Posted on February 11, 2026 by Dimitrious Havadjia and Lindsay Taylor
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Changes to Workers Compensation Coming in 2026
Following the introduction of the new Stop Bullying and Harassment Orders in 2025 (see our article here), the NSW Government has now progressed their foreshadowed changes to workers compensation with the making of the Workers Compensation Legislation Amendment Act 2025 (AA Act) in late 2025 and the recent passage of the Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 (Reform Bill).
These changes will commence on dates to be appointed by proclamation.
The AA Act and Reform Bill are part of the Government’s efforts to seek to prioritise prevention of injuries and returning to work. A number of the changes are very technical, so this article provides a high-level overview of the key changes that are likely to affect how claims for workers compensation are processed and disputed in NSW.
New definitions for psychological injuries
AA Act and Reform Bill include a number of definitions that seek to limit the ability of workers to make claims relating to mental health and psychological injuries. For example, the AA Act includes:
- express definitions for bullying, excessive work demands, racial harassment, and sexual harassment,
- a new objective test to determine whether any act is to be considered as constituting bullying, excessive work demands, racial harassment, or sexual harassment, and
- new definitions of ‘primary psychological injury’ and ‘secondary psychological injury’. While a primary psychological injury is simply defined as ‘a psychological injury that is not a secondary psychological injury’, a secondary psychological injury is defined as a ‘psychological injury to the extent the psychological injury arises as a consequence of, or secondary to, a physical injury’.
The AA Act will limit compensation payable for a primary psychological injury to circumstances where:
- a ‘relevant event’ (defined to include bullying, excessive work demands, racial harassment, and/or sexual harassment) causes the injury, and
- there is a ‘real and direct connection’ between the relevant event and the worker’s employment, and
- employment is the main contributing factor to the injury.
Disputing liability
Where an insurer disputes a claim on the basis that the alleged bullying, excessive work demands, racial harassment, and/or sexual harassment did not occur, the worker will then need to seek the assistance of the Industrial Relations Commission (IRC) to determine whether or not the alleged bullying, excessive work demands, racial harassment, and/or sexual harassment did occur.
If the IRC is not satisfied that the alleged bullying, excessive work demands, racial harassment, or sexual harassment occurred, then no compensation is payable.
This represents a new function of the IRC in respect of workers compensation which it did not have previously.
Reasonable management action
There has been an exemption for liability for certain injuries arising as a result of ‘reasonable management action’ for some time. However, the AA Act includes an expanded exemption for ‘reasonable management action’ that includes the action itself, a worker’s ‘expectation of reasonable management action being taken’ and ‘a worker’s perception of reasonable management action taken.’
This change expands the scope of this exemption and places more focus on whether the action taken was, in fact, ‘reasonable management action’, rather than any impact of that action on the relevant worker.
Medical expenses and treatments
The AA Act will change the test for compensation for medical treatment. Currently, a worker is entitled to compensation for medical treatments that are ‘reasonably necessary’. This will change to what appears to be a higher threshold, being ‘reasonable and necessary’.
Impacts
The changes in the AA Act and Reform Bill have been referred to as ‘reforms to repair the NSW workers compensation system’ in Ministerial press releases. While it remains to be seen whether these changes have the intended results, it does appear that seeking workers compensation for mental health and psychological injuries will become more difficult, and employers and insurers will have more mechanisms to dispute liability.
These changes will be supported by new guidance materials and documents, which we expect will be made available when the provisions commence.
The AA Act and Reform Bill can be accessed here and here.
If you have any questions about this article, please contact Dimitrious Havadjia or Lindsay Taylor.
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