April 2007

Workers compensation: High Court decision on employer's obligations & the Comcare Scheme

In this bulletin we look at a decision of the High Court that may have a significant impact on employers and insurers and employer’s obligations to take out ‘State insurance’.

Attorney General of Victoria and the Minister for Employment and Workplace Relations

On 1 November 2004, Optus was granted a licence under Part VIII of the Safety Rehabilitation and Compensation Act 1998 (Cth) (the Act) to join the Comcare Workers Compensation Scheme on the basis it was an eligible corporation within the meaning of the Act. Optus became a ‘self-insurer’ within the meaning of the Comcare scheme such that its liability to pay workers compensation was governed by the Comcare scheme rather than ’the scheme of State insurance’.

Optus’ rationale for obtaining a Comcare licence was two-fold. Firstly, its premium would reduce by an estimated $186,000 per month and, secondly, it would be on a ‘level-playing field’ with its competitor, Telstra, who was also licensed under Comcare (Optus was granted its licence because of this very reason, namely it carries on business in competition with a Commonwealth Authority, Telstra).

The Victorian Government challenged the granting of a licence to Optus and argued the granting of a licence was an invalid exercise of power under section 51(xiv) of the Constitution in that the Commonwealth was making laws with respect to State insurance, which it was not empowered to do.

Section 51(xiv) empowers the Commonwealth to make laws with respect to:

"Insurance, other than State insurance; also State insurance extending beyond the limits of the State concerned".

The State also submitted the Commonwealth was restricting and altering the obligation of Optus to take out State insurance.

The Federal Minister said the exercise of power was valid and in accordance with section 51(xx) of the Constitution, namely the corporations power.

Due to the significant ramifications for the viability of State insurance schemes, New South Wales, South Australia and Western Australia intervened in the proceedings.

Decision

The High Court, by a 5-2 majority, held the Act was valid and did nothing more than create a scheme which applied to Commonwealth Authorities and certain eligible corporations of which Optus was one. It did ‘not prohibit the conduct of State insurance’ nor ‘impair the capacity of Victoria to conduct State insurance. They do not invade the area of protection given by the proviso to paragraph (xiv)".

Justices Gummow, Hayne, Heydon and Crennan said:

"As Fullagar J put it in Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd, ‘the whole relation of insurer and insured’ is within the scope of the Federal Legislative power. However, the licensing provisions leave Optus at liberty to decide whether to take out insurance, and, if so, on what terms, or to remain a ‘self-insurer’. They do not touch and concern insurance in any more than an incidental fashion. Still less do the licensing provisions touch and concern ‘State insurance’ as must be made good if the appeal is to succeed".

The Court also determined that the State law requiring Optus to meet its liability under the State scheme altered, impaired or detracted from the Federal scheme such that the State law was invalid to the extent of its inconsistency with Commonwealth law under to section 109 of the Constitution.

Implications of the decision

This decision clears the way for large employers which carry on business in competition with a Commonwealth Authority, or businesses that were once a Commonwealth Authority, to apply to join the Comcare scheme. Depending on the number of employers who seek to move to the Comcare scheme the effect this decision has on State schemes could be far reaching, particularly the loss of funding from those employers who move to Comcare.

It is possible the States may consider legislating exit arrangements to make up for the loss of funding from employers moving away from the States. This decision suggests this may not be permitted. State schemes may seek to increase premiums for those who remain with the States to make up for the loss of funds. This latter course of action could lead to an exodus away from the scheme by employers eligible to apply to Comcare.

There are also implications in the area of occupational health and safety. The Commonwealth Occupational Health & Safety Act defines an employer as a body corporate for which a licence under Part VIII of the Act is in force. Section 4 of the Commonwealth Occupational Health & Safety Act indicates that Act applies to employers, as defined, to the exclusion of a law of a State or Territory that would usually apply to an employer’s occupational health or safety obligations.

The effect of this is that Optus, in being granted a licence under Part VIII of the Act, is now subject to one set of OH&S rules, namely the Commonwealth Occupational Health & Safety Act. That is, subject to the Commonwealth Act applying to every eventuality. Where the Commonwealth Occupational Health & Safety Act does not apply, the State or Territory laws still apply.

The benefit to Optus, and any other large employer willing to join the Comcare scheme, is the ‘flow on’ effect insofar as it streamlines its OH&S obligations into one system rather than being subject to varying OH&S laws in each individual State that it operates.

The reality of this decision is that there is little the States can do to prevent eligible employers seeking to opt out of State schemes and move to Comcare. This case suggests that if an employer can satisfy the Federal Minister for Employment and Workplace Relations that it is an eligible corporation then the States may be powerless to do anything to stop that employer taking out a self-insurance licence under Comcare.

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