Workers' Compensation: A national perspective
by Kevin Purse and Rob GuhtrieBackground – self-insurance and the new federalism
Increasingly, the issue of what constitutes just and fair workers' compensation arrangements will need to be considered in the broader context of a national perspective. This is especially so in light of the recent seismic shift in the locus of responsibility for industrial relations from state and territory governments to the Federal arena and the emerging push for a national approach to occupational health and safety legislation. The state and territory based status quo that has governed workers' compensation policy in Australia for over 100 years is now confronted with unprecedented challenges.
The clearest expression of this shift in the centre of gravity has been the growing campaign by corporate Australia in support of national self insurance. In turn, this campaign is part of a broader agenda to place business regulation in Australia on a national footing.
Self insurance has long been a feature of workers' compensation arrangements in Australia – one that allows eligible corporate employers, and government agencies, to administer state or territory workers' compensation legislation in respect of their own workers. With the growth of national markets and the increasing integration of the Australian economy into the world economy, however, corporate Australia is now seeking to shift the basis of self insurance to the national level.
This change in the policy landscape was foreshadowed by a 2004 Productivity Commission report which advocated a three stage transformation of Australia's workers' compensation arrangements. The first stage involved opening up the Federal government's Comcare scheme to provide national self insurance for eligible corporations. The second entailed the creation of a new, more broadly based, Federal scheme designed for all corporations interested in national self insurance. The third stage envisaged that this new national scheme would subsequently cater not only for national self insurers but premium paying corporate employers as well. The re-election of the Howard government in October 2004 gave the necessary political imprimatur to the first stage of the Commission's pro-business agenda. In November 2004, Optus Administration Pty Ltd was granted a national self insurance licence by Comcare and by 2007 there were 25 national self insurers including such household names as the National Australia Bank, transport giant Linfox and the John Holland building group. The Howard government also amended the Federal Occupational Health and Safety Act 1991 to provide national self insurers with a single OHS regulatory framework, which came into operation in March 2007.
Underpinning these political changes were fundamental changes in the interpretation of two key aspects of the Australian Constitution by the High Court. The first, handed down in November 2006, involved the Court's expansive interpretation of the corporations power that validated the Howard government's divisive Work Choices legislation. The second concerned the interpretation of the insurance powers of the states in the case of Attorney General (Vic) v Andrews, where the Court ruled in March 2007 that the Federal Minister's decision in declaring Optus eligible to seek self insurance under the Safety, Rehabilitation and Compensation Act 1988 was constitutionally valid. The combined effect of these two decisions is that the constitutional reach of the Federal government has now been dramatically expanded. At a deeper level, these decisions also reflect the political-economic reality that corporate Australia has outgrown the Australian Constitution as constructed at the dawn of the 20th century.
The advent of national self insurance under the Comcare scheme has been an ad hoc response to the perceived needs of corporate Australia. This ad hoc approach has inevitably resulted in a number of serious problems that were simply ignored by both the Productivity Commission and the Howard government.
Foremost among these is the fact that working men and women – the people most directly affected by workers' compensation arrangements – were denied any say whatsoever as to whether their employers should be permitted to migrate from state or territory schemes to Comcare. As noted by Justice Callinan in one of the two dissenting opinions in the Andrews case, the choice of whether or not a corporate employer was eligible to move from state or territorial jurisdictions to the Federal arena was solely the preserve of the employer.
A further consideration is that coverage under the Comcare scheme for workers' compensation purposes is now complemented by coverage for occupational health and safety purposes as well. As Comcare is not particularly active in relation to the enforcement of workers' legislative rights to healthy and Safe workplaces, this too has attracted widespread criticism. The lack of a suitably trained and resourced inspectorate to cope with any influx of corporate employers with a much more diverse range of workplace hazards than traditionally associated with public sector employment has only exacerbated the situation.
In addition, any significant migration of corporate employers from state and territory schemes to Comcare has the potential to compromise the financial viability of these schemes. The extent of the threat involved is variable and depends on the number of firms involved, their risk profile and whether or not they are existing state based self insurers. What is clear is that the smaller schemes are most at risk as even the Productivity Commission was compelled to acknowledge.
Labor Pushes the Pause Button
It was against this background that the Rudd Labor government instituted a moratorium on new applications for self insurance in December 2007 shortly after coming into office. This was followed with an announcement by the Deputy Prime Minister in January 2008 of a substantive review into the Comcare scheme. The immediate impact of these decisions is that Federal Labor has pressed the pause button on the push for national self insurance. In view of the concerns and problems that have arisen as a result of the previous government's approach to national self insurance this is to be welcomed. More fundamentally, these decisions provide the labour movement with the political breathing space in which to consider its position in relation to the future direction of workers' compensation policy in Australia.
However, this opening will not last indefinitely. Sooner or later the government will be required to make a call on whether to press the rewind button or move ahead with national self insurance. Given its own commitment to a restructuring of Australian federalism, and the lobbying power of corporate Australia it is unrealistic to expect that it will opt for the rewind button. Nor is it likely that the ?eharmonisation' process, currently being pursued by various state governments to dissuade potential national self insurers from exiting their schemes by reducing compliance costs, will permanently halt any renewed drive for national self insurance. Workers' compensation policy in general and national self insurance in particular are likely to remain as second order priorities during this term of government because of Labor's commitment to the introduction of a revamped national industrial relations framework and the joint development of model occupational health and safety legislation with the states and territories.
Nevertheless, it is clear that national self insurance is not going to disappear. Accordingly, the labour movement needs to give greater emphasis to developing its own agenda in relation to national workers' compensation arrangements.
A Labour Movement Agenda?
There are at least three broad themes that may help focus attention on what needs to be done. First, there are a number of fundamental preconditions that need to be satisfied. Second, there are crucial issues of scheme design that need to be addressed. Third, there is the question of timing.
In relation to preconditions it is imperative that any proposals for national self insurance by individual employers are based on the issues involved being fully canvassed with the workers concerned and their unions. In addition, any application for national self insurance should only proceed where it is supported by a clear majority of the workers involved, as determined through an independently conducted ballot. The concerns of the states and territories also need to be addressed. In the first instance this may be achieved by initially limiting access to national self insurance to those corporations already self insured under state and territory schemes. Such an arrangement would also need to be complemented by an agreement on exit fees so as to guarantee that state and territory schemes would not have to pick up the tab for the outstanding liabilities of corporate employers seeking to migrate to the national arena. With occupational health and safety arrangements, priority needs to be accorded to comprehensive legislation, including full participation rights for workers and their representatives, as well as effective enforcement and sanctions. One further precondition is that rather than using Comcare as a de facto national scheme, a new national scheme should be established.
With scheme design, there needs to be a recognition that corporations seeking to obtain national selfinsurance are among the most profitable in the country. Consequently, this should be factored into scheme design considerations especially in relation to affordability. The starting point here is the issue of the level of weekly payments and their duration. Over the last two decades, step-downs have become a dominant feature of Australian workers' compensation schemes. Although based on the notion that injured workers require financial disincentives in the form of step-downs in order to return to work, this view is largely ideologically driven rather than evidence based. A more equitable principle to underpin weekly payments is that they should be no more but no less than the pre-injury earnings of injured workers.
Not only is the level of weekly payments contentious, so too is the issue of their duration. Australian schemes tend to resolve this issue arbitrarily by a placing either a limit on the total amount of weekly payments that can be received or by using artificial ?ework capacity reviews' to terminate payments for most seriously injured workers after a specified period. The result is that much of the cost for work related injury is transferred from state and territory workers' compensation schemes to the Federal social security system. The major beneficiaries of this cost shifting exercise are employers, who consequently enjoy artificially lower compensation premiums. While a more equitable solution to the duration of weekly payments is required, the difficulties involved should not be underestimated. In any event this issue would need to be determined in conjunction with a consideration of the extent to which common law damages and lump sum payments for permanent impairment would figure in a national scheme. Having said that, the cost shifting issue has the potential to be an important lever in negotiations with Federal Labor in relation to improve the structure of weekly payments in a national scheme.
Rehabilitation and return to work arrangements are also scheme critical issues. In practice, rehabilitation remains problematic and has failed to deliver on the promises made during the 1980s and 1990s. A new approach is required which focuses on restoring the earning capacity of workers following injury. For this to occur, the retraining of injured workers will need to be a priority. There is also a need for effective employment protection measures to discourage employers from indiscriminately sacking injured workers. At the front end of any national self-insurance scheme there needs to be a system of ?eprovisional liability' to facilitate early intervention where rehabilitation is required. Provisional liability arrangements, which currently operate in New South Wales and Tasmania, enable workers' claims to be accepted on an interim basis so that the return to work efforts are not hampered by delays in the claims determination process.
There are several other important scheme design issues that need to be considered. These include access and coverage, claims dispute resolution mechanisms and linkages to strengthen efforts to minimise work related injury and disease. As with compensation payments and return to work proposals, the emphasis needs to be on improving scheme design features, service delivery and the treatment of injured workers. In terms of a timetable, most of the work envisaged needs to be finalised prior to the lead up to the next Federal election. The essential first step is to develop a progressive policy position capable of attracting widespread support within the broader labour movement, which could then form the basis for a national campaign. Extensive discussions with the Federal Labor government to give legislative effect to a national reform program, in the event it secures a second term of office, would be the next step. In the interim, careful consideration should also be given to negotiations with prospective national self insurers with the aim of locking in a progressive agenda. National self insurance needs to be viewed not just as a threat, but also as an opportunity to establish the foundations of a national workers' compensation scheme that provides injured workers with better entitlements as well as improved return to work outcomes.
Dr. Kevin Purse is a Research Fellow with the Hawke Research Institute at the University of South Australia and Professor Rob Guthrie is Professor of Workers Compensation and Workplace Laws with the School of Business Law at Curtin University of Technology.
End Notes
1. Productivity Commission (2004), National Workers' Compensation and Occupational Health and Safety Frameworks, Final Report, Canberra, p. xxxiii.
2. New South Wales (and Ors) v Commonwealth of Australia, [2006] HCA 52.
3. Attorney-General (Vic) v Andrews, [2007] HCA 9.
4. R. Guthrie, K. Purse and F. Meredith (2006), Workers' Compensation Fall-out: The High Court Decision, Insurance Law Journal, Vol. 18, No 2, pp. 128-134.
5. K. Purse (2003), Australian Workers' Compensation Policy:
Conflict, Step-Downs and Weekly Payments, International Employment Relations Review, Vol. 9, No 1, pp. 23-44, pp.31-35.
6. The latest example of the use of ?ework capacity reviews' to terminate weekly payments has been that of the Rann Labor government, which in February 2008 introduced amendments to South Australia's WorkCover legislation based on the draconian 1992 legislation implemented in Victoria by former Liberal Premier Jeff Kennett.
Source: Australian Options, Issue 53, Winter 2008, pp. 25-8.