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Stress claims produce mixed legal messages

Australia’s workers’ compensation schemes are grappling with a steady increase in the number and cost of stress claims brought by employees. In Victoria, for example, such claims represented 8% of all total workers’ compensation claims during 2001/2002, the last year for which statistics are available. This compared with 3.6% prior to 1992/1993. In New South Wales during 2002/2003, stress-related claims represented over one-third of all major claims for occupational disease.

Although stress claims make up only a small percentage of all workers’ compensation claims, they create significantly disproportionate costs for the community, employers and employees. For instance, the Commonwealth Government has revealed that the average cost of a psychological injury claim for a public sector employee is $109,000 whereas the average figure for a non-stress claim is $15,000.

The costs of stress claims are high because the stress claim regime is expensive and complex. Employees are often off work for long periods. Return-to-work initiatives are also more complex because employees may refuse to return until the alleged stress factors, which are often organisational issues such as the perceived attitudes of management or other employees, are removed from the workplace. In addition, the litigation arising from stress claims frequently traverses a range of different laws (including those relating to occupational health and safety, unfair/unlawful dismissal, workers’ compensation and discrimination) and can be difficult to settle.

Chris Maxwell QC’s recent review of Victoria's OHS legislation stated that the rise in stress claims across Australia is due to various factors, including increasing hours of work and the intensification of work due to a decline in resources, fewer staff, escalations in skills and responsibilities and increased accountability. Associated with this apparent epidemic in workplace stress has been a dramatic increase in the incidence of reports of workplace bullying which is estimated to cost industry as much as $3 billion a year.

When is stress compensable? Koelher v Cerebos and beyond…

Against this background is the recent High Court decision of Koehler v Cerebos (Australia) Limited which was reported in the June issue of Safety Watch. In this case, the court decided that an employee was not entitled to damages arising from her stress-related psychological injury (which was caused by her increased workload) because the injury was not foreseeable.

Koehler had accepted a part-time position with Cerebos as a merchandising representative after a restructure had made her full-time sales position redundant. Her new position involved three days’ work each week setting up supermarket displays in a large geographic area. Koehler complained that her territory was too big to cover in three days and asked that Cerebos reduce the number of stores she had to visit or increase her hours. She continued voicing her complaints orally and in writing but did not indicate that the job might be affecting her health. Koehler was subsequently diagnosed as having the psycho-physical disorder fibromyalgia and a depressive illness.

The High Court upheld the ruling by the Full Bench of the Western Australian Supreme Court that Cerebos could not have reasonably foreseen that Koehler’s duties would result in a psychiatric injury. It held that Koehler’s “agreement to undertake the work runs contrary to the contention that the employer ought reasonably to have appreciated that the performance of those tasks posed a risk to (her) psychiatric health.” In effect, the court said it was not prepared to take the step of saying “that all employers must now recognise that all employees are at a risk of psychiatric injury from stress at work.”

This decision raises important questions. In particular, would the court have found in Ms Koehler’s favour if her employer had been put on notice that she might be in danger of a psychological or psychiatric injury from her work? Further, if an employer is to be held liable in such circumstances, will this only occur when the employee identifies that they are at risk of injury or is it sufficient that they have complained of stress?

Employers should not take this decision as meaning that they can now ignore the risk of being held liable for workplace stress. Employers in industries susceptible to high stress should be particularly careful to ensure they have safe systems which address the possibility of their employees suffering psychological injuries. For example, in State of NSW v Coffey, the employee was awarded damages for his psychological injury because the employer failed in its duty of care to provide a safe system of work. The employee - the caretaker of Housing Commission flats - witnessed several murders and suicides and was subjected to abuse and threats from tenants. His requests for security screens were denied and, when he left his job, he was suffering post traumatic stress disorder and chronic dysthysmia.

In the recent case of Attorney General v Gilbert, the New Zealand Court of Appeal held that the Department of Corrections had breached a duty to a probation officer who resigned after coronary and psychiatric health problems had left him 90% disabled. In particular, the court found that there had been excessive workloads, understaffing and the Department had not acted on reports that identified this under-resourcing.

It is also important for employers to bear in mind that Koehler v Cerebos does not impact on their liability, or that of their insurers, in respect of stress-related workers’ compensation claims.

While legislation now exists in all States and Territories to limit the circumstances in which compensation for work-related stress is payable, the figures noted above demonstrate that those exemptions have neither stemmed the tide of stress claims nor reduced the cost of such claims on industry.

Generally speaking, work-related stress or psychological injury will not be compensated where it arises substantially, wholly or predominantly out of an employer’s reasonable decision to transfer, demote, discipline, retrench, dismiss, or performance appraise (in NSW and ACT) or counsel (in Tasmania or SA) a worker. Unfortunately, the courts have not always been consistent in interpreting these provisions, particularly in Queensland where Parliament has not defined “reasonable management action”. In some jurisdictions, such as Victoria and Western Australia, further questions are raised about whether or not “discipline” includes performance appraisal or counselling.

In spite of these exemptions from liability, stress claims arising from counseling and disciplinary action for poor performance are commonplace in every jurisdiction.

The High Court’s decision in Koehler v Cerebos must also be viewed against the expansion of the duties under our occupational health and safety regimes to cover psychological or stress-related hazards. These regimes were introduced in the 1980s primarily to address hazards and risks to “physical” health. Most recently, however, the Occupational Health and Safety Act 2004 in Victoria (which comes into effect on July 1) has explicitly extended the definition of “health” to include “psychological health”. This amendment seems to expressly acknowledge the employer’s duty to prevent bullying in the workplace as far as is reasonably practicable.

Where to from here?

It is incorrect for employers to interpret Koehler v Cerebus as limiting their liability for workplace-related stress. Clearly, countervailing trends suggest that employers face significant challenges in avoiding the cost of various types of claims by employees who allege that they have suffered psychological injury from the pressure of their work or by the conduct of their managers or colleagues. In designing systems for reducing occupational harm, the potential for stress-related injuries and the cost of stress-related claims, must be paramount, despite suggestions to the contrary in Koehler v Cerebos. Implementing safe systems of work which address and are responsive to the possibility of psychological injury will involve several steps.

The extent to which such injury is foreseeable will depend on many factors, including the employee’s actions and susceptibility to stress, the work environment and any management actions taken to counsel or otherwise deal with the employee. The fact that an employee may have agreed to perform the work is a significant factor in foreseability, but not a conclusive one.

Employers who do not properly address the possibility and/or incidence of stress in their workplace, do so at their own peril.