In Willis’ 2025 D&O Survey, Health and Safety was identified as the top risk. When asked why health and safety issues are important, survey respondents confirmed that while traditional physical health and safety remains the dominant concern (43%), there was a growing recognition of mental health and wellbeing as a critical aspect to health and safety (40%).
Willis has observed a trend of rising reports of workplace bullying, harassment, heightened demands and stress.
Willis has observed a trend of rising reports of workplace bullying, harassment, heightened demands and stress and as result, we expect to see continued increases in psychosocial claims. Notably, regulators are also showing interest in investigating psychological harm in the workplace.
In this article we dive into psychosocial risks in the workplace, current proposed NSW changes to the workers compensation regime, and broader organisational risks and insurance implications.
What are psychosocial hazards?
A psychosocial hazard is anything that could cause harm someone’s mental health.
Safe Work Australia provide the following as common workplace examples of psychosocial hazards:
- job demands
- low job control
- poor support
- lack of role clarity
- poor organisational change management
- inadequate reward and recognition
- poor organisational justice
- traumatic events or material
- remote or isolated work
- poor physical environment
- violence and aggression
- bullying
- harassment, including sexual and gender-based harassment
- conflict or poor workplace relationships and interactions
The right to disconnect
Legislative reforms were introduced in 2023 and 2024 including the Fair Work Legislation Amendment (Closing Loopholes No. 1 and No. 2), which brought in the right to disconnect. The right to disconnect is the right of an employee to refuse to monitor, read or respond to contact from their employer outside their usual working hours, unless doing so is unreasonable. This right protects employees’ mental health by allowing them to disconnect from work.
Whether the refusal is unreasonable depend on a range of factors, such as the reason for the contact, the method of contact, the type of role and level of responsibility of the employee and their personal circumstances.
This right protects employees’ mental health by allowing them to disconnect from work.
Disputes about what is an unreasonable refusal can be referred to the Fair Work Commission (FWC) which has the power to make an order preventing an employer from taking disciplinary or other adverse action, or preventing an employer from continuing to require the employee to monitor, read or respond to out-of-hours contact. A breach of an order may result in civil penalty.
The right to disconnect is a workplace right and breach of this creates a risk of general protections (adverse action), unfair dismissal, breach of contract or workers compensation claims. This highlights the increasing importance of monitoring and managing psychosocial risks in the workplace.
The first public example of legal action citing the right to disconnect has been seen in a case where a primary school teacher is suing her former employer for almost $800,000 in respect of alleged unfair dismissal for failing to respond to emails during school holidays, when she was not required to work. The teacher has accused the school of taking adverse action against her because she exercised her right to disconnect.
Draft Workers Compensation Legislation Amendment Bill 2025
On 27 May 2025 the Workers Compensation Legislation Amendment Bill 2025 was introduced to NSW Parliament. The Bill proposes amendments to the workers’ compensation legislation to implement reforms aimed at addressing the increasing costs associated with psychological injury claims. The Bill remains in draft form and has been referred to the Public Accountability and Works Committee for further enquiry. Willis’ Workplace Risk experts can you provide you with updates on developments.
There are significant proposed changes including:
- A psychological injury will only be compensable if it arises from a defined ‘relevant event’, such as bullying, harassment, vicarious trauma, or exposure to violence, and employment is the main contributing factor.
- The inclusion of ‘excessive work demands’ as a ‘relevant event’ and therefore a compensable cause of psychological injury.
- An expedited 42-day assessment process for psychological injury claims arising from bullying, racial or sexual harassment, and excessive work demands, which allows such claims to proceed more quickly and with fewer barriers.
- A new definition of ‘reasonable management action’ which excludes compensation for psychological injuries arising from management action that is ‘reasonable in all the circumstances’ and taken in a reasonable way.
- New provisions allow workers with a primary psychological injury arising from a defined relevant event to access reasonably necessary medical treatment for up to one year, depending on impairment level and weekly payment status.
- The required impairment threshold for a psychological injury will increase from 15% to 31% before a worker will be entitled to receive a lump sum payment under the scheme.
Under these amendments employees will face a faster and, in some ways, broader pathway for psychological injury claims.
Under these amendments employees will face a faster and, in some ways, broader pathway for psychological injury claims, particularly where defined relevant events are involved. However, overall eligibility criteria will be tighter than under the current scheme.
Organisational risks through other forums such as general protections claims and other FWC applications, as well as enforcement action the WHS regulator, continue to exist and depending on the circumstances, may be the preferred forum for claimants.
How you can mitigate risk
In a decision of the High Court it was found that:
- employers have a duty to take proactive measures to reduce risk of psychiatric injury.
- evident signs of harm require prompt intervention such as counselling or psychological screening.
- there is no distinction between an employer’s legal obligation with respect to psychological and physical risks to health and safety.
The emphasis is on how well organisations handle psychosocial risk during internal processes, including complaints management, employee support, and how procedurally sound the actions taken are.
Steps you can take to mitigate risk include:
- training to identify and manage early warning signs of work-related stress or conflict;
- proactive management of mental health risks such as providing employees with access to counselling;
- have a policy in place which addresses how risks are identified and managed, and ensure the process is adhered to;
- embed psychosocial risk into risk registers and governance reporting; and
- be ready to demonstrate your approach to a regulator if asked.
Employers who can demonstrate a proactive and integrated risk management approach in relation to psychosocial hazards will be in the best position to address and minimise employee related claims and absences, and any regulatory scrutiny. Importantly, effective risk management of psychosocial hazards can minimise disruption to a business.
Insurance implications
It is important to review the specific terms of your policies to understand the extent of coverage. The risk of psychosocial claims is expected to rise, and it is critical that your insurance program adequately affords protection against such liability.
Statutory Liability
Statutory Liability insurance is an important consideration as we are seeing an increase in regulator interest in the area of psychosocial injury. A comprehensive Statutory Liability policy can provide cover for civil and criminal fines and penalties arising from a statutory breach, and cover for internal and/or regulatory investigations may also be available. A Statutory Liability policy will not cover any claims for compensation.
Employment Practices Liability (EPL)
EPL policies provide cover claims for compensation by employees for actual or alleged wrongdoing in connection with psychosocial hazards and provide cover for defence costs. An EPL policy does not commonly cover fines or penalties, mitigation or regulatory investigation.
The proposed workers compensation reforms may heighten employee awareness of their workplace rights which, combined with an active litigation landscape, may lead to an increase in EPL claims. We expect to see an increase in allegations for harassment and bullying as litigators look for deeper pockets outside of statutory entitlements.
Directors & Officers Liability (D&O)
A comprehensive D&O policy can cover individuals against claims for compensation, defence costs and civil fines. However, a D&O policy will not cover fines and penalties that are uninsurable at law (see our discussion on insurability here), and this may include criminal fines or penalties. D&O policies with early triggers may also afford coverage for internal investigations, as well as formal regulatory investigations. Under a D&O policy insurers often offer mitigation cover on request, but the cover would be limited to individuals only.
ASIC has vocalised its view that company culture, including frequency of sexual harassment, may be indicative of corporate compliance. It is possible that the volume of psychosocial claims may also attract the attention and scrutiny of the corporate regulator.
Employers should assume that matters involving psychosocial hazards like bullying, harassment, or excessive workload could become compensable claims, and that those claims may progress quickly. The above policy classes are claims made and notified policies, meaning to receive cover for a claim made during a policy period you must notify during that period.
There are two types of notifications that can be made:
Claim Notification
This is when a claim has been made against you that will trigger the insuring clause of your policy. ‘Claim’ will be defined in your policy but commonly includes a claim for compensation made by way of a formal letter of demand, the commencement of legal proceedings, or a verbal threat of a claim. It is important to notify immediately when a claim is made as often under the policy insurers will have the right to conduct the defence of the claim and will appoint their panel lawyers to defend the claim on your behalf. Early notification will also ensure appropriate steps are taken to protect your rights and mitigate the potential extent of any loss.
Circumstance Notification
Statutory provisions prevent an insurer from denying a claim on the basis that the claim was made after the policy expired, if the insurer received notice of a circumstance that might give rise to that claim before the expiry of the policy period. If you do not notify a circumstance, there is a risk that a subsequent claim may be declined.
A circumstance is any situation which creates a reasonable possibility that a claim could arise. You do not need to believe the claim has merit, just that there is potential for a claim to be brought. It is important to understand when something is a business-as-usual employee matter, and when it is a circumstance to be notified. For circumstance notifications, you should consider what claim could arise and by who.
In a recent example a WHS manager reported their employer to the regulator, specifically in relation to inappropriate workplace conditions and the failure to implement processes to manage psychosocial hazards. The regulator subsequently commenced an investigation into those issues. The regulatory investigation was notified under that employer’s Statutory Liability policy, and additionally a circumstance notification was provided to their EPL insurer to preserve that employer’s rights in the event that an EPL claim is made.
Our experienced claims team is available to assist with reviewing circumstances and determining whether something merits notification.
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