What Do I Need To Know About Workers Compensation Redemption Payments?

TGB’s Mal Byrne on what an injured worker needs to know about negotiating lump sum compensation in South Australia.

In South Australia, Sections 53 and 54 of the Return to Work Act 2014 permit an injured worker and the compensation authority (Return to Work SA or a self-insured employer) to enter into an agreement where the compensating authority pays the worker a lump sum payment on the basis that the worker forgoes his/her ongoing entitlement to weekly payments and medical expenses.

The Act allows the compensating authority and the worker to redeem by way of a payment to the worker the liability to make both weekly payments and/or medical expenses. A worker cannot accept a redemption without receiving competent professional advice from a lawyer about the consequences, competent financial advice about the investment or use of the money, certification from his/her doctor that the extent of his/her incapacity can be determined with a reasonable degree of confidence.

Please note that a redemption payment is not the same as a Section 58 lump sum payment for permanent impairment (formerly Section 43 payment) which a worker can negotiate and stay on the system.

If Return to Work SA or a self-insured employer approaches you and offers you a redemption payment or invites you to enter into negotiations to obtain a redemption payment, you should seek legal advice. My experience is that workers who try and negotiate redemption payments themselves inevitably negotiate a low figure. If you negotiate a redemption payment and then seek professional advice from a lawyer about the redemption payment, the lawyer is not bound to let you know whether or not he or she thinks that the payment is fair.

The Full Bench decision of Mericka [2012] SA WCT 42 sets out that the lawyer’s minimum duty is only to provide the worker with advice on the consequences of accepting a redemption and not whether the worker is getting a fair deal. Hence, if you want to be sure that you are getting a fair deal when negotiating a redemption payment, instruct a lawyer before the redemption is negotiated.

The important things that all workers need to be aware of when accepting redemption payment are as follows:

1. That the payment finalises all entitlements to income maintenance and medical expenses arising out of the particular claim. Usually the redemption agreement will set out all past claims no matter how minor. The plan is that when a redemption payment is made that the worker will not be entitled to workers compensation again unless the worker obtains further employment with a new employer and suffers a further work injury;

2. Pursuant to the legislation, the worker may be deemed to be receiving a set amount in weekly payments for a set period or until age 65 by accepting the redemption even though those payments will not be made. This has the potential to impact on your weekly income maintenance entitlement if you suffer a future work injury;

3. As the redemption will finalise your entitlement to medical expenses, you should contact your private health insurer before signing off on the redemption payment to check whether the insurer will cover expenses relating to both the work injury and any other injury and to what extent;

4. If you accept a redemption payment, this does not mean you can immediately go on Centrelink payments if you cannot obtain work. There will be a Centrelink preclusion or waiting period. The preclusion period is calculated by dividing the total payment into two then dividing the answer by the average weekly wage which then gives an answer in weeks for the waiting period for Centrelink benefits. If you have received or are also receiving a Section 58/43 payment, the quantum of that payment can be added to the redemption payment when calculating the preclusion period. You should also note that if you have any outstanding debts to Centrelink such as a loan or overpayment, these will also be recovered from your redemption payment;

5. As of 1 July 2016, the taxation position on redemption is uncertain. Prior to the new financial year, they were not taxable but the Commissioner will be issuing a ruling soon that may change that position;

6. If you are resigning your employment which is often the case with self-insured employers, you will be entitled to claim your outstanding paid leave entitlements.  Some exempt employers will require the worker to sign a Deed of Separation to accompany the redemption agreement. The terms of that deed need to be examined carefully. The deed not often only precludes future workers compensation claims, but future claims of any type including claims for underpayment of entitlements, claims under the Equal Opportunity Act and all civil claims.

7. Before anyone receives a lump sum compensation payment, Medicare has to be paid back any money it has contributed towards that person’s medical expenses relating to the compensable injury. If you instruct a lawyer, your lawyer can contact Medicare and make sure that Medicare has issued a notice specifying the amount it is owed before your redemption has been negotiated which ensures that the amount owing to Medicare is paid by Return to Work SA/self-insured employer as part of the deal instead of that money being deducted from your lump sum after the deal is done.

So, if you are an injured worker on full or partial weekly payments and approached by your employer or a Return to Work SA case manager to negotiate a redemption, instruct a lawyer.

If you have recently been offered a redemption, or need workers compensation advice, contact your nearest TGB office or register online for a free initial interview.