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.
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 ]