GN 5.10 Commutations

Published: 12 August 2019
Last edited: 12 August 2019

Application: this guidance applies to exempt workers

Overview

A commutation is the term used to describe when a worker and insurer agree that a worker’s entitlement to benefits under the workers compensation Acts is bought out as a lump sum of money paid to the worker.

Workers and employers are under no obligation to enter into an agreement to commute a liability.

This guidance outlines the preconditions for a commutation, the process, and the role of the Workers Compensation Commission.

The commutation process

Commutations typically involve discussion between the parties (the worker and insurer or their representatives), reaching agreement on the amount, certification by SIRA and registration of the agreement in the Workers Compensation Commission (Commission). Each commutation broadly follows the steps below:

  1. The worker and insurer reach an agreement on the amount of the commutation and that the worker meets the preconditions.
  2. One of the parties applies to SIRA with supporting documents to establish the injury is/is not a catastrophic injury as defined in the Workers compensation guidelines (Guidelines), and that all the preconditions (explained below) to commutation have been met.
  3. SIRA certifies the injury is/is not a catastrophic injury (detailed below) and that all the preconditions have been met and issues a commutation certificate.
  4. Either the insurer or the worker applies to the Commission to register the agreement.
  5. The Commission must register the commutation agreement for it to take effect.

Catastrophic injury

What constitutes a catastrophic injury is described in Part 9 of the Guidelines and includes certain categories of spinal cord injury, brain injury, amputations, burns and blindness.

Medical expenses compensation cannot be commuted for a catastrophic injury (section 87EAA of the 1987 Act), however, weekly payments of compensation for a catastrophic injury may be commuted.

Preconditions for a commutation

SIRA must certify that the preconditions (or requirements) have been met in order for any commutation agreement to be made. These requirements (set out in section 87EA of the 1987 Act), include:

  • the worker’s injury has resulted in permanent impairment of at least 15 per cent
  • compensation for permanent impairment to which the worker is entitled has been paid
    • the insurer should include a copy of the payment schedule showing the amount/s and date/s paid
  • it has been more than two years since the worker first received weekly payments for the injury
    • the insurer should include a copy of the payment schedule showing the amount/s and date/s paid
  • all opportunities for injury management and return to work have been fully exhausted
    • the insurer should attach rehabilitation reports, medical reports and any other evidence that demonstrate all opportunities for injury management and return to work have been exhausted
    • where possible, the rehabilitation reports and medical reports should not be more than six months old at the date of application
  • the worker has received weekly payments regularly in the preceding six months
    • the insurer should include a copy of the payment schedule showing the amount/s and date/s paid
  • the worker has an existing and continuing entitlement to ongoing weekly payments
    • the insurer should include written evidence that the worker has an existing and ongoing entitlement to weekly payments.

Applying to SIRA for a commutation certification

The insurer or worker (or their representative) is required to complete a commutation application form and provide supporting information showing that the injury is not a catastrophic injury and that all the commutation preconditions have been met.

All applications should be emailed to commutations@sira.nsw.gov.au or posted to SIRA, Commutation Applications, Locked Bag 2906, Lisarow, NSW 2252.

The agreement and registration by the Workers Compensation Commission

Before entering into a commutation, a worker must receive independent legal advice. The legal practitioner must certify in writing that the worker has been advised:

  • on the full legal implications of the agreement, and
  • that it is recommended the worker seek independent financial advice before they enter into the commutation agreement.

The worker must confirm in writing that they have been given and understand the legal advice and the recommendation to obtain financial advice (section 87F(2) of the 1987 Act).

The worker has a 14-day ‘cooling off’ period after entering into the commutation agreement. They can withdraw from the agreement by giving notice in writing to the insurer within that period. Insurers do not have a cooling off period (section 87F(4) of the 1987 Act).

All commutation agreements must be registered with the Commission. A commutation agreement has no effect until it is registered with the Commission (section 87F(6) of the 1987 Act).

A commutation agreement cannot be reviewed or challenged in proceedings before the Commission (section 87F(3) of the 1987 Act).

However, because the agreement is of no effect until registered, the Registrar of the Commission can (either at the request of a party or independently) refer the agreement to the Commission for review. The Registrar is not to register the agreement if the Commission considers that the agreement is inaccurate or that the lump sum is inadequate (section 87H of the 1987 Act).

Additional requirements apply with respect to the commutation of weekly payments for uninsured employers (section 146 of the 1987 Act).

Commutation when worker is legally incapacitated

If a worker is legally incapacitated because of their age or mental capacity, liability may be commuted to a lump sum as determined by the Commission (section 87G of the 1987 Act).

The Commission must be satisfied that the termination of liability is in the best interest of the worker and must have regard to:

  • any dispute as to liability under the 1987 Act
  • the injury, age, general health and occupation of the worker
  • the worker’s diminished ability to compete in an open labour market, and
  • other benefits the worker may be entitled to from any other source.

Insurer considerations

Providing SIRA with sufficient, recent information

SIRA must be satisfied it has sufficient information to determine whether an injury is or is not a catastrophic injury before certification will be issued.

SIRA must also be satisfied that all the preconditions have been met. Often, the reason for delay or refusal to certify a commutation is that there is insufficient evidence to show that the preconditions have been met. In particular, there must be enough evidence to show that all opportunities for injury management and return to work for the worker have been fully-exhausted. Insurers should provide accurate and recent information (preferably within the last six months) in support of their application.

Insurers should ensure that only relevant information demonstrating that the preconditions have been met is included with the application. For example, it is not appropriate to submit the entire claim file with large amounts of irrelevant material.

Existing and continuing entitlement to weekly payments

The worker must have an ‘existing and continuing entitlement to weekly payments’ to obtain a commutation. If the worker’s entitlement to weekly benefits is about to be end due to the operation of section 39 of the 1987 Act, a commutation for weekly payments may not be an option.

Negotiation with workers

Negotiation with workers around the quantum of commutation should to be undertaken in a transparent, timely and proactive manner.

Impact on Centrelink payments

Payment of a commutation will likely result in a Centrelink preclusion period for the worker. Depending on the amount of the commutation, this can extend for several years. Insurers should encourage workers to discuss this with their legal representative and/or speak directly to Department of Human Services (Centrelink) if they have any questions.

Making payment to the worker

Once the commutation is registered, the insurer must pay the money:

  • within seven days of the registration, or
  • within a longer period if the agreement specified one.

Insurers should not unreasonably extend the period for their convenience.

Interest is payable on any late payment and any interest payable is recoverable as a debt in a court of competent jurisdiction (see section 87F(7) of the 1987 Act).

Redemptions under the 1926 Act

The preconditions do not apply to injuries sustained before 30 June 1987. These injuries can be 'redeemed' under the 1926 Act. A redemption is an agreement to redeem or trade in a worker's future rights to weekly payments for a lump sum.

Coal miners

Unlike most other workers in NSW, coal miners have retained the right to redemptions. The judges of the District Court have a protective role in regards to these agreements for coal miners and the redemption must be approved by the court.

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