6] Permanent impairment sums are indexed.

^[7] This amount is indexed.

^[8] In this context, a licensee is an entity that has received a licence under the SRC Act to administer the scheme.

^[9] See, for example, Australian Lawyers Alliance, Submission to the Senate Standing Committee on Education and Employment, Inquiry into the Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (Cth). Accessible at http://www.lawyersalliance.com.au/documents/item/210.

^[10] Hart v Comcare [2005] FCR 29.

^[11] Section 5A of the SRC Act.

^[12] In this context, ‘decompensating’ means to have a nervous breakdown or to ‘burn out’.

^[13] This view was supported by Peter Hanks SC in his review of the SRC Act – recommendation 5.125; http://docs.employment.gov.au/system/files/doc/other/src_act_review_report.pdf.

^[14] Canute v Comcare [2006] HCA 47.

^[15] And its Commonwealth equivalents, such as the Seafarers Rehabilitation and Compensation Act 1992 and Military Rehabilitation and Compensation Act 2004.

^[16] Sections 20-21A, 131 and 135 of the SRC Act.

^[17] http://docs.employment.gov.au/system/files/doc/other/src_act_review_report.pdf, particularly the discussion at pp95-101.

^[18] Section 38 of the SRC Act.

^[19] Such as the 'Broadhurst' litigation; for example: Comcare v Broadhurst [2011] FCAFC 39; (2011) 192 FCR 497.

^[20] Comcare submission to the Senate Standing Committee Inquiry into the SRC OLA Bill 2014, 30 May 2014, p5.

^[21] Section 8(6) of the SRC Act.

^[22] Section 8(10) of the SRC Act.