Redemption agreements under Return to Work SA

redemption-workcoverSA

We refer to our Legal Question section, where a couple of questions have been posted regarding redemption under the old and new WorkCover (Return to Work) SA legislation. Redemption agreements have positive but also negative consequences and our SA injured workers need to be well-informed before accepting (or rejecting) a redemption.

Redemption agreements under Return to Work SA

When you suffer a workplace injury or illness (whether physical or psychological) in South Australia (SA), WorkCover SA (now called Return to Work SA) or the self-insured employer is liable to pay the injured worker’s reasonable medical costs as well as weekly payments (aka income maintenance payments).

However, both parties (the injured worker and WorkCover SA) can agree to lumpsum (redemption). Basically a redemption lumpsum/settlement means that rather than WorkCover making weekly payments, and/ or continuously reimbursing medical, the parties can agree to a lump sum settlement that would cease (stop) those benefits.

It’s important that SA injured workers are aware that there needs to be an agreement in order to redeem. It has to be voluntary, meaning that the injured worker is not obliged to accept a redemption if they’re unhappy with the amount offered. Also a redemption settlement can be for medical expenses only, or income maintenance, or both.

It’s important to know that a redemption settlement does not affect an injured/ill worker’s claim for compensation arising out of their permanent impairment; this is a separate entitlement to compensation, and if you are suffering a permanent physical impairment as a result of your workplace injury, you should contact a lawyer to discuss your full entitlements.

A redemption for medical expenses, income maintenance or both will also only be approved if the injured/ill worker seeks and receives professional legal advice, financial advice and medical certification from a doctor or medical expert. WorkCover SA (Return t Work SA) or the self insured employer generally overs the costs to provide legal advice as well as financial advice. Whilst seeking professional legal and financial advice is a requirement under the SA law, the injured worker does not need to accept or agree with this advice.

In fact, many lawyers will tell their clients (injured workers) that a redemption settlement is not in the injured worker’s best interests. However if the injured worker can still choose to agree and proceed with the redemption lumpsum.

The most negative aspect of a redemption is that redemption agreements not only discharge the liability of WorkCover (Return to Work) SA with re to the specific workplace injury, but also protect WorkCover from any further claims should there be an aggravation or exacerbation of the injury in the future, or should the injured worker develop  psychological illness as a result of that physical injury.

Notwithstanding the above, redemption settlements do have some positive aspects as well; the most important one being that a redemption payout is not taxable (they are tax free). Agreeing to a redemption lumpsum can also give the aggrieved workcover victim some sense of closure and liberate him/her from the work-over prison.

As the SA workcover laws  recently underwent a major change effective 1 July 2015, many workcover case managers/insurers have and are offering redemptions to current injured/ill workers in order get them off the system. Receiving a letter from your insurer offering you a large-ish sum of money can be very attractive, especially when you are under financial stress. However do not get fooled as the redemption money is actually the same or a similar amount of what your insurer would have to pay in foreseeable medical expenses and income maintenance payments.In other words, the redemption money amount is not a generous amount, rather a quick way to remove injured workers from the system, and especially before the new laws came into effect (1 July 2015).

The most negative consequence of a redemption of income maintenance (weekly pay) is that such a redemption will negatively impact any future workcover claim, even if your next claim happens many years into the future. Basically, if after redeeming your income maintenance entitlement (weekly pay) for a particular injury, you happen to suffer another workplace injury (even whilst working for a different employer), you will be deemed to be continuing to receive your previous weekly earnings that were redeemed. Then this amount is deducted from any income maintenance entitlement that would have been applicable had you not taken a redemption.

For example, injured worker Lisa is currently receiving $500 per week income maintenance (weekly pay) for her work related shoulder injury, but Lisa redeems her income maintenance entitlements for $20,000. Lisa eventually returns to work with a different employer 5 years later and earns $800 per week. Lisa and  falls off her broken chair and can never work again. Had Lisa not taken a redemption 5 years earlier (in 2015) she would be entitled to income maintenance of $800 per week (subject to legislation criteria). However because Lisa agreed to the redemption in 2015, her $800 weekly payment is reduced by $500 (the amount she redeemed in 2015), so she will only receive $300 per week! A similar scenario would arise if Lisa aggravated her injuries…

This is an extremely unfair outcome to say the least, and it is a mouse trap that many injured workers fall into! So always make sure you seek proper legal advice before accepting a redemption settlement!

Redemption agreements under the current new Return to Work law are similar to the previous law, however the amount of the income maintenance redemption are limited if the injured worker is not seriously injured. This is because for non-seriously injured workers, their payments will cease 2 years after the injury in any case (see below for as summary of the new Return to Work legislation).

Under the current new Return to Work SA law, redemption agreements also still need to be voluntary, and for income maintenance redemptions, the employer needs to be consulted before the agreement is finalised. However an injured worker will no longer need to obtain financial advice if the redemption is only for medical expenses. Also a medical expenses redemption does not apply for ‘seriously injured’ SA workers  and an income maintenance redemption does not apply if the injured worker has opted to pursue/proceed with a common law damaged claim.

As you can see, redemption agreements in SA can be a very tricky. Accepting a redemption can be financially bad or disastrous if an injured worker suffers a work related injury in the future. Ensure you seek sound legal advice before accepting a redemption!

 


 

The new Return to Work legislation: summary

The Return to Work Act 2014 replaces the Workers Rehabilitation and Compensation Act 1986. Key changes that may impact on liability insurers include:

  • Weekly payments of compensation are now cut off for workers after 104 weeks unless a worker is assessed as Seriously Injured.
  • An injured worker will have a Serious Injury if they are assessed to have a 30% or more Whole Person Impairment (WPI).
  • A Seriously Injured worker may stay on weekly payments until retirement age and have their reasonable medical expenses paid indefinitely.
  • A Seriously Injured worker may also choose to redeem their weekly payments for a lump sum.
  • Alternatively, a Seriously Injured worker may choose to access common law damages for economic loss only and sue their employer in negligence or other torts (including breach of statutory duty).

Seriously SA injured workers can now sue their own employer, in e.g. a labour hire situation, instead of having to sue the host employer only (under its public liability insurance). However, it seems unlikely that an injured worker will sue only its employer in these circumstances because the threshold is much higher and the damages are more limited than under the Civil Liability Act. They may choose to sue both the employer and the host employer, which already occurs quite regularly in Victoria, for example.

Often, there may be little to be gained by a Seriously Injured worker suing at common law at all, as they can now stay on weekly payments set at 80% of their pre injury earnings until retirement, or choose to redeem those payments for a lump sum. In electing to sue at common law (whether under the Return to Work Act or the Civil Liability Act) those weekly payment entitlements will be terminated on receipt of any award of economic loss damages. Additionally, Seriously Injured workers will still receive a lump sum permanent impairment payment under the Act (which can be much the same as a general damages assessment).

Importantly, the Workers Compensation Authority still retains its right to recovery pursuant to section 66 (7) against third parties (as it did under the previous section 54 (7)).
While Seriously Injured workers may not sue third parties as often, we may see an increase in recovery actions alone against host employers, subject to the Authority securing the co-operation of the injured worker.

Further, there may now be more common law claims by non-Seriously Injured workers against host employers, who have been cut-off from weekly payments at 104 weeks under the new Act. On the other hand, under the new Act non-Seriously Injured workers can receive a lump sum entitlement for loss of earning capacity if their WPI is between 5% and 29%, which is in addition to their weekly payments.

Lastly, in circumstances where the worker sues only a third party, that third party cannot seek contribution from the employer (section 66(4)).

[Source Hunt and Hunt Lawyers: http://www.hunthunt.com.au/news-and-publications/insurance/workers-compensation?&utm_source=Tikit&utm_medium=Update&utm_content=Insurance&utm_campaign=Insurance-Workers-Compensation ]



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2 Responses to “Redemption agreements under Return to Work SA”

  1. Also see:
    So you’ve accepted a Redemption for your WorkCover claim. What happens now?
    Published: 13/03/2014 2:15:07 PM

    A redemption (often referred to as a ‘pay-out’) finalises an injured worker’s entitlements to income maintenance and medical expenses related to a compensable injury or injuries. Typically, when a redemption payment is made, the worker will not be entitled to workers compensation (i.e. income maintenance and medical expenses) again in relation to the compensable injury covered by the redemption. If the worker obtains employment after the redemption and suffers a further work injury, it is possible to lodge a new claim for compensation but the entitlement to income maintenance may be reduced to take into account the redemption of income maintenance for the previous injury: see Topical Issue posted on 4 October 2013 at http://www.wcombudsmansa.com.au/TopicalIssues/Whateffectdoesapreviousredemptionhaveonweeklypayments.aspx .

    There are also a number of other matters that impact upon a redemption and can affect the value of a redemption pay-out to a worker.

    Before a binding agreement for a redemption can be made, subsections 42(2)(a) and 42(2)(b) of the Workers Rehabilitation and Compensation Act 1986 (the Act) require the worker to seek and receive professional and financial advice regarding the consequences of accepting the redemption. The compensating authority is required to cover the cost, up to a certain amount, of this advice. Topics that the professional and financial advice should cover include:

    Income Tax;
    Medicare;Centrelink;
    Future Medical Expenses;
    Termination from employment;
    Legal costs.

    Income Tax
    Redemption pay-outs are not usually subject to income tax but due to the special considerations that lump sum payments raise and the fact that each person’s personal financial situation is different, it is recommended that professional financial advice be obtained about the possibility of income tax being deducted from or payable on the pay-out. The Australian Taxation Office website also provides useful information.

    Medicare
    It is important to note that whenever a worker accepts a redemption for $5,000 or more, the compensating authority must advise Medicare about it and Medicare is required to recover money it has paid towards the medical expenses that relate to a compensable injury. The compensating authority is required to advise Medicare about the pay-out within 28 days from the date the redemption is formally agreed.

    A worker or representative should contact Medicare and make sure it has issued a notice specifying the amount it is owed before the terms and conditions of the redemption are negotiated. Usually, any amount Medicare has paid in treatment costs for the compensable injury is payable by the compensating authority either as a direct payment to Medicare or as a reimbursement to the worker after Medicare has recovered its costs from the pay-out. However, if this is not sorted out at the time the redemption is negotiated, the worker could have the Medicare costs deducted from the redemption pay-out but have no right of reimbursement from the compensating authority.

    The amount of benefits that relate to a person’s compensation claim and which Medicare may wish to recover is available from Medicare, which upon application will provide a Medicare schedule of benefits paid. This should be done before a redemption pay-out is agreed to.

    Alternatively, it is possible to agree to the Advance Payment option that permits the compensating authority to make an advance payment to Medicare equal to 10% of the total amount of the pay-out. The remaining 90% will be paid directly to the worker or representative, subject to any other statutory charges. Medicare will deduct what it is owed and refund the difference to the worker assuming that the deduction is less than the advance payment. Then depending on the terms of the redemption pay-out, it may be possible to recover from the compensating authority the amount deducted from the advance payment.

    Centrelink
    There are Centrelink implications that may be applicable to a worker who accepts a redemption. As a recipient of a redemption payment, a person may be excluded from applying for and receiving Centrelink payments. Centrelink have a waiting period for eligibility and this period can vary depending upon the amount received. Take note that if a section 43 lump sum for permanent impairment is paid whether before or at the same time as the redemption pay-out, the total of the section 43 and redemption payments is taken into account when calculating the waiting period.

    It should also be noted that Centrelink may seek to recover from the redemption payment any outstanding debts such as a loan or overpayment. To ascertain this amount, the worker or representative can access the Online Compensation Estimator at http://www.humanservices.gov.au/customer/enablers/centrelink/compensation-recovery/compensation-estimator (website correct at time of preparing this Topical Issue).

    Future Medical Expenses
    By accepting the redemption the entitlement to medical expenses as well as income maintenance for the compensable injury will cease. If a person has private health insurance, the insurer should be contacted before agreeing to the redemption payment to establish whether or not it will cover expenses relating to the work injury or any other injury, including any limits it may impose.

    In relation to Medicare, the worker might need to spend the amount of the medical expense component of the redemption pay-out on medical expenses relating to the compensable injury before Medicare can be accessed to cover future expenses.

    Termination from employment
    If, as part of accepting a redemption, a worker resigns from their employment, the worker is entitled to be paid out any outstanding paid leave entitlements by the employer. Some self-insured employers will require the worker to sign a Deed to accompany the redemption agreement. The terms of that deed need to be examined carefully. The deed will often seek to finalise a range of other possible claims such as claims for underpayment of wages, claims under anti-discrimination legislation and all civil claims.

    Legal Costs
    If a worker has legal representation leading up to the redemption pay-out, he or she should ensure that they have received written confirmation from the lawyer as to what costs will be recoverable from the compensating authority in addition to the redemption and what costs will be deducted from the pay-out. It is commonly the case that only a proportion of the legal costs will be recovered from the compensating authority and the balance is payable by the worker and this balance is usually deducted from the pay-out by the worker’s lawyer.

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  2. I was fasinated watching the circus on the advent of this new scheme. Offers for redemption packages were plentiful. The calculating of the package on my behalf was take it or nothing. Not acceptable. No one even looked at a calculator. I’m not sure if anyone could remember how to use it. All were very good at drawing figures out of thin air. With a defiant ” take it or nothing”. Now that’s what I call a one sided negotiation. I’m still curious on how government employees will fair in litigation against ” the government”. When negligence has been the cause of injury. That injury is physical but has its roots in psychological trauma. As is the case of the toxic workplace scenario. I’d like to hear how the government employees will be treated.

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