Changes to NSW workers compensation claims – what employers need to know about psychological injury claims

As members are aware, employers have a duty under work health and safety legislation to ensure, so far as is reasonably practicable, the health, safety and wellbeing of their employees. This includes protecting workers’ psychological health.

Recently, most Australian states and territories have experienced a significant increase in workers compensation claims relating to psychological injuries. These claims can have substantial financial and operational implications for employers, including increased insurance costs and claims management obligations.

In response, the New South Wales Government has introduced the Workers Compensation Legislation Amendment Act 2025 (NSW), which changes the criteria for psychological injury claims and introduces a higher threshold for compensation.

Key changes

For workers compensation claims lodged on or after 1 July 2026, the following changes apply:

• Psychological injuries must arise from a defined “relevant event”. Examples include exposure to workplace violence, indictable criminal conduct, or excessive work demands.
• Employment must be the main contributing factor.
• The reasonable management action defence has been expanded. The legislation broadens the range of management actions that may be relied upon as a defence where they are carried out reasonably. These include:
  • performance appraisals and feedback;
  • counselling;
  • demotion, redeployment and retrenchment;
  • disciplinary action and dismissal;
  • investigations into alleged misconduct (including where a worker is involved as a witness);
  • promotion decisions, including unsuccessful applications;
  • leave decisions;
  • decisions relating to benefits, reclassification, suspension and stand-down;
  • training and transfers; and
  • communications connected with any of the above.

This list is not exhaustive.

What this means for employers

While these amendments make it more difficult for some psychological injury claims to succeed, employers continue to have a legal obligation to manage psychosocial risks and provide a safe and healthy workplace. Maintaining appropriate policies, documenting management decisions, and ensuring management actions are reasonable and undertaken fairly remain essential.

If you would like further information or guidance about your workers compensation obligations or managing psychosocial risks in the workplace, please contact the Workplace Relations Team on:

📞 (02) 6175 5900
📧 workplace@mba.org.au