S18 of the Return to Work Act – The story so far?

23 February 2016

The Return to Work Act 2014 (the Act) came into effect 1 July 2015.

Section 18 of the Act provides that the employer of a worker who has been incapacitated due to a work injury must provide suitable employment to that worker unless it is not reasonably practicable to do so.

The first of a number of cases concerning the interpretation of aspects of section 18 has been heard. The case was Walmsley v Crown Equipment Pty Ltd and Return to Work Corporation of South Australia.

The worker Walmsley was employed by Crown Equipment Pty Ltd a registered employer (not a self-insured employer). The worker had during the course of his employment with the employer suffered a number of injuries culminating, according to the employer in some 776 days ‘on workers compensation’.

The worker was dismissed from his employment and made an application pursuant to the Fair Work Act 2009.  His application was out of time and an extension of time was not granted.

Having been incapacitated as a result of injuries when employed by the employer he then sought to invoke section 18 of the Act and demand the employer provide ‘suitable employment’.

The employer refused the demand on a number of bases. First, it was argued that section 18 was inconsistent with provisions of the Fair Work Act 2009 which dealt with unfair dismissal and reinstatement. It was argued that pursuant to section 109 of the Commonwealth Constitution section 18 could not prevail. This argument resulted in the intervention of the State Solicitor General who submitted the State and Commonwealth laws were not inconsistent and therefore section 109 was inapplicable.

Second, the employer argued it was not reasonably practicable to provide suitable duties to the worker. Summarily, it was submitted:

  • The worker was ‘fragile’ and at real risk of re-injuring himself as he had in the past in (according to the employer) innocuous circumstances;
  • The worker had shown a previous proclivity to breach safety obligations exposing himself and fellow workers to injury and exposing the employer and principals of the employer to work health and safety prosecution;
  • The worker’s nominated ‘suitable employment’ was incompatible with his capacity, skill set and experience;
  • Re-employment of the worker in a shrinking labour market would result in the employer having to make redundant a current employee. The employer referred to a 10% reduction in its workforce; and
  • It could not be reasonably practicable to re-employ a worker whose employment had been terminated.

Third, section 18 applied only to an existing employment relationship and didn’t envisage a return to work when the employment relationship had ceased.

The South Australian Employment Tribunal has reserved its decision.

Further cases are to be litigated with a focus on ‘suitable employment’ and whether it is or is not reasonably practicable to make ‘suitable employment’ available.

The obligation to provide suitable employment is likely be more onerous the larger and more diverse the employer. Consequently larger employers may find it difficult to break the employment relationship. A worker who has been incapacitated for the maximum period to receive income maintenance (excepting seriously injured workers) may request suitable employment and if suffering injury when performing suitable employment there is the potential for a new claim and new entitlements.

In the past, self-insured employers and workers often resolved ongoing workers compensation claims by the employer paying to the worker a lump sum on redemption of the worker’s entitlements to income maintenance and medical expenses. As the entitlement to income maintenance was to ‘retirement age’ the Australian Taxation Office treated redemptions of income maintenance and medical expenses as payments of capital which were not taxable. Now that the entitlement to income maintenance is two years (except seriously injured workers) there is a concern that the Australian Taxation Office will rule that any lump sum redemption is not capital and is therefore taxable.

If redemption payments are to be taxed it is likely that employers will need to increase payments to achieve an agreement with workers.

The Law Society of South Australia is currently in discussion with the ATO advocating for lump sum redemptions to remain classified as capital.

This article was written by David Johns, Partner.

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