GN 2.3 Psychological injury

Published: 12 August 2019
Last edited: 12 August 2019

Application: This guidance applies to exempt workers


Events and incidents in a workplace can cause a variety of emotional and psychological reactions in workers and may lead to claims for workers compensation.

This guidance considers the special provisions in the workers compensation legislation which deal with an employer’s liability for psychological injuries.

Psychological injury

Section 4 of the Workers Compensation Act 1987 (1987 Act) defines ‘injury’ and requires that a worker suffer an injury arising out of or in the course of their employment. Compensation will not be payable unless a worker has suffered such an injury.

A mere emotional impulse or nervous response such as anger, anxiety, frustration, grief or sorrow is not regarded as a psychological injury. However, a diagnosis using the Diagnostic and Statistical Manual of Mental Disorders is not always necessary (see State of New South Wales v Seedsman [2000] NSWCA 119 for more on this).

Section 9A of the 1987 Act requires that in respect of an injury (other than a disease injury) the employment was a substantial contributing factor to the injury. The contribution of employment to an injury needs to be ‘real and of substance.’ A substantial contributing factor to an injury does not need to be the sole contributing factor.

Disease psychological injury

Various events experienced over time can result in the onset of a disease, including psychological injuries.

For disease injuries received on or after 19 June 2012, it will be necessary to prove that employment was the main contributing factor to the contraction or aggravation, acceleration, exacerbation or deterioration of the disease (section 4(b) of the 1987 Act). The test for exempt workers is a substantial contributing factor.

If the insurer disputes liability for a claim, they should specify what grounds are being relied upon and provide relevant facts in the dispute notice supporting this view. This includes referring to appropriate factual and medical evidence to support their defence.

Even where a worker’s complaints may seem insignificant, if the events are real and the worker perceived those events in a particular way, this may support the finding of a compensable psychological injury. A worker’s perception of an incident or event that actually occurred is relevant. A worker’s perception of events was considered in Attorney General’s Dept v K [2010] NSWWCCPD 76.

If there is an actual event in the workplace, it does not matter that the worker’s reaction is extreme or irrational. However, a reaction that is caused by what the worker thought occurred but that did not actually occur is not compensable.

Lump sum compensation for psychological injury

Section 65A of the 1987 Act distinguishes between primary and secondary psychological injuries and provides details of when lump sum compensation is not paid for psychological injury.

If a worker receives a primary psychological injury and a physical injury, arising out of the same incident, lump sum compensation is not payable for permanent impairments resulting from both the psychological injury and the physical injury. Lump sum compensation is only payable for the impairment that results in the greater amount of compensation payable.

See Insurer guidance GN 5.7 Permanent impairment for further information on lump sum compensation for permanent impairment.

Psychological injury caused by reasonable action of employer

If an injury is a psychological injury, no compensation is payable if the injury was wholly or predominantly caused by the reasonable action taken or proposed to be taken by or on behalf of an employer with respect to transfer, demotion, promotion, performance appraisal, discipline, retrenchment, dismissal or provision of employment benefits to the worker (see section 11A of the 1987 Act).

This defence can only be relied on where the insurer can establish that the psychological injury was wholly or predominantly caused by reasonable action taken or proposed to be taken by or on behalf of the employer.

The insurer has the onus of proof in establishing each of these elements to be successful in the defence.

A. ‘Wholly or predominantly caused’

An insurer will need to assess all of the available evidence to consider the various causes and determine whether the employer’s actions were wholly or predominantly responsible for the psychological injury.

The terms ‘wholly’ or ‘predominantly’ are different concepts. ‘Wholly’ is regarded to be the one and only cause.

In some situations, there may be various causes behind the development of a psychological injury. In these situations, 'predominantly' means the main or principal cause.

The insurer would need to establish that the employer’s reasonable actions in relation to the transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal of workers or provision of employment benefits was the main or principal cause behind the worker’s injury. The Commission has held that 'predominantly caused' means 'mainly or principally caused by' (see Ponnan v George Weston Foods Ltd [2007] NSWWCCPD 921).

B. ‘Reasonable action’

An insurer will also have to establish that the action taken or proposed to be taken by the employer was ‘reasonable’.

Insurers should use an objective test when considering whether an employer’s action was ‘reasonable’ (see Northern NSW Local Health Network v Heggie [2013] NSWCA 255). This includes a consideration of all the facts.

Matters to consider

When determining whether conduct was reasonable, an insurer should:

  • weigh the rights of the employees against the objective of the employer
  • consider whether the conduct was fair (the action, and the way it was carried out needs to be reasonable)
  • make an objective assessment of the employer’s action
  • look at the entire process involved
  • weigh the consequences of the employer’s conduct against their reasons
  • consider the full history of the employer’s dealing with the particular worker.