Workers’ compensation changes to affect contractual indemnities
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On 14 June 2016, the Queensland Parliament introduced the Workers’ Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 (Qld) (Bill).
The Bill is part of a broader social reform which includes the establishment of the National Injury Insurance Scheme for Queenslanders, to commence from 1 July 2016.
The Bill proposes to restore the original policy intent of the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (WCRA) and provide certainty to stakeholders after recent Court decisions have interpreted certain provisions of the WCRA in ways that could adversely affect the operation of the scheme.
If passed, the legislation will prevent employers from securing cover under their workers’ compensation insurance policies for contractual indemnities they have given to third parties for damages payable to workers. In the first reading speech for the Bill, the Minister for Employment and Industrial Relations said:
‘The Bill prevents the contractual transfer of liability for injury costs from principal contractors or host employers to employers with a workers’ compensation insurance policy such as subcontractors or labour hire employers and clarifies that an insurer will not be liable to indemnify an employer for a liability to pay damages incurred by a third party contractor under a contractual arrangement.’
The Amendments and indemnities
The relevant sections of the Bill that will impact contractual liabilities are:
- Clause 5: which proposes to amend the ‘Meaning of Damages’ in Section 10 of the WCRA to say:
‘(4) Further, a reference in subsection (1) to the liability of an employer does not include a liability to pay damages, for injury sustained by a worker, arising from an indemnity granted by the employer to another person for the other person’s legal liability to pay damages to the worker for the injury.’
- And Clause 31: which will amend Chapter 5 of the WCRA as follows:
‘236B Liability of contributors
(1) This section applies to an agreement between an employer and another person under which the employer indemnifies the other person for any legal liability of the person to pay damages for injury sustained by a worker.
(2) The agreement does not prevent the insurer from adding the other person as a contributor under section 278A in relation to the employer’s liability or the insurer’s liability for the worker’s injury.
(3) The agreement is void to the extent it provides for the employer, or has the effect of requiring the employer, to indemnify the other person for any contribution claim made by the insurer against the other person.
(4) In this section-
damages includes damages under a legal liability existing independently of this Act, whether or not within the meaning of section 10.’
These amendments will mean that WorkCover Queensland will only be liable to indemnify an employer to the extent of the employer’s legal liability to the worker for damages under the WCRA. So, if an employer agrees to indemnify another party for damages beyond its legal liability under the WCRA, the workers’ compensation policy will not extend to cover those damages.
The changes may result in some employers exposed to liabilities for which they hold no insurance. However, in many claims, the addition of Section 236B(3) will allow contribution claims to be made by WorkCover, with third parties constrained in their ability to enforce indemnities against employers. What is unclear from the Bill and the WCRA, is whether an employer could secure cover for their liability to indemnify another party for ‘compensation’ under the WCRA (as opposed to ‘damages’). Also, the new Section 236B(3) may not operate to defeat actions in contract against employers by third parties (e.g. for breach of warranty or, for breach of an obligation to insure).
The industries that are most likely to be affected by the changes include: construction; mining; resources; and, transport. With these amendments, and the extension of the unfair contract terms regime to small businesses later this year, employers may wish to consider updating their service agreements to limit the risks to their business and follow current developments in the law.
The changes may see a rise in the number of employers requiring independent legal representation in common law claims. An employer who has agreed to indemnify another party may require independent legal advice about their contractual obligations, rights under the WCRA, the worker’s entitlements to damages under multiple regimes, apportionment and costs.
BOOK A FREE CONSULTATION for advice and information about a workers’ compensation or contractual indemnity dispute, by calling (07) 3067 3025 or contact us online.