On 1 July 2026, significant changes to the NSW Workers Compensation Scheme came into effect, introducing a new framework for psychological injury claims. The reforms are designed to create a more sustainable workers compensation system while providing greater certainty for employers who manage workplace issues fairly and appropriately. Commenting on the reforms, Maria Van Driel, Senior Employment Relations Adviser at the NSW Business Chamber, stated that the changes are intended to provide greater clarity and certainty for employers.
One of the most significant reforms is the introduction of clearer eligibility requirements for primary psychological injury claims. Workers must now demonstrate that their injury arose from a recognised workplace event, that there is a genuine connection between the event and their employment, and that employment was the main contributing factor to the injury. Claims must also be supported by sufficient evidence detailing the alleged workplace conduct or incident.
Employers who follow fair and reasonable management practices are afforded greater protection under the reforms. Recent legislative changes have clarified and strengthened the reasonable management action defence, covering performance appraisals, disciplinary action, misconduct investigations, transfers, redundancy processes and other legitimate management decisions. At the same time, claims involving bullying, sexual harassment, racial harassment and excessive workloads are subject to a dedicated assessment pathway. Once all relevant information has been provided, insurers generally have 42 days to determine liability.
Significant Changes to Workers Compensation in New South Wales from 1 July 2026
- Workers must demonstrate that employment was the main contributing factor to the psychological injury.
- Stronger protection for employers undertaking reasonable and lawful management action.
- Claims involving bullying, harassment and excessive workload are subject to a specialised assessment process.
- Insurers generally have 42 days to determine liability once sufficient information has been received.
- Greater emphasis is placed on workplace evidence, including documentation, investigation records and management notes.
- Higher Whole Person Impairment (WPI) thresholds now apply for access to certain long-term psychological injury benefits.
The message to employers is clear: effective management is now more important than ever. Maintaining accurate performance records, documenting workplace discussions, conducting fair investigations and communicating decisions professionally can all strengthen an employer’s position if a psychological injury claim arises. Well-maintained workplace documentation not only assists insurers but also demonstrates that management decisions were made fairly, reasonably and consistently.
The reforms also reinforce the importance of prevention. Employers should regularly review workplace policies, ensure managers receive appropriate training, respond promptly to workplace concerns and maintain accurate employment records. Businesses that invest in good governance today are likely to be better equipped to manage future claims while fostering a healthier workplace culture.
Keep in mind that these reforms apply to primary psychological injury claims first notified on or after 1 July 2026. Employers who are uncertain about how the new legislation may affect an existing or potential claim should contact their workers compensation insurer or seek professional legal advice before taking any further steps.
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Although these reforms relate to workers compensation rather than property law, many employers are also commercial property owners or business operators. Maintaining comprehensive workplace records, implementing well-documented policies and seeking advice early can help minimise legal risk and provide greater certainty if a claim arises. Strong governance protects both your business and the long-term value of your commercial operations.
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