The submission below reflects the thoughts of a very experianced Solicitor
namely Paul Mulvaney.
Mr Mulvanely clearly explains the faults with the Workcover system and
also the disasterous Comcare system previously used.
I beleive that the minister Mr Holding and Workcovers CEO Mr Tweedly
should be taking action after reading this report as it clearly shows the
inadequacy of this system and the obvious discrimination handed to
the workcover victims injured before 20th October 1999.
namely Paul Mulvaney.
Mr Mulvanely clearly explains the faults with the Workcover system and
also the disasterous Comcare system previously used.
I beleive that the minister Mr Holding and Workcovers CEO Mr Tweedly
should be taking action after reading this report as it clearly shows the
inadequacy of this system and the obvious discrimination handed to
the workcover victims injured before 20th October 1999.
As we are now in 2008 I believe that the leglislation should be providing
the following:
the following:
1. Flexability from the VWA based on individual cases as all injuries are not the
same nor are the circumstances of the injury. The VWA is also not enforcing the
legislation as it is supposed to.
same nor are the circumstances of the injury. The VWA is also not enforcing the
legislation as it is supposed to.
2.Economic loss and Financial integrity to be restored and included in any payout; as many workers are denied the basic right of obtaining benefits from workcover even though it is supposed to be no fault insuarance and some are tied up in the court system for years
3. Finality to claims and litigation so as injured workers can get on with their rehab and life after injury
4. All legislation to be voted on by the people not just the Parliment as due to the morgan gallop
poll taken at the time showed 79% of the public were against the kennett changes.
5. Support for the Moral imperative.(If employer is at fault then they pay)
6. An apology and legal action to be taken for all workcover victims ;from Jeff Kennett who used dishonest financial statistics to obtain his legislation changes which inturn effected many thousands of injured workers
7. The Government is also liable in this issue due to the fact that they are ignoring complaints and not directing Workcover to enforce the legislation.
HGH:1608
Howard Harrison Direct Line: 9291 7112
Email: hharrison@codea.com.au
Howard Harrison Direct Line: 9291 7112
Email: hharrison@codea.com.au
10 August 2001
The Honourable Justice Terry Sheahan
Commission of Inquiry into Workers Compensation/Common Law Matters
Level 1, 60-70 Elizabeth Street
SYDNEY NSW 2000
Dear Judge
RE: COMMISSION OF INQUIRY - WORKERS COMPENSATION/COMMON
LAW MATTERS
I enclose herewith a paper prepared by Paul Mulvaney,
The Honourable Justice Terry Sheahan
Commission of Inquiry into Workers Compensation/Common Law Matters
Level 1, 60-70 Elizabeth Street
SYDNEY NSW 2000
Dear Judge
RE: COMMISSION OF INQUIRY - WORKERS COMPENSATION/COMMON
LAW MATTERS
I enclose herewith a paper prepared by Paul Mulvaney,
solicitor from Melbourne - 5 July 2001.
Hopefully this paper has already made its way to your Inquiry.
I believe this paper reflects a considered judgment by an
I believe this paper reflects a considered judgment by an
experienced practitioner well aware of the long and complex debate
within the ALP in relation to these issues and other aspects.
Paul is a previous member of the equivalent of the Compensation
Paul is a previous member of the equivalent of the Compensation
Court in Victoria. The paper acknowledges the valid criticisms of the
traditional common law model and succinctly puts the arguments in
favour of having the common law action as a part of a modern mixed
compensation system, it being a well-focused distributive mechanism
that provides an extra layer of compensation to the most seriously
injured and in the most reprehensible of circumstances.
Paul acknowledges that in the modern blended compensation system,
Paul acknowledges that in the modern blended compensation system,
the Common Law right must exist with appropriate conditions in respect
of reducing costs and transaction costs and there must be proper control
mechanisms which are equitable and predictable.
The Victorian Government has reinstated common law in a "limited" way.
There are clearly strong policy reasons for having a system in which
common law is available in cases where injured workers and their families
are most adversely affected economically or otherwise, particularly if there
is culpability on the part of the employer.
I hope I am not out of order in forwarding a copy of this to you.
I hope I am not out of order in forwarding a copy of this to you.
Kind regards
Howard Harrison
‘THE REINTRODUCTION OF COMMON LAW; THE VICTORIAN EXPERIENCE’
Introduction
In order to understand the ‘Victorian Experience’ of the
Howard Harrison
‘THE REINTRODUCTION OF COMMON LAW; THE VICTORIAN EXPERIENCE’
Introduction
In order to understand the ‘Victorian Experience’ of the
re-introduction of common law claims for work injuries,
it requires a brief historical review of the development and
relationship between common law, and statutory based
relationship between common law, and statutory based
no-fault compensation systems generally.
In the second half of the 19th century as injured workers
In the second half of the 19th century as injured workers
sought damages through resort to common law actions, they
were met by the judicial development and application of the
defences of common employment; contributory negligence,
defences of common employment; contributory negligence,
and voluntary assumption of risk (the ‘Unholy Trinity’)i.
Statute based workers’ compensation schemes were largely an
attempt by government to ameliorate the harsh and repressive
attempt by government to ameliorate the harsh and repressive
features of the common law.
Despite the eventual introduction of no-fault legislation in all
Despite the eventual introduction of no-fault legislation in all
Australian jurisdictions earlier last century, access to common law
remained, so that workers generally had at least a nominal choice of
either statutory or common law compensation. For much of this period
however, the two systems of compensation were in effect monolithic
however, the two systems of compensation were in effect monolithic
and independent systems, with very little interchange between the two.
In the main, injured workers were restricted to a conclusive election
between the two systems, and the interrelationship between the systems
was limited to an obligation to refund compensation payments from
any subsequent award of damages.
Over the last two decades there has been a significant development in the
any subsequent award of damages.
Over the last two decades there has been a significant development in the
structure of our compensation mechanisms both in the Commonwealth and
various States. There has been a move away from the twin monoliths, that is
largely independent structures of Common Law damages and statutory
compensation schemes, to a different model, which I will refer to as a
"blended system". The hallmarks of a blended system normally involve
some mix of income loss compensation by way of weekly payments
(usually partial); payment for medical and like expenses; statutory payment
for levels of impairment or defined disability; and highly regulated access to
the pursuit of common law damages.
These elements are essentially components of a single scheme where access to the
various components is tightly regulated by complex statutory provisions.
Within blended schemes there have been a number of trends that have been discernible
over recent years. These trends include the ever increasing restrictions on the pursuit of
common law damages and a limitation on the amount of damages that can be recovered.
The restrictions of access to common law damages utilise a number of mechanisms.
These include statutory designations of ‘certificate’ or ‘serious’ injury, and minimum
impairment payments or minimum requirements for economic loss.
These elements are essentially components of a single scheme where access to the
various components is tightly regulated by complex statutory provisions.
Within blended schemes there have been a number of trends that have been discernible
over recent years. These trends include the ever increasing restrictions on the pursuit of
common law damages and a limitation on the amount of damages that can be recovered.
The restrictions of access to common law damages utilise a number of mechanisms.
These include statutory designations of ‘certificate’ or ‘serious’ injury, and minimum
impairment payments or minimum requirements for economic loss.
In some jurisdictions the damages obtainable are restricted to non-economic loss,
others allow for a choice between economic or non-economic loss damages
.ii Similarly in some jurisdictions the pursuit of common law damages will
not finalise an entitlement to medical expenses.
These changes have been accompanied by a restructuring of maims payments to expand
the range of conditions that may be eligible, but at the same time to shift the focus from
generalised disability assessments to focused impairment assessments generally on the
basis of some ‘pseudo scientific’ assessment scheme, driven by the international lust for
measurement, management, and predicability.
The evolution in the nature of compensation schemes is an important factor
in assessing the role of common law in modern compensation schemes.
There has been much philosophical criticism on the role of common law damages
in modern compensation schemes. It is fair to say that this criticism reached its
most significant level during 1960’s and 1970’s. The philosophical criticism was at
times judicial, political, and academic.iii These criticisms were forged as a
response to the inflexible monolithic structures to which I have referred.
As the post World War II boom laid the economic basis for the development
As the post World War II boom laid the economic basis for the development
of the modern welfare state however the philosophical and political arguments
against the role of common law in compensating for industrial injury grew.
This was the time of full employment and rising living standards.
Inexorably, the welfare state would ensure that the basic needs of all citizens would
be satisfied. Importantly, if you were injured at work, it was the broader
community who should guarantee your compensation. After all it was
they who benefited from your labour in the increasingly complex and
they who benefited from your labour in the increasingly complex and
interdependent society and economy which was emerging. In particular
in the 1960’s and 70’s there was increasing criticism of the role of common
law in compensating for industrial injury.
The traditional philosophical opposition to the role common law believes
that often the compensation payable bears no relation to the degree of fault,
or no relation to the means of the defendant. It is claimed that the fault principle
is not in reality a ‘moral’ principle because a defendant can be negligent without
being morally culpable, and that the fault principle pays insufficient attention to
the conduct or needs of the plaintiff. It is also suggested that once and for all
lump sum awards are crude and inadequate methods of awarding compensation,
that the legal process can have a deleterious effect on rehabilitation, and that
transaction costs are too high. Payment of compensation on the basis of fault
was seen as socially regressive. It was seen as compensation for evidence, not injury.
In 1994 the Industry Commissioniv summarised the rationale of the historical
In 1994 the Industry Commissioniv summarised the rationale of the historical
opposition or ambivalence to common law at that time to include:
• Delays in settlement:- which can have a detrimental effect on the financial
• Delays in settlement:- which can have a detrimental effect on the financial
position of the claimant, may effect incentives for rehabilitation and return to
work, and adds to the complexity of the compensation process
• Incompatibility with rehabilitation and return to work:- where the adversarial
• Incompatibility with rehabilitation and return to work:- where the adversarial
nature of the common law process can threaten the employment relationship,
and the consequences particularly for occupational rehabilitation which
normally commences once the injury has stabilised
• Occupational health and safety incentives:- where it is argued that the existence
• Occupational health and safety incentives:- where it is argued that the existence
of a common law claim may discourage an employer from improving safety at the
workplace (ie the fear of doing so being evidence that the previous practice was
unsafe)
• Common law costs:- including the legal costs of bringing a common law claim,
workplace (ie the fear of doing so being evidence that the previous practice was
unsafe)
• Common law costs:- including the legal costs of bringing a common law claim,
and the size of common law awards
• Lumps sums:- damages are awarded as lump sums and are criticised on the
• Lumps sums:- damages are awarded as lump sums and are criticised on the
basis of over/under compensation, and the potential for ‘dissipation’ of the
compensation award
• Relationship with medical costs:- it is argued that common law legal action
• Relationship with medical costs:- it is argued that common law legal action
can have a significant effect on the size of medical costs ie ‘medico-legals’
• Inconsistency with a no-fault scheme:- a large number of injured workers are
• Inconsistency with a no-fault scheme:- a large number of injured workers are
unable to establish fault liability, therefore should a small proportion of workers
obtain additional compensation because they are able to demonstrate fault
(ie the ‘forensic lottery’)
Support for the role of common law in compensation for industrial injury
Support for the role of common law in compensation for industrial injury
relies amongst other things, on a notion of deterrence; the ability to individually
tailor compensation dependent on an individual’s needs; the ‘flexibility’ of the
common law and its ability to change with the times and community expectations;
a finality to litigation and the claims process; and community support for the
moral imperative that those (employers) who cause injury should pay.
Importantly support within the legal community has concentrated
on a ‘basic legal rights’ concept without more thorough engagement with many
on a ‘basic legal rights’ concept without more thorough engagement with many
of the well founded criticisms of common law. The ‘rights’ based arguments
ignored the very real issues of access, and substandard outcomes particularly
for compensation for on-going medical treatment, long term economic loss,
and the dissipation of damages on system created debts.
The 1994 Industry Commission Reportv summarised the opposing arguments
The 1994 Industry Commission Reportv summarised the opposing arguments
in support of common law as:
• Workers’ rights:- in that it is a basic legal right
• Justice:- where it is argued that the common law accords with the community’s
• Workers’ rights:- in that it is a basic legal right
• Justice:- where it is argued that the common law accords with the community’s
sense of justice
• Damages:- a common law negligence action protects the severely injured
• Damages:- a common law negligence action protects the severely injured
by ensuring individual assessment of their losses rather than payment by reference
to a statutory formula
• Finality:- where there is both a finality for the injured worker and the claim’s agent /
insurer
• Benefit levels:-where it is suggested that the availability of common law may act as an
incentive to maintain the adequacy of statutory benefits
Interestingly, both sides of the traditional debate contend with some vehemence the
opposite is anti-rehabilitative.
Whilst it is true that much of the relatively recent restriction of common law in
• Finality:- where there is both a finality for the injured worker and the claim’s agent /
insurer
• Benefit levels:-where it is suggested that the availability of common law may act as an
incentive to maintain the adequacy of statutory benefits
Interestingly, both sides of the traditional debate contend with some vehemence the
opposite is anti-rehabilitative.
Whilst it is true that much of the relatively recent restriction of common law in
Australia is attributable to conservative governments, it is important to recognise
a strong ambivalence within sections of the ALP, and the trade union movement
to the role of common law. It was the Whitlam government in 1975, on the basis
of the Woodhouse Reportvi, which flirted with the establishment of a national
no-fault compensation scheme with no role for common law entitlements.
In New South Wales in 1987 it was the Unsworth Labor government which
abolished common law entitlements, and which were eventually reintroduced in
a modified form by the Greiner government in 1990. Similarly it was a
federal Labor government which effectively, though not formally, removed
federal Labor government which effectively, though not formally, removed
common law as a part of the Commonwealth Comcare compensation scheme.
Following the Cooney Committee Reportvii in 1984 (and a review of the competing
Following the Cooney Committee Reportvii in 1984 (and a review of the competing
claims concerning the role of common law and a statutory scheme) the Cain
government’s introduction of the Accident Compensation Act in September 1985,
and the commencement of the WorkCare scheme, saw the first model of a
blended compensation system. Admittedly this was somewhat serendipitous,
relying on a finely balanced political situation at the time, as I have no doubt
that the Cain government subscribed to the traditional ambivalence to common
law outlined above. It should be noted that the model allowed common law
compensation for pain and suffering only (economic loss addressed
in the improvements to weekly payments compensation), and medical expenses
in the improvements to weekly payments compensation), and medical expenses
were also separately guaranteed, thereby addressing two of the most trenchant
criticisms of common law. From then it is perhaps fair to say that those involved
in the common law debate in Victoria settled for an uneasy truce whereby both
methods of compensation played a role, in which access to common law
entitlements has generally been restricted or circumscribed, with the
emphasis placed on no-fault statutory benefits.
Why Were Common Law Claims Abolished in Victoria?
The issue of workers’ compensation is one of the most transparent intersections of the
interests of capital and labor in the political process. It therefore often assumes symbolic
importance when there is a change in the fortunes of capital or labor, and the political
parties which claim either as their heartland or natural constituency, gain office. The
reform of the compensation system presents a new government with an opportunity to
demonstrate a tangible commitment to its power base and historically, new governments
have been quick to usher in change in workers’ compensation laws. Over the last two
decades all Victorian governments have implemented change early in their first period of
office.
1992 – 1997 WorkCover Changes
From 1992 and leading up to the abolishment of common law in 1997 some of the major
Kennett government changes inlcuded:
• A requirment that employment be a significant contributing factor
• The exclusion of some categories of stress claims
• The exclusion of injuries which occur on the way to or from work
• The introduction of the concept of notional earnings which is the amount actually
earned or the amount that WorkCover believes a worker could be earning in suitable
employment even if no such job exists
• The introduction of the concept of serious injury
• Significant changes to the weekly payments structure
• Termination of payment of routine or non-essential medical expenses 12 months after
weekly payments cease
• Employer control of injured workers access to rehabilitation services
• Removal of ‘mental disorder’ as a basis for lump sum compensation
• Abolishing the specialist Accident Compensation Tribunal (including sacking the
Judges), and abolishing the WorkCare Complaints Commissioner
• Introducing impairment thresholds for hearing loss compensation
• Increasing the role and power of Medical Panels including redefining medical questions
to include questions of fact and removing judicial review of decisions
Whilst the government reintroduced rights to claim pecuniary damages in 1992, it
introduced the threshold requirement of ‘serious injury’ by way of 30% whole person
impairment based on AMA Guides, or satisfaction of a ‘narrative’ test for access to
common law, and placed monetary thresholds on both heads of damages. A particular aim
being to discourage common law claims for small monetary amounts. Between 1992 and
1997 the government further tightened access to common law entitlements by removing
secondary psychological injury from the assessment of impairment, and the imposition of
cost penalties including requiring the plaintiff to pay her/his own costs if damages were
assessed but could not be awarded. The Kennett government also sought to substantially
reduce the various statutory entitlements including weekly payments, and lump sum
compensation for permanent impairment. Accordingly the abolition of common law rights
in 1997 can be seen as a continuation of the Kennett governments determination to
restrict access to, and the benefits available under, the WorkCover scheme. It should be
noted however that following the majority of changes carried out in 1992 the WorkCover
scheme had settled into a relatively stable scheme.
Up until November 1997 there had been a limited assault on common law, primarily
tightening access. The fact that the Kennett government moved to abolish common law
rights after five years in office was curious.
Partly the answer lies in the process of change begun in 1992 and carried out up until
1997. But the major reason I suggest, lies in a confluence of factors merging in late 1997
that provided the political impetus to abolish common law
In my view the Kennett government changes in 1997 were driven by a confluence of at
least three factors, namely:
• a desire for a significant levy reduction couched in the economic rhetoric of employer
associations (who portrayed WorkCover premiums as an impost on profitability and
jobs), and support for this within government
• the remnants of support for the 1960’s & 1970’s philosophical opposition to common
law genuinely held by senior policy makers within Treasury and the VWA and shared
by some sections of the labour movement
• and the chronic inability of the Victorian WorkCover Authority to in particular manage
the existing common law claim process.
The Economic Rhetoric
Employers groups and associations vigorously pursued the line that workers’
compensation premiums were a crucial component of the economic viability of the state. I
am sure that you have experienced the same arguments here. Without a shred of
objective evidence every percentage point up or down in premium rates is claimed to
represent thousands of jobs lost or gained to other states. Also, common law was
portrayed as anti-rehabilitative, as it, rather than the fact of negligent caused injury, was
seen as the destroyer of the employment relationship.
Clearly the employer groups’ eyes were firmly fixed on a levy reduction. It is interesting to contrast the position of twenty five of the twenty six self-insurers in Victoria at this time who opposed the abolition of common law. They were large corporations employing substantial numbers of Victorians who were just as interested in the issue of business costs, but as self-insurers would have no benefit from a levy reduction. I would suggest that their support for the retention of common law was not an act of altruism per se, but more a recognition that access to common law was an important component of the compensation ‘tools’ necessary to effectively manage their industrial injury portfolios. As well the self-insurers found no impediment in common law to effective rehabilitation.
The Kennett government threw their support behind the employer association claims with
a crude and essentially dishonest use of financial statistics. In October 1997, shortly
before abolishing common law rights for seriously injured Victorian workers the then
Minister for Finance (and responsible for the WorkCover scheme), Roger Hallam, issued a
press release which provided reasons for the abolition of common law that essentially
relied on financial issues, and notions of "more equitable and fairer" treatment for injured
workers. It was claimed that WorkCover common law payments had increased from $17.9
million in 1995/96 to $139.7 million in 1996/97.
Hallam claimed that common law claims constituted 20% of WorkCovers liabilities, yet less than 3% of injured workers received common law settlements. He also claimed that lawyers were receiving $100 million a year from WorkCover and that this money would be better off going to injured workers.
Given the continual changes to the compensation scheme since 1985, and in particular
those applying to the operation of common law, it has been almost impossible to gather
sound and objectively based statistical information, which can be used in any meaningful
way to inform policy choice. Not only are there ‘lies, damn lies, and (WorkCover)
statistics’, but Hallam’s use of them in this way represented an attempt by the Kennett
government to portray criticism as merely an esoteric debate between the government and
‘greedy lawyers’ about money, not principle. The figures utilised by the government drew
on an artificial hump of claims created by its own amendments in 1992, and then plotted a
the growth of claims from a zero base in 1992! What was a natural and expected
statistical phenomenon was portrayed as an alarming and uncontrolled exponential growth
in these claims. Abolition of common law was portrayed as cost neutral and the proposal
as merely removing money from the pockets of lawyers to return to injured workers.
Kennett & the ‘Historic Ambivalence’
In my view Kennett, as the consumate political animal, sensed some ambivalence to
common law in sections of the trade union movement and the ALP. His judgment about
such ambivalence was not misplaced. I recall a conversation in mid-1997 with a senior
member of the then state ALP opposition (and now senior cabinet member of the current
government). The Kennett government was in the process of laying the political
groundwork for the abolition of common law in November 1997. Labour lawyers were
encouraging debate about the issue in the broader labour movement. In the discussion I
raised concerns about the impending abolition of common law only to be told that there
"were no votes in WorkCover"!. Thereafter I, amongst others resolved to ensure that there
were votes in WorkCover. Of course this was largely achieved by a well orchestrated
campaign conducted by plaintiff law firms, the trade union movement, legal bodies, injured
workers, and other groups which was comprehended and supported by the wider
community.
In 1997 Kennett sought to exploit the ambivalence of some sections of the labour
movement to argue that notion of ‘fault’ based compensation could finally be put to the
sword, and replaced with the protective shield of fair and equitable statutory lump sum
compensation for permanent impairment together with other entitlements. In this I suggest
he was supported by well intentioned senior policy makers within the bureaucracy who
were convinced of the need to remove the vagaries of common law from the
compensation system following the critique developed during the expansion of the welfare
state.
Crises of VWA Management
The above factors merged with the now well documented inability of the WorkCover
Authority to manage common law damages claims. These included an inflexible approach
to the management of claims; the exclusion of skilled insurance staff and their conversion
to mere ‘post boxes’ for claims; lack of integration between common law and the
rehabilitation and compensation process generally; inconsistency of approach to serious
injury applications and common law claims owing to a high level reliance on a relatively
large number of defendant panel law firms; and the ‘infamous’ barristers strike in late 1997
when the VWA arbitrarily reduced fees.viii In fact I would go as far as to say that at a senior
level VWA management used the other factors to deflect justified criticism of their
incompetence. In so doing the Victorian WorkCover Authority skillfully manipulated a
government back-bench committee which met in secret to consider the issue, and found a
willing ally in a particularly ambitious back-bench member of the government. As often at
decisive historical moments, individuals can play a key role, and the debate in late 1997
about abolition of common law was no exception. With the Kennett cabinet ambivalence
about the issue, particularly in the face of minor but escalating public opposition, the then
CEO of the VWA returned from overseas to stiffen the ‘resolve’ of his Minister. The die
was cast, and the legislation passed.
Why Was Common Law Reintroduced?
In my view in 1997 the Kennett government committed three fatal misjudgments. Firstly,
those involved in the political process failed to comprehend the ability of the existence of
common law damages to deflect community focus on the inadequacy of statutory benefits.
The second misjudgment, intimately connected with the first, involved a gross
miscalculation as to the nature and saleability of the "improved" impairment benefits
scheme that accompanied the abolition of common law damages. Finally, the decision to
also totally abolish rights against a third party was astounding and was readily
comprehended as such by the community.
The impairment benefit scheme enshrined in s98C and s98E of the Accident
Compensation Act relied on the component of impairment benefits on a whole person
basis substantially assessed under the American Medical Association Guidelines for The
Evaluation of Permanent Impairment (4th Edition). Whilst the government and the
Victorian WorkCover Authority then contended, and probably genuinely believed, that the
impairment benefits scheme was a dramatic improvement in the position of injured
workers, the reality was different. The transfer to the AMA 4th Edition Guides and the
imposition of a 10% threshold meant that the new impairment scheme represented a
dramatic reduction in impairment payments alone, not taking account of the loss of general
damages at common law.
This flaw was quickly comprehended by some stakeholders, particularly trade unions and
plaintiff lawyers, and quickly became the subject of "before and after" advertising by the
Australian Plaintiff Lawyers Association. Despite hasty readjustment of the 1997
legislative package both the government, and extraordinary advertising by the VWA, they
were unable to regain the momentum in the public debate. The momentum was translated
into a well-funded coalition of trade unions, plaintiff lawyers, injured workers and other
community groups that developed a sophisticated campaign strategy focussing in
particular on the ‘human face & story’ of those seriously injured workers whose benefits
and entitlements were being reduced.
An analysis of the VWA’s projections of the cost of the "improved" impairment benefits
under s98C and s98E in the most recent review has demonstrated the Authority’s costing
to be greatly miscalculated. In the Review conducted by the WorkCover Advisory
Committee in 1999/2000 material, particularly comparative studies, undertaken by the
medical panel and a study of Slater & Gordon cases demonstrated that significant lower
payment was made under s98C than its predecessor.ix These studies together with other
material provoked a market revision of actuarial estimates of the projected costs of s98C
claims.x
The abolition of third party rights was absolute and included:
Abolition of rights in cases of medical negligence arising from treatment associated with a
work injury No right to pursue damages claims in traffic accidents where the purpose of travel was ‘arising out of or in the course of employment’ Emergency workers such as police were also denied damages claims against ‘third party’offenders who caused injury
ABS statistics also revealed that over 66,000 small business in Victoria employing less
than five employees operated as companies. These were primarily small family concerns
and the abolition of third party rights meant that directors could not make a common law
because they were deemed workers under the provisions of the Accident Compensation
Act. Notwithstanding the above the government was of the view that it could ‘tough out’
public opposition until the next election. This was possibly correct save for the surprise
resignation of a disgruntled colleague of Kennett which resulted in the Mitcham by-election
in March 1998. It is now a matter of record that along with changes to the role of the
Auditor General, the other major issue fought over during the by-election was the abolition
of common law rights.
The stunning result in the Mitcham by-election in March 1998 was a demonstration of how
successful this campaign was to be. Polling carried out at the time identified the
November 1997 WorkCover changes, including the abolition of common law, to be a
decisive issue in the unprecedented swing against the Kennett government. In fact, a poll
carried out by Roy Morgon Research in late October 1997 revealed that four in five
Victorians surveyed knew of the government proposals, and without requiring any extra
information on the issue, 79% expressed their disapproval!.
From 1997 through to the state election in September 1999 the campaign was extremely
well co-ordinated under the umbrella of the ‘Injured Persons Association’. Marginal seats
were targetted where every household received literature explaining the issues.
Advertising was carried out in the print and electronic media. In particular the campaign
used emergency services workers as a potent example of what was at stake. These
workers served the community, often exposed to great risk, yet potentially not being
adequately compensated for injury as a result of the changes. Well collated case studies
were used to demonstrate the reduction in entitlements and benefits injured workers would
suffer as a result of the changes.
It was in the process of this developing campaign that I believe an important and
necessary step was taken. That was to examine, and challenge, the economic
assumptions which had been made by employer associations to justify reductions in
premiums. At issue here was a debate concerning who actually pays for the costs of
workers’ compensation. Traditionally it is asserted that it is the corporate sector which
bears the major costs, and therefore lower premiums (and by definition lower benefits) are
necessary for reasons of business confidence and competitiveness. By engaging in this
debate we were able to refer to respectable academic evidence to demonstrate that it is
employees who actually fund the compensation scheme insurance levies via lower real
wages. The conventional position maintains that the increase in workers’ compensation
premium constitutes an added cost to the cost of employment as part of real labour costs
that inevitably leads to reduced employment.
These views, generally contended by industry associations, found a large measure of support within the Department of Treasury and Finance. The contrary view based on economic research in the United States conducted by Chelius and Viscusi supports the proposition that "the pursuit of lower premiums through reduced benefits and restricted eligibility provides little or no long term benefit to business since the labour market adjusts to yield higher take home wages at
unchanged labour costs to the firm".xi
Plaintiff lawyers commissioned Marsden Jacob Associates to apply similar research
techniques to the Australian labour market, and examine who pays for workplace
accidents and insurance compensation levies. In summary their research revealed that:
• over 80% of the cost of workers’ compensation insurance levies are shifted back to
workers by the operations of the labour market and the action of employers, particularly
via lower take-home pay, and as a result employment costs to employers are only
temporarily changed by a change in the insurance levy
• employers actually pay for less than 10% of the total costs to the Australian economy of
workplace accidents and injury
The ‘New’ Common Law
The amendments to the Accident Compensation Act are a marked improvement for injured
Victorians. It nonetheless constitutes a remarkably modest reform by an unduly timid
government and reflects the still unresolved philosophical debates that I have mentioned.
There is no doubt that the issue of the removal of common law damages was a significant
issue in the 1999 general election which continued to resonate in the subsequent
Frankston East, Burwood, and Benalla by-elections. It is regrettable, given the
prominence of the issue, that the Victorian government did not take the opportunity to
deliver more meaningful benefits to its constituency through a marginal extension of the
levy from 2.18% to 2.25% of payroll. This extension would have allowed both a
meaningful substituted common law payment to be made to workers seriously injured
between the 12th November 1997 and the 19th October 1999, and the government to
urgently address the substandard benefits that remain, particularly in s98C and s98E of
the Accident Compensation Act.xii
Legislation reintroduced the ability for a group of specific workers to pursue a claim for
common law damages against their employer or third party. The reform is not fully
retrospective and only applies to injuries occurring on or after the 20th October 1999. The
formal justification for failing to date the reforms back to the 12th November 1997 was the
general philosophical opposition to the use of retrospective legislation. Whilst I
understand the reluctance of governments to utilise retrospective legislation I contend that
there is a qualitative difference between legislation removing rights and legislation
restoring those rights. The Bracks government, in my view, made the decision not to
restore the rights retrospectively firstly, on an economic basis, ie its commitment to keep
the premium level within 2.18% of wages, and secondly, on the political judgment that the
odium that would come from its failure to restore rights would be borne by the Liberal and
National parties.
Whatever the justification, the failure to introduce fully retrospective legislation is a tragic
abandonment of those workers who are injured within the window period.
Common Law Threshold
In the final analysis the government elected for a model that utilises the impairment
assessment as the primary gateway to common law but also allowing access through a
narrative test which will vary depending on whether the worker’s claim is confined to a
claim for non pecuniary loss or whether it seeks to encompass pecuniary loss as well.xiii
The impairment assessment test to be utilised for access to common law damages is to be
based on the fourth edition of the AMA Guides (the ‘Guides’). You will appreciate that
between 1992 and 1997 the impairment assessment test was based on the second edition
of the Guides. In reality few persons injured during that period sought access to common
law damages through the impairment assessment method and rather elected to seek
access through the narrative. Under the amendments it is clear there will be a much
greater focus on the impairment assessment for the purpose of common law damages. It
is to be the primary source of an application for serious injury with resort to the narrative
only being possible after the assessment of permanent impairment.xiv The move from the
second edition to the fourth edition of the Guides is expected to have very marked effects
on the number of persons who will be able to achieve access to common law through the
impairment gateway. In particular there are very marked differences in the ratings
achieved under AMA 4 and AMA 2, particularly in respect of muscular-skeletal and
respiratory injuries.xv
The narrative test to be applied in assessing certification for serious injury for injuries
occurring on or after the 20th October 1999 has a marked similarity to the narrative test
that was in place for injuries prior to the 12th November 1997. S.134AB(37) of the Bill
defines serious injury as follows:
a) permanent serious impairment or loss of a body function; or
b) permanent serious disfigurement; or
c) permanent severe mental or permanent severe behavioural disturbance or disorder; or
d) loss of a foetus.
Perhaps the most marked changes that have been affected related to an application for
serious injury based on a "loss of earning capacity". It was generally recognised that in
respect of injuries prior to the 12th November 1997 a loss of earning capacity was one of
the major factors that influenced courts in its assessment of whether an injury constituted
the serious injury within the meaning of s135A of the Act. A moderate earning loss when
projected over a workers’ potential working life was generally considered to be of serious
consequence for an injured worker thus justifying the granting of a serious injury
certificate. The new provisions seek to ensure that an actual loss of a defined extent can
only be taken into account in the establishing of a loss of earning capacity for the purposes
of serious injury certification. Subsection 134AB(38)(e)(i) & (ii) will require a worker to
have a loss of earning capacity of at least 40% as at date of serious injury certification and
that the injury will be productive of a financial loss of 40% or more permanently into the
future.
It must be recognised that if there is a significant trend to pursue claims for damages in
respect of non-pecuniary loss only this will inevitably raise major prudential issues for the
Victorian WorkCover Authority. If there is no award for pecuniary loss then the WorkCover
Authority does not receive the benefit of the redemptive effect of a common law damages
claim as the worker will continue to receive entitlement to weekly payment of
compensation in accordance with the Act.
Third Party Claims – The New Common Law Position
The new common law position in respect of third party claims in the legislation is, I think,
indicative of the "hothouse" effect of the preparation of the legislative amendments. The
Kennett government abolition for claims of common law damages were comprehensive
and resulted not only in the abolition of common law claims in the workplace but also
common law claims in circumstances where a third party was a tort feasor but the injury
occurred in the course of employment not away from the place of employment. It was not
widely comprehended, for example, that the owner and director of a family company,
perhaps working as a plumber, was not entitled to bring a claim in respect of a transport
accident which occurred as a result of driving in the course of their employment. Similarly
a worker injured as a result of medical malpractice was not able to sue a negligent medical
treater if the treatment related to a workplace injury. The legislation now restores the right
of workers injured in third party circumstances to pursue a claim for common law
damages.
The more curious situation arises in respect of damages claims against third parties in
other circumstances where the injury occurs away from the fixed place of employment.
S134AA(b) of the Bill extends a right to a worker to bring proceedings for common law
damages in specific circumstances without the need to meet a threshold requirement of
serious injury. Those circumstances are set out in the section but are limited to
circumstances where an employer is not a party to the proceedings and where the injury is
by virtue of s83(1) of the Act deemed to have arisen out of or in the course of employment
and if the workers’ place of employment is a fixed place of employment the injury did not
occur while the worker was present at that fixed place of employment. It is clear that at
the time of the amendment of the Act the government had not fully considered the
potential implications of the serious injury threshold in third party claims and thus opted to
reintroduce the provision that was contained in the Act between 1985 and 1992.xvi In
doing so the government failed to appreciate that there were no serious injury thresholds
in the Act at that time and all claims for damages were limited to claims for pecuniary loss.
We are now in the peculiar position that those workers injured in deemed employment
circumstances ie., lunch breaks or other breaks away from a place of employment,
medical treatment or attending trade schools are not bound by the serious injury
thresholds, whilst all others injured in the course of employment but away from their place
of employment are so bound. This situation is best illustrated by example. If say a worker
were injured in a shopping centre during the course of an authorised lunch break they
would have the same rights as any member of the community to bring proceedings against
the shopping centre for the negligence resulting in the injury. If the worker however had
been sent to purchase his or her employers lunch and thus was present in the course of
their employment, rather than in the course of deemed employment, they are so bound by
the thresholds. No doubt that these anomalies, together with the anomalies that would
centre on whether or not a worker has a fixed place of employment will necessitate the
further amendment of the Act.
Conclusion
What then are the lessons that we can draw from the Victorian experience?
The first lesson is to recognise the need to develop a new theory of relevance for common
law claims in modern and complex compensations systems. Initially we must
acknowledge that many of the traditional criticisms of the common law have been valid.
We cannot ignore issues such as delay, high transaction costs, or other defects, as these
have the tendency to ultimately render a system unstainable. It must be recognised that
everybody has an interest in the stability and sustainability of a system. In the past the
major criticism of common law claims for damages was that they were a poor distributive
mechanism. Under modern compensation schemes I contend it is arguable that they are
a sophisticated distributive mechanism. When a common law claim is a component of a
blended compensation scheme it actually has the potential to be a well focused distributive
mechanism that provides an extra layer of compensation to the most seriously injured in
the most reprehensible circumstances. In so doing it has the potential to meet community
expectations and to promote the deterrent effect inherent in the remedy. The debate
should therefore no longer be focused on a no fault compensation scheme versus
common law, but rather on developing the appropriate control mechanisms for access to
common law. Proper control mechanisms will be equitable and predictable. The role of
common law in modern blended compensation systems must be accompanied by
commitment to the reduction of transaction costs for the remedy, and flexible recipes for
the claiming of damages. Generally, the right to continue in medical treatment should be
excluded from a claim for damages, and continue irrespective of a claim. Flexible choices
between damages on economic and non-economic loss will also be an essential
ingredient of a relevant common law damages system.
It will be essential for plaintiff and labour lawyers, and other interested groups, to develop
and promote economic theories that support the role of common law in order to meet
head-on the uncritical rhetoric of employer groups about the dis-incentives to employment.
These new economic theories will address issues such as those raised by Chelsius and
Viscusi and focus on the irrational subsides provided to injurious employers through
depressed levy payments. These theories must also research and document the deterrent
capacity of the common law remedy in occupational injuries.
The next lesson that has been learnt well in Victoria is the interest of all stakeholders in a
sustainable common law damages scheme. I think there is a realisation among plaintiff
lawyers, trade unions, and others, that a compensation scheme has to have financial
integrity and that adjustments to the control mechanisms of a scheme will be necessary
from time to time. The reintroduction of common law in Victoria has a degree of fragility
and it is possible that some strain will be imposed on the control mechanisms in future
years. This may be avoided by the imposition of a very strict management structure
derived from the TAC, but time will tell.
The final point I want to make is that we have learned from Victoria that it is possible to
develop a tangible political campaign around the issue of "common law". The Victorian
experience has shown that it is possible to take this issue and convert it in to an issue of
real importance to the community. To do so however, requires dedication and co-operation
amongst all relevant interest groups. The lesson we learnt from Victoria was that the most
compelling political method was to focus on the "worthy excluded".
Why Were Common Law Claims Abolished in Victoria?
The issue of workers’ compensation is one of the most transparent intersections of the
interests of capital and labor in the political process. It therefore often assumes symbolic
importance when there is a change in the fortunes of capital or labor, and the political
parties which claim either as their heartland or natural constituency, gain office. The
reform of the compensation system presents a new government with an opportunity to
demonstrate a tangible commitment to its power base and historically, new governments
have been quick to usher in change in workers’ compensation laws. Over the last two
decades all Victorian governments have implemented change early in their first period of
office.
1992 – 1997 WorkCover Changes
From 1992 and leading up to the abolishment of common law in 1997 some of the major
Kennett government changes inlcuded:
• A requirment that employment be a significant contributing factor
• The exclusion of some categories of stress claims
• The exclusion of injuries which occur on the way to or from work
• The introduction of the concept of notional earnings which is the amount actually
earned or the amount that WorkCover believes a worker could be earning in suitable
employment even if no such job exists
• The introduction of the concept of serious injury
• Significant changes to the weekly payments structure
• Termination of payment of routine or non-essential medical expenses 12 months after
weekly payments cease
• Employer control of injured workers access to rehabilitation services
• Removal of ‘mental disorder’ as a basis for lump sum compensation
• Abolishing the specialist Accident Compensation Tribunal (including sacking the
Judges), and abolishing the WorkCare Complaints Commissioner
• Introducing impairment thresholds for hearing loss compensation
• Increasing the role and power of Medical Panels including redefining medical questions
to include questions of fact and removing judicial review of decisions
Whilst the government reintroduced rights to claim pecuniary damages in 1992, it
introduced the threshold requirement of ‘serious injury’ by way of 30% whole person
impairment based on AMA Guides, or satisfaction of a ‘narrative’ test for access to
common law, and placed monetary thresholds on both heads of damages. A particular aim
being to discourage common law claims for small monetary amounts. Between 1992 and
1997 the government further tightened access to common law entitlements by removing
secondary psychological injury from the assessment of impairment, and the imposition of
cost penalties including requiring the plaintiff to pay her/his own costs if damages were
assessed but could not be awarded. The Kennett government also sought to substantially
reduce the various statutory entitlements including weekly payments, and lump sum
compensation for permanent impairment. Accordingly the abolition of common law rights
in 1997 can be seen as a continuation of the Kennett governments determination to
restrict access to, and the benefits available under, the WorkCover scheme. It should be
noted however that following the majority of changes carried out in 1992 the WorkCover
scheme had settled into a relatively stable scheme.
Up until November 1997 there had been a limited assault on common law, primarily
tightening access. The fact that the Kennett government moved to abolish common law
rights after five years in office was curious.
Partly the answer lies in the process of change begun in 1992 and carried out up until
1997. But the major reason I suggest, lies in a confluence of factors merging in late 1997
that provided the political impetus to abolish common law
In my view the Kennett government changes in 1997 were driven by a confluence of at
least three factors, namely:
• a desire for a significant levy reduction couched in the economic rhetoric of employer
associations (who portrayed WorkCover premiums as an impost on profitability and
jobs), and support for this within government
• the remnants of support for the 1960’s & 1970’s philosophical opposition to common
law genuinely held by senior policy makers within Treasury and the VWA and shared
by some sections of the labour movement
• and the chronic inability of the Victorian WorkCover Authority to in particular manage
the existing common law claim process.
The Economic Rhetoric
Employers groups and associations vigorously pursued the line that workers’
compensation premiums were a crucial component of the economic viability of the state. I
am sure that you have experienced the same arguments here. Without a shred of
objective evidence every percentage point up or down in premium rates is claimed to
represent thousands of jobs lost or gained to other states. Also, common law was
portrayed as anti-rehabilitative, as it, rather than the fact of negligent caused injury, was
seen as the destroyer of the employment relationship.
Clearly the employer groups’ eyes were firmly fixed on a levy reduction. It is interesting to contrast the position of twenty five of the twenty six self-insurers in Victoria at this time who opposed the abolition of common law. They were large corporations employing substantial numbers of Victorians who were just as interested in the issue of business costs, but as self-insurers would have no benefit from a levy reduction. I would suggest that their support for the retention of common law was not an act of altruism per se, but more a recognition that access to common law was an important component of the compensation ‘tools’ necessary to effectively manage their industrial injury portfolios. As well the self-insurers found no impediment in common law to effective rehabilitation.
The Kennett government threw their support behind the employer association claims with
a crude and essentially dishonest use of financial statistics. In October 1997, shortly
before abolishing common law rights for seriously injured Victorian workers the then
Minister for Finance (and responsible for the WorkCover scheme), Roger Hallam, issued a
press release which provided reasons for the abolition of common law that essentially
relied on financial issues, and notions of "more equitable and fairer" treatment for injured
workers. It was claimed that WorkCover common law payments had increased from $17.9
million in 1995/96 to $139.7 million in 1996/97.
Hallam claimed that common law claims constituted 20% of WorkCovers liabilities, yet less than 3% of injured workers received common law settlements. He also claimed that lawyers were receiving $100 million a year from WorkCover and that this money would be better off going to injured workers.
Given the continual changes to the compensation scheme since 1985, and in particular
those applying to the operation of common law, it has been almost impossible to gather
sound and objectively based statistical information, which can be used in any meaningful
way to inform policy choice. Not only are there ‘lies, damn lies, and (WorkCover)
statistics’, but Hallam’s use of them in this way represented an attempt by the Kennett
government to portray criticism as merely an esoteric debate between the government and
‘greedy lawyers’ about money, not principle. The figures utilised by the government drew
on an artificial hump of claims created by its own amendments in 1992, and then plotted a
the growth of claims from a zero base in 1992! What was a natural and expected
statistical phenomenon was portrayed as an alarming and uncontrolled exponential growth
in these claims. Abolition of common law was portrayed as cost neutral and the proposal
as merely removing money from the pockets of lawyers to return to injured workers.
Kennett & the ‘Historic Ambivalence’
In my view Kennett, as the consumate political animal, sensed some ambivalence to
common law in sections of the trade union movement and the ALP. His judgment about
such ambivalence was not misplaced. I recall a conversation in mid-1997 with a senior
member of the then state ALP opposition (and now senior cabinet member of the current
government). The Kennett government was in the process of laying the political
groundwork for the abolition of common law in November 1997. Labour lawyers were
encouraging debate about the issue in the broader labour movement. In the discussion I
raised concerns about the impending abolition of common law only to be told that there
"were no votes in WorkCover"!. Thereafter I, amongst others resolved to ensure that there
were votes in WorkCover. Of course this was largely achieved by a well orchestrated
campaign conducted by plaintiff law firms, the trade union movement, legal bodies, injured
workers, and other groups which was comprehended and supported by the wider
community.
In 1997 Kennett sought to exploit the ambivalence of some sections of the labour
movement to argue that notion of ‘fault’ based compensation could finally be put to the
sword, and replaced with the protective shield of fair and equitable statutory lump sum
compensation for permanent impairment together with other entitlements. In this I suggest
he was supported by well intentioned senior policy makers within the bureaucracy who
were convinced of the need to remove the vagaries of common law from the
compensation system following the critique developed during the expansion of the welfare
state.
Crises of VWA Management
The above factors merged with the now well documented inability of the WorkCover
Authority to manage common law damages claims. These included an inflexible approach
to the management of claims; the exclusion of skilled insurance staff and their conversion
to mere ‘post boxes’ for claims; lack of integration between common law and the
rehabilitation and compensation process generally; inconsistency of approach to serious
injury applications and common law claims owing to a high level reliance on a relatively
large number of defendant panel law firms; and the ‘infamous’ barristers strike in late 1997
when the VWA arbitrarily reduced fees.viii In fact I would go as far as to say that at a senior
level VWA management used the other factors to deflect justified criticism of their
incompetence. In so doing the Victorian WorkCover Authority skillfully manipulated a
government back-bench committee which met in secret to consider the issue, and found a
willing ally in a particularly ambitious back-bench member of the government. As often at
decisive historical moments, individuals can play a key role, and the debate in late 1997
about abolition of common law was no exception. With the Kennett cabinet ambivalence
about the issue, particularly in the face of minor but escalating public opposition, the then
CEO of the VWA returned from overseas to stiffen the ‘resolve’ of his Minister. The die
was cast, and the legislation passed.
Why Was Common Law Reintroduced?
In my view in 1997 the Kennett government committed three fatal misjudgments. Firstly,
those involved in the political process failed to comprehend the ability of the existence of
common law damages to deflect community focus on the inadequacy of statutory benefits.
The second misjudgment, intimately connected with the first, involved a gross
miscalculation as to the nature and saleability of the "improved" impairment benefits
scheme that accompanied the abolition of common law damages. Finally, the decision to
also totally abolish rights against a third party was astounding and was readily
comprehended as such by the community.
The impairment benefit scheme enshrined in s98C and s98E of the Accident
Compensation Act relied on the component of impairment benefits on a whole person
basis substantially assessed under the American Medical Association Guidelines for The
Evaluation of Permanent Impairment (4th Edition). Whilst the government and the
Victorian WorkCover Authority then contended, and probably genuinely believed, that the
impairment benefits scheme was a dramatic improvement in the position of injured
workers, the reality was different. The transfer to the AMA 4th Edition Guides and the
imposition of a 10% threshold meant that the new impairment scheme represented a
dramatic reduction in impairment payments alone, not taking account of the loss of general
damages at common law.
This flaw was quickly comprehended by some stakeholders, particularly trade unions and
plaintiff lawyers, and quickly became the subject of "before and after" advertising by the
Australian Plaintiff Lawyers Association. Despite hasty readjustment of the 1997
legislative package both the government, and extraordinary advertising by the VWA, they
were unable to regain the momentum in the public debate. The momentum was translated
into a well-funded coalition of trade unions, plaintiff lawyers, injured workers and other
community groups that developed a sophisticated campaign strategy focussing in
particular on the ‘human face & story’ of those seriously injured workers whose benefits
and entitlements were being reduced.
An analysis of the VWA’s projections of the cost of the "improved" impairment benefits
under s98C and s98E in the most recent review has demonstrated the Authority’s costing
to be greatly miscalculated. In the Review conducted by the WorkCover Advisory
Committee in 1999/2000 material, particularly comparative studies, undertaken by the
medical panel and a study of Slater & Gordon cases demonstrated that significant lower
payment was made under s98C than its predecessor.ix These studies together with other
material provoked a market revision of actuarial estimates of the projected costs of s98C
claims.x
The abolition of third party rights was absolute and included:
Abolition of rights in cases of medical negligence arising from treatment associated with a
work injury No right to pursue damages claims in traffic accidents where the purpose of travel was ‘arising out of or in the course of employment’ Emergency workers such as police were also denied damages claims against ‘third party’offenders who caused injury
ABS statistics also revealed that over 66,000 small business in Victoria employing less
than five employees operated as companies. These were primarily small family concerns
and the abolition of third party rights meant that directors could not make a common law
because they were deemed workers under the provisions of the Accident Compensation
Act. Notwithstanding the above the government was of the view that it could ‘tough out’
public opposition until the next election. This was possibly correct save for the surprise
resignation of a disgruntled colleague of Kennett which resulted in the Mitcham by-election
in March 1998. It is now a matter of record that along with changes to the role of the
Auditor General, the other major issue fought over during the by-election was the abolition
of common law rights.
The stunning result in the Mitcham by-election in March 1998 was a demonstration of how
successful this campaign was to be. Polling carried out at the time identified the
November 1997 WorkCover changes, including the abolition of common law, to be a
decisive issue in the unprecedented swing against the Kennett government. In fact, a poll
carried out by Roy Morgon Research in late October 1997 revealed that four in five
Victorians surveyed knew of the government proposals, and without requiring any extra
information on the issue, 79% expressed their disapproval!.
From 1997 through to the state election in September 1999 the campaign was extremely
well co-ordinated under the umbrella of the ‘Injured Persons Association’. Marginal seats
were targetted where every household received literature explaining the issues.
Advertising was carried out in the print and electronic media. In particular the campaign
used emergency services workers as a potent example of what was at stake. These
workers served the community, often exposed to great risk, yet potentially not being
adequately compensated for injury as a result of the changes. Well collated case studies
were used to demonstrate the reduction in entitlements and benefits injured workers would
suffer as a result of the changes.
It was in the process of this developing campaign that I believe an important and
necessary step was taken. That was to examine, and challenge, the economic
assumptions which had been made by employer associations to justify reductions in
premiums. At issue here was a debate concerning who actually pays for the costs of
workers’ compensation. Traditionally it is asserted that it is the corporate sector which
bears the major costs, and therefore lower premiums (and by definition lower benefits) are
necessary for reasons of business confidence and competitiveness. By engaging in this
debate we were able to refer to respectable academic evidence to demonstrate that it is
employees who actually fund the compensation scheme insurance levies via lower real
wages. The conventional position maintains that the increase in workers’ compensation
premium constitutes an added cost to the cost of employment as part of real labour costs
that inevitably leads to reduced employment.
These views, generally contended by industry associations, found a large measure of support within the Department of Treasury and Finance. The contrary view based on economic research in the United States conducted by Chelius and Viscusi supports the proposition that "the pursuit of lower premiums through reduced benefits and restricted eligibility provides little or no long term benefit to business since the labour market adjusts to yield higher take home wages at
unchanged labour costs to the firm".xi
Plaintiff lawyers commissioned Marsden Jacob Associates to apply similar research
techniques to the Australian labour market, and examine who pays for workplace
accidents and insurance compensation levies. In summary their research revealed that:
• over 80% of the cost of workers’ compensation insurance levies are shifted back to
workers by the operations of the labour market and the action of employers, particularly
via lower take-home pay, and as a result employment costs to employers are only
temporarily changed by a change in the insurance levy
• employers actually pay for less than 10% of the total costs to the Australian economy of
workplace accidents and injury
The ‘New’ Common Law
The amendments to the Accident Compensation Act are a marked improvement for injured
Victorians. It nonetheless constitutes a remarkably modest reform by an unduly timid
government and reflects the still unresolved philosophical debates that I have mentioned.
There is no doubt that the issue of the removal of common law damages was a significant
issue in the 1999 general election which continued to resonate in the subsequent
Frankston East, Burwood, and Benalla by-elections. It is regrettable, given the
prominence of the issue, that the Victorian government did not take the opportunity to
deliver more meaningful benefits to its constituency through a marginal extension of the
levy from 2.18% to 2.25% of payroll. This extension would have allowed both a
meaningful substituted common law payment to be made to workers seriously injured
between the 12th November 1997 and the 19th October 1999, and the government to
urgently address the substandard benefits that remain, particularly in s98C and s98E of
the Accident Compensation Act.xii
Legislation reintroduced the ability for a group of specific workers to pursue a claim for
common law damages against their employer or third party. The reform is not fully
retrospective and only applies to injuries occurring on or after the 20th October 1999. The
formal justification for failing to date the reforms back to the 12th November 1997 was the
general philosophical opposition to the use of retrospective legislation. Whilst I
understand the reluctance of governments to utilise retrospective legislation I contend that
there is a qualitative difference between legislation removing rights and legislation
restoring those rights. The Bracks government, in my view, made the decision not to
restore the rights retrospectively firstly, on an economic basis, ie its commitment to keep
the premium level within 2.18% of wages, and secondly, on the political judgment that the
odium that would come from its failure to restore rights would be borne by the Liberal and
National parties.
Whatever the justification, the failure to introduce fully retrospective legislation is a tragic
abandonment of those workers who are injured within the window period.
Common Law Threshold
In the final analysis the government elected for a model that utilises the impairment
assessment as the primary gateway to common law but also allowing access through a
narrative test which will vary depending on whether the worker’s claim is confined to a
claim for non pecuniary loss or whether it seeks to encompass pecuniary loss as well.xiii
The impairment assessment test to be utilised for access to common law damages is to be
based on the fourth edition of the AMA Guides (the ‘Guides’). You will appreciate that
between 1992 and 1997 the impairment assessment test was based on the second edition
of the Guides. In reality few persons injured during that period sought access to common
law damages through the impairment assessment method and rather elected to seek
access through the narrative. Under the amendments it is clear there will be a much
greater focus on the impairment assessment for the purpose of common law damages. It
is to be the primary source of an application for serious injury with resort to the narrative
only being possible after the assessment of permanent impairment.xiv The move from the
second edition to the fourth edition of the Guides is expected to have very marked effects
on the number of persons who will be able to achieve access to common law through the
impairment gateway. In particular there are very marked differences in the ratings
achieved under AMA 4 and AMA 2, particularly in respect of muscular-skeletal and
respiratory injuries.xv
The narrative test to be applied in assessing certification for serious injury for injuries
occurring on or after the 20th October 1999 has a marked similarity to the narrative test
that was in place for injuries prior to the 12th November 1997. S.134AB(37) of the Bill
defines serious injury as follows:
a) permanent serious impairment or loss of a body function; or
b) permanent serious disfigurement; or
c) permanent severe mental or permanent severe behavioural disturbance or disorder; or
d) loss of a foetus.
Perhaps the most marked changes that have been affected related to an application for
serious injury based on a "loss of earning capacity". It was generally recognised that in
respect of injuries prior to the 12th November 1997 a loss of earning capacity was one of
the major factors that influenced courts in its assessment of whether an injury constituted
the serious injury within the meaning of s135A of the Act. A moderate earning loss when
projected over a workers’ potential working life was generally considered to be of serious
consequence for an injured worker thus justifying the granting of a serious injury
certificate. The new provisions seek to ensure that an actual loss of a defined extent can
only be taken into account in the establishing of a loss of earning capacity for the purposes
of serious injury certification. Subsection 134AB(38)(e)(i) & (ii) will require a worker to
have a loss of earning capacity of at least 40% as at date of serious injury certification and
that the injury will be productive of a financial loss of 40% or more permanently into the
future.
It must be recognised that if there is a significant trend to pursue claims for damages in
respect of non-pecuniary loss only this will inevitably raise major prudential issues for the
Victorian WorkCover Authority. If there is no award for pecuniary loss then the WorkCover
Authority does not receive the benefit of the redemptive effect of a common law damages
claim as the worker will continue to receive entitlement to weekly payment of
compensation in accordance with the Act.
Third Party Claims – The New Common Law Position
The new common law position in respect of third party claims in the legislation is, I think,
indicative of the "hothouse" effect of the preparation of the legislative amendments. The
Kennett government abolition for claims of common law damages were comprehensive
and resulted not only in the abolition of common law claims in the workplace but also
common law claims in circumstances where a third party was a tort feasor but the injury
occurred in the course of employment not away from the place of employment. It was not
widely comprehended, for example, that the owner and director of a family company,
perhaps working as a plumber, was not entitled to bring a claim in respect of a transport
accident which occurred as a result of driving in the course of their employment. Similarly
a worker injured as a result of medical malpractice was not able to sue a negligent medical
treater if the treatment related to a workplace injury. The legislation now restores the right
of workers injured in third party circumstances to pursue a claim for common law
damages.
The more curious situation arises in respect of damages claims against third parties in
other circumstances where the injury occurs away from the fixed place of employment.
S134AA(b) of the Bill extends a right to a worker to bring proceedings for common law
damages in specific circumstances without the need to meet a threshold requirement of
serious injury. Those circumstances are set out in the section but are limited to
circumstances where an employer is not a party to the proceedings and where the injury is
by virtue of s83(1) of the Act deemed to have arisen out of or in the course of employment
and if the workers’ place of employment is a fixed place of employment the injury did not
occur while the worker was present at that fixed place of employment. It is clear that at
the time of the amendment of the Act the government had not fully considered the
potential implications of the serious injury threshold in third party claims and thus opted to
reintroduce the provision that was contained in the Act between 1985 and 1992.xvi In
doing so the government failed to appreciate that there were no serious injury thresholds
in the Act at that time and all claims for damages were limited to claims for pecuniary loss.
We are now in the peculiar position that those workers injured in deemed employment
circumstances ie., lunch breaks or other breaks away from a place of employment,
medical treatment or attending trade schools are not bound by the serious injury
thresholds, whilst all others injured in the course of employment but away from their place
of employment are so bound. This situation is best illustrated by example. If say a worker
were injured in a shopping centre during the course of an authorised lunch break they
would have the same rights as any member of the community to bring proceedings against
the shopping centre for the negligence resulting in the injury. If the worker however had
been sent to purchase his or her employers lunch and thus was present in the course of
their employment, rather than in the course of deemed employment, they are so bound by
the thresholds. No doubt that these anomalies, together with the anomalies that would
centre on whether or not a worker has a fixed place of employment will necessitate the
further amendment of the Act.
Conclusion
What then are the lessons that we can draw from the Victorian experience?
The first lesson is to recognise the need to develop a new theory of relevance for common
law claims in modern and complex compensations systems. Initially we must
acknowledge that many of the traditional criticisms of the common law have been valid.
We cannot ignore issues such as delay, high transaction costs, or other defects, as these
have the tendency to ultimately render a system unstainable. It must be recognised that
everybody has an interest in the stability and sustainability of a system. In the past the
major criticism of common law claims for damages was that they were a poor distributive
mechanism. Under modern compensation schemes I contend it is arguable that they are
a sophisticated distributive mechanism. When a common law claim is a component of a
blended compensation scheme it actually has the potential to be a well focused distributive
mechanism that provides an extra layer of compensation to the most seriously injured in
the most reprehensible circumstances. In so doing it has the potential to meet community
expectations and to promote the deterrent effect inherent in the remedy. The debate
should therefore no longer be focused on a no fault compensation scheme versus
common law, but rather on developing the appropriate control mechanisms for access to
common law. Proper control mechanisms will be equitable and predictable. The role of
common law in modern blended compensation systems must be accompanied by
commitment to the reduction of transaction costs for the remedy, and flexible recipes for
the claiming of damages. Generally, the right to continue in medical treatment should be
excluded from a claim for damages, and continue irrespective of a claim. Flexible choices
between damages on economic and non-economic loss will also be an essential
ingredient of a relevant common law damages system.
It will be essential for plaintiff and labour lawyers, and other interested groups, to develop
and promote economic theories that support the role of common law in order to meet
head-on the uncritical rhetoric of employer groups about the dis-incentives to employment.
These new economic theories will address issues such as those raised by Chelsius and
Viscusi and focus on the irrational subsides provided to injurious employers through
depressed levy payments. These theories must also research and document the deterrent
capacity of the common law remedy in occupational injuries.
The next lesson that has been learnt well in Victoria is the interest of all stakeholders in a
sustainable common law damages scheme. I think there is a realisation among plaintiff
lawyers, trade unions, and others, that a compensation scheme has to have financial
integrity and that adjustments to the control mechanisms of a scheme will be necessary
from time to time. The reintroduction of common law in Victoria has a degree of fragility
and it is possible that some strain will be imposed on the control mechanisms in future
years. This may be avoided by the imposition of a very strict management structure
derived from the TAC, but time will tell.
The final point I want to make is that we have learned from Victoria that it is possible to
develop a tangible political campaign around the issue of "common law". The Victorian
experience has shown that it is possible to take this issue and convert it in to an issue of
real importance to the community. To do so however, requires dedication and co-operation
amongst all relevant interest groups. The lesson we learnt from Victoria was that the most
compelling political method was to focus on the "worthy excluded".
i Priestly v Fowler (1837) 3 M&W 1 per Lord Abinger CB; Butterfield v Forrester (1809) East 60; Thomas vQuartermaine (1887) 18 QBD 685
ii Section 135 Accident Compensation Act 1985 (Victoria); Section 45 Safety Rehabilitation & Compensation Act 1988 (Commonwealth)
iii According to Sir John Barry in 1968 "The concepts behind the system and the litigious machinery for applying them, are outmoded in an affluent materialistic and egalitarian society which requires for its functioning mechanised industries and motorised road transport.", Sir John Barry, Tzouvelis v Victorian Railways Commissioners [1968] VR 112 (FC)
iv ‘Workers’ Compensation in Australia’, Industry Commission Report No. 36, February 1994, Australian Government Publishing Services, Canberra Appendix D ‘Legal And Medical Costs’.
v ibid vi ‘National Committee of Inquiry, Compensation and Rehabilitation in Australia’,3 vols, AGPS, Canberra,1974 (the ‘Woodhouse Report’).
vii ‘Report of the Committee of Enquiry into the Victorian Workers Compensation System’, June 1984,Government Printers Melbourne, Victoria.
viii In particular see p 61, Chapter 4 ‘Victorian Common Law Experience 1992 to 1997’, Report Of The Working Party On Restoration Of Access To Common Law Damages For Seriously Injured Workers,February 2000 (‘Working Party Report, February 2000’)
ix The AMA Guides 4th Edition brought a major change to the assessment of back injuries. Previously, back injuries had been assessed under the AMA Guides 2nd Edition. Evidence submitted to the Working Party by the Convenor of Medical Panels (after a review of approximately 86 cases comparing the pre and post November 1997 assessment criteria) indicated that the gross compensation for the group would reduce from
$1.3 million to $80,000. One example was an injured worker with a serious back injury who was erroneously assessed by an insurer under the pre-November 1997 assessment criteria as having a 25% impairment level and entitled to compensation of approximately $35,000. Under the post-November 1997 assessment criteria the same injured worker was assessed at a 5% impairment level and therefore received no compensation. APLA members also provided the Working Party with survey material which demonstrated that significant proportions of injured workers would receive less under the post-November 1997 statutory non-economic loss benefits than they would have received under the table of maims.
x In particular it was the view of plaintiff lawyers and trade union representatives (assisted by their actuarial advisors Cumpston Sarjeant) that the VWA actuaries (Trowbridge) had overestimated the costs of s98C Jump sum compensation because of a poor understanding of the much more stringent impairment assessment criteria under the AMA 4th Edition Guides post November 1997. Especially concerning application to back injuries.
xi ‘Who Really Pays For Worker’ Compensation? Updated Evidence’, Marsden Jacobs Associates, Report for the Law Institute of Victoria, 27 January, 2000.
xii See pp66-68, ‘Working Party Report, February 2000’
xiii Section 134AB (17) of Bill
xiv Section of 134AB (3) of Bill
xv For a discussion of these issues see ‘The Use and Abuse of the American Medical Association Guides in Accident Compensation Schemes’, P. Mulvany & N. Horner, in Journal of Law and Medicine, No.2 Volume 6,November 1998.
xvi see ss135 (1) (b), ‘Accident Compensation Act 1985’ (Act No. 10191/1985, Reprint No. 2)
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