The NSW Government's controversial workers' compensation reforms have reached a critical juncture, with the Workers Compensation Legislation Amendment Bill 2025 now before Parliament despite fierce opposition from unions and industry groups. The reforms, which significantly restrict access to psychological injury compensation, represent the most substantial overhaul of the state's workers' compensation scheme in more than a decade.

Under the proposed changes, psychological injuries will only be compensable if they arise from narrowly defined "relevant events," including acts of violence, indictable criminal conduct, witnessing death or serious injury, vicarious trauma, or conduct formally found by courts to constitute bullying, sexual harassment, or racial harassment. This marks a dramatic departure from the current system, where psychological injuries could be compensated across a broader range of workplace circumstances.

The reforms introduce significantly higher impairment thresholds for psychological injury claims. Workers will need to meet a 25% permanent impairment threshold to access compensation beyond 130 weeks, rising to 31% by July 2026. This compares to much lower thresholds under the current system, effectively excluding many workers with genuine psychological injuries from long-term support.

Treasurer Daniel Mookhey justified the reforms by pointing to alarming statistics: psychological injury claims have doubled in six years while comprising 38% of total scheme costs despite representing only 12% of all claims. The average cost per psychological injury claim has nearly doubled from $146,000 in 2019-20 to $288,542 in 2024-25. Without reform, even claim-free businesses face premium increases of 36% over three years.

However, the reforms have triggered significant backlash. Unions NSW and major unions including the NSW Nurses and Midwives Association rallied outside Parliament, arguing the changes will harm essential workers who face the highest rates of workplace psychological injury. The nursing union noted that workplace bullying and assault are the most common causes of psychological injury among healthcare workers.

Industry groups have also voiced concerns, with legal and physiotherapy sectors warning that the reforms could exclude genuinely injured workers from necessary support. Critics argue that requiring formal court or tribunal findings for bullying and harassment claims creates unnecessary barriers and delays for vulnerable workers.

The Government has made some concessions following intense criticism, removing the requirement for court findings in harassment cases and introducing a $344 million Workplace Mental Health package. This includes funding for more than 50 new SafeWork inspectors specialising in psychological injury prevention.

As the Bill progresses through Parliament's upper house, the debate reflects broader tensions between financial sustainability and worker protection. While the Government argues the reforms are essential to prevent the scheme's collapse, opponents warn they will abandon workers at their most vulnerable moments, fundamentally undermining the social contract that workers' compensation represents.