The true factors about the VWA management is the now well documented
inability of the Workcover Authority to manage common law damages
claims and this inability directly effects injured workers and their families.
These inabilities include:
An inflexible approach to the management of claims and injured workers
The exclusion of skilled insurance staff and their conversion to mere
‘post boxes’ for claims;
A 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 VWA is spending in access of $38 billion
in one year alone.
The ‘infamous’ barristers strike in late 1997 when the VWA arbitrarily
reduced fees.
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 skilfully 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 f
ace 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 our view, in 1997 the Kennett government committed three fatal
misjudgements.
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 misjudgement, 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.
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 businesses 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
Morgan 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 targeted 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 sectors 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”.
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.
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”.
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