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This article was first published in the LexisNexis Employment Law Bulletin, Volume 31 Issue 8, 2026. Copyright © 2026 LexisNexis. All rights reserved.

Reforms to New South Wales (NSW) workers compensation which commenced on 1 July 2026 represent a seismic shift in the determination of workplace psycho-logical injuries. While most debate on the amendments focused on the introduction of more stringent eligibility requirements and compensation thresholds, an equally significant development received comparatively lessscrutiny: the new role of the Industrial Relations Commission (IRC) of NSW as a decision maker in workers’ compensation claims.

Since 1926, disputes concerning statutory workers compensation entitlements in NSW were determined exclusively within specialist compensation jurisdictions, including the Compensation Court, Workers Compensation Commission and more recently the Personal Injury Commission (PIC). Common law claims arising from a work injury could also proceed to the District Court of NSW, however only after statutory claims were made and specific injury thresholds agreed or determined. This is no longer the case.

This article examines the IRC’s emerging role as a “gatekeeper” within the workers compensation scheme in respect of psychological injuries, and the interpretive, practical and jurisprudential challenges likely to arise under the new provisions. The article also considers the broader implications of the regime for workers, employers, insurers and legal practitioners. The reforms therefore reflect more than a simple redistribution of jurisdiction. They represent a growing convergence between industrial relations and workers compensation systems that will require practitioners to adopt increasingly multidisciplinary approaches to workplace disputes.

The new psychological injury framework

To understand the significance of the IRC’s expanded role, it is first necessary to understand the structure of the reformed scheme in the following Acts:

• the Workers Compensation Legislation Amendments Act 2025 (NSW), enacted on 18 November by the NSW parliament;
• the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 (NSW), enacted on 4 February 2026 by the NSW Parliament; and
• the Workers Compensation Legislation Amendment Regulation 2026.

Distinguishing between traumatic event and relevant conduct leading to psychological injuries

The reforms distinguish between psychological injuries arising from a “traumatic event” and those resulting from “relevant conduct”. Whilst claims involving traumatic workplace events may continue through the workers compensation system (and the PIC) in a more conventional manner, disputes concerning relevant conduct now require separate determination within the IRC before a claim can proceed any further.

The concept of “relevant conduct” sits at the centre of the reforms. The legislation presently identifies four categories:

• bullying;
• sexual harassment;
•  racial harassment; and
• excessive work demands

No other circumstances beyond a traumatic event or a relevant conduct event can provide the factual basis to recover workers’ compensation benefits for a psychological injury. This is a dramatic change.

IRC’s new exclusive jurisdiction

Importantly, the IRC have exclusive jurisdiction to determine whether the alleged conduct occurred and whether it satisfies the legislative definition of “relevant employment law bulletin October 2026 107 conduct”, before the compensation dispute can proceed through the PIC.

In many cases, that determination will constitute the critical threshold issue upon which entitlement to workers’ compensation benefits depends. Put another way, if the IRC determines that the circumstances of a claimant’s injuries do not fall within a relevant conduct category, the claimant is prohibited from proceeding with their claim. The IRC therefore now occupies a role which extends beyond the traditional industrial sphere. The significance of this change should not be understated.

Regulations can expand “relevant conduct”

The legislation permits additional forms of conduct to be prescribed by regulation. This power has already been exercised, with a narrow additional category relating to a prescribed death in specified circumstances being added through the regulatory framework. The concept of a “relevant conduct” event remains capable of further expansion over time. Consideration of the “relevant conduct” categories some observations. At first glance, the categories within relevant conduct may appear familiar.

The Workers Compensation Legislation Amendment

Act 2025 (NSW) defines each of these terms and defines concepts within the definition itself. Practitioners should be cautious as the definitions within the workers compensation legislation do not necessarily align with equivalent definitions in Commonwealth or State anti-discrimination legislation, industrial or work health and safety legislation.

Bullying
The “bullying” definition requires repeated unreasonable behaviour.6 Whilst that concept has been judicially considered in a variety of workplace contexts, disputes are likely to emerge concerning what constitutes repeated behaviour. It is unclear what role existing precedents will play, noting they may span both industrial and
compensation jurisdictions. Unlike bullying or harassment, which have been extensively considered by courts and tribunals, the concept of excessive work demands involves a contextual assessment of workplace expectations, resourcing, organisational constraints and industry practice.

Excessive work demands
The legislation contemplates excessive work demands which exceed what may reasonably be expected of the worker’s role, are repeated or persistent, and are not reasonable in all the circumstances. Whilst on first impression the concept may appear narrow, the legislation details factors to be considered when determining an excessive work demand.

Arguably, this is the broadest of all relevant conduct categories and its limits are likely to be explored and tested within the IRC over coming months and years.

Questions likely to arise include:

• To what extent should industry norms inform the assessment?
• Can chronic understaffing justify elevated work- loads?
• How should demands be assessed in inherently high-pressure professions?
• What weight should be given to organisational restructuring, budgetary constraints or labour shortages?

SafeWork NSW, for example, has provided direction detailing a range of circumstances that may constitute excessive work demands:

•  too much to do in a set time or with insufficient workers and resources
• unachievable task deadlines, expectations or responsibilities
• unpredictable shifts, shift structures, hours of work or rosters that do not allow adequate time for workers to recover
•  frequent cognitively difficult work
• multiple tasks that require repeated rapid switching between each to complete them, so it is difficult to concentrate
• sustained or frequent exposure to emotionally distressing situations
• a requirement for workers to continually show false displays of emotion, for example customer service roles tasks or decisions that are safety critical and that may
  have a serious impact on the health and safety of workers and others.

Sexual harassment and racial harassment
Similarly, while the provisions concerning sexual harassment and racial harassment broadly reflect concepts found elsewhere in employment law, they do not always mirror definitions appearing in federal discrimination legislation. The possibility therefore exists that conduct may satisfy one statutory framework but not another.

For practitioners, these definitional uncertainties are likely to become a significant source of dispute.

Reasonable management action defence

The reforms strengthen the principle that employers must be able to undertake legitimate management functions without automatically incurring workers compensation liability, while maintaining access to compensation for workers who suffer psychological injuries within the prescribed categories.

In the Second Reading, Minister Cotsis opined that “the amendments will provide clarity to workers and employers on when the defence applies and will introduce a greater degree of objectivity in the application of the defence”.

IRC’s new role
The IRC is now the body required to determine not only whether relevant conduct occurred, but also, in appropriate cases, whether the impugned conduct formed part of reasonable management action taken in a reasonable manner.

The practical significance of this issue should not be underestimated. Historically, disputes concerning reasonable management action have generated substantial litigation within the workers compensation jurisdiction. The reforms effectively transfer important aspects of that factual debate into the industrial sphere.

“Reasonable”
When determining whether psychological injury falls within the reasonable action defence, the question of the employer’s reasonableness is assessed objectively, and is primarily a factual question. However, that did not displace the relevance of the worker’s perception of workplace events in establishing causation. The assessment was to be undertaken objectively but having regard to the circumstances known to the employer, or which could reasonably have been ascertained at the time the action was taken. Consistent with s 11A of the Workers Compensation Act 1987 (NSW) and the authorities, where a worker perceives actual workplace events as creating an offensive, hostile or distressing work environment and a psychological injury results, it is open to the Commission to conclude that causation has been established notwithstanding that the events may also be characterised as management action.

The amended legislation now appears to direct attention towards whether the management action was reasonable when assessed against the available evidence and the surrounding circumstances. Such an approach may reduce the significance of individual sensitivities or personal reactions, while placing greater emphasis upon matters such as procedural fairness, workplace policies, organisational requirements and the information avail- able to decision-makers at the time the action was taken.

The IRC will be charged with interpreting and defining the nature of reasonable management action. In particular, the new framework arguably seeks to provide a clearer and more structured methodology for evaluating management action as a workplace reality rather than through the lens of hindsight. Ultimately, the amendments’ effectiveness will depend on judicial interpretation of the new provisions.

Is existing case law relevant?
This begs the question of what comes of the continuing relevance of the substantial body of case law developed under the former provisions. Authorities addressing performance management, disciplinary processes, workplace investigations, restructures and return-to-work management have accumulated over many years within the workers compensation jurisdiction. It is unlikely that this body of jurisprudence will simply become irrelevant upon commencement of the reforms.

Many of the underlying principles concerning reasonableness, procedural fairness and managerial discretion remain highly persuasive. However, where the amended legislation introduces new statutory language or reflects a different legislative purpose, decision-makers may be required to exercise caution before importing principles developed under the previous legislative regime or other jurisdictions. The result is likely to be a transitional period in which parties contest the extent to which earlier authorities continue to guide the interpretation of the new provisions, creating fertile ground for appellate consideration and the development of fresh precedent.

Implication of these changes
Taken together, these changes suggest that reasonable management action will remain a central battleground in psychological injury litigation notwithstanding the introduction of the relevant conduct framework. Indeed, by transferring the determination of these issues to the IRC, the reforms may simply relocate longstanding legal controversies into a new jurisdiction. The early decisions of the Commission are therefore likely to assume particular significance, as practitioners and insurers seek guidance on the interaction between the expanded statutory framework, established workers compensation authority and the industrial character of the Commission’s new jurisdiction.

The IRC: specialist industrial tribunal or quasi-compensation gatekeeper?

Perhaps the most interesting jurisprudential question arising from the reforms concerns the implications of the IRC’s new function to determine whether specific conduct occurred. Historically, anti-bullying and workplace protection jurisdictions were primarily preventative; the objective was to stop conduct, preserve workplace relationships and manage future risks.

Although the IRC does not determine medical causation, incapacity, whole person impairment or compensation entitlements, its findings on relevant conduct and reasonable management action will conclusively determine the outcome of many claims. Whilst the IRC’s role employment law bulletin October 2026 109 is notionally limited to determining two discrete issues, it is nevertheless significant.

A determination that relevant conduct occurred effectively resolves a substantial component of the factual matrix upon which many potential remedies may rely. The findings of the IRC may have implications for other civil and industrial remedies and also for Work Health and Safety breaches.

The “one-stop shop” aspirations of the reforms

Legislative materials have repeatedly emphasized the search for an alignment between industrial relations, work health and safety and workers compensation systems. In the Second Reading Speech, Minister Cotsis stated: The bill is part of the Government’s roadmap to establish an innovative, end-to-end systems approach. This will align workers compensation, industrial relations and workplace health and safety to achieve better outcomes for the workers and employers of New South Wales.The reforms also appear to reflect a broader policy objective of consolidating workplace disputes within a specialist jurisdiction. This is evident in Minister Dib’s statement that the reforms would expand “the bullying and harassment jurisdiction in the NSW Industrial Relations Commission so workers can get an order to stop bullying before it causes the psychological injury”.

The reforms broadly reflect the position advocated by employer groups aggrieved by multiple overlapping proceedings, such as an industrial dispute and a workers compensation claim arising from a conduct event.

In practical terms, the IRC is now a “gateway” through which a substantial category of psychological injury claims must pass, and this has uniquely positioned it as a forum in which compensation and industrial rights, previously with different timeframes, different processes and different forums may now be considered simultaneously. Employers and insurers may increasingly seek to use IRC proceedings as a mechanism for obtaining early determinations concerning workplace conduct allegations. Such findings may then inform subsequent compensation disputes and potentially influence other forms of litigation arising from the same factual circumstances in the PIC, or other forums.

Employers and insurers may also use the IRC as a forum to explore early resolution of industrial and compensation rights. The prospect of a “one-stop shop” is attractive in theory, noting that in many instances the parties who are the subject of a relevant conduct dispute may have no realistic prospect of reconciling the dispute. In the context of often an emotive factual dispute, a durable and successful return to work may be unlikely. The IRC could prove to be a forum in which injured workers and employers have an opportunity to expeditiously resolve employment and compensation rights.

Whether this is practical or an approach considered by employers, insurers and injured workers remains unknown.

Access to justice

Workers may now be required to prosecute complex factually contested proceedings in the IRC before their substantive compensation rights can be determined in the PIC. This could require a worker to conduct two separate hearings in two jurisdictions arising from the same factual circumstances.

The Independent Review Office (IRO) will extend funding arrangements to certain IRC relevant conduct proceedings through the Independent Legal Assistance and Review Service scheme. While the availability of funding is welcome, many concerns remain.

Experienced practitioners will be aware that psychological injury matters often involve extensive witness evidence, large volumes of documentary material and protracted hearings. Conduct of a hearing within the IRC is a more substantive and formal process than within the PIC, and it is likely to require considerably more time and expense to prepare and run to hearing.

The prevailing view is that the IRO funding regime currently in place is inadequate, and it is likely many practitioners will not represent workers in relevant conduct disputes. High level concerns about self-represented litigants have also been raised. Access to legal representation may ultimately be a key determinant influencing whether injured workers can effectively agitate disputes for relevant conduct events.

Broader implications: looking beyond workers compensation

One of the unintended consequences of the reforms will be a far closer review of alternate causes of action arising from psychological injuries within the workplace. By way of example, a worker alleging bullying or harassment may simultaneously have potential claims or avenues for complaint including but not limited to:

• workers compensation;
• general protection and adverse action under the Fair Work Act 2009 (Cth) (FW Act);
• discrimination and harassment legislation; 110 employment law bulletin October 2026
• victimisation under the FW Act;
• employer work health and safety obligations;
• whistleblower protections and remedies; and
• common law causes of action.

This raises practical concerns for the profession. Industrial lawyers appearing in the IRC would not routinely advise upon workers compensation entitlements, impairment thresholds, work injury damages claims or other civil remedies.

Conversely, personal injury practitioners may not regularly advise or conduct adverse action, discrimination, unfair dismissal proceedings or other industrial remedies. The reforms increase the likelihood that practitioners will need to expand their knowledge beyond traditional discipline silos. A failure to identify alternative legal avenues may result in significant rights being overlooked and raises risk management concerns for lawyers.

In some instances, the most valuable claim available to an injured worker may not be a statutory workers compensation claim.

Conclusion

Relationship between workers compensation and industrial relations

The reforms have altered far more than the available circumstances and requirements for a compensable psychological injury; they have fundamentally reconfigured the jurisdictional relationship between workers’ compensation and industrial relations in NSW.

A fair, efficient system?
Whether the new model ultimately delivers greater consistency, efficiency and fairness remains to be seen.

Reshaping pathways for psychological injury claims
The most enduring legacy of the reforms may not be the tightening of eligibility criteria, but the gradual erosion of what were once clearly defined boundaries between industrial relations and workers compensation. In that evolving landscape, the IRC is no longer merely resolving industrial workplace disputes. It will play a critical role in reshaping the legal pathway through which psychological injury claims progress towards resolution and determination.

This article was published on 16 of October 2026 by Carroll & O’Dea Lawyers and is based on the relevant state of the law (legislation, regulations and case law) at that date for the jurisdiction in which it is published. Please note this article does not constitute legal advice. If you ever need legal advice or want to discuss a legal problem, please contact us to see if we can help. You can reach us on 1800 059 278 or via the Contact us page on our website. (www.codea.com.au). If you or a loved one has been injured, use our Personal injury Claim Check now.