In our June newsletter we reported on the Workers' Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 ('Bill') which among other changes, sought to remove obligations on WorkCover Queensland to indemnify employers for contractually assumed risk. Since then the Bill has been passed, in part. This newsletter looks at what's changed and the likely effect.
On 31 August 2016 the Workers' Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Bill ('Bill') was passed, in part, by the Queensland Parliament. The subsequent amendments to the Workers' Compensation & Rehabilitation Act were proclaimed earlier today.
One of the key objectives of the Bill was to reverse the effect of the decision in Byrne v People Resourcing (Qld) Pty Ltd & Anor  QSC 269 which required WorkCover Queensland to indemnify employers for valid contractual indemnities they had given. The case of Byrne related to a valid contractual indemnity provided by a labour hire employer to the host employer and the decision held WorkCover Queensland was required to indemnify the labour hire employer for the liability of the host employer which it had assumed under a contract.
The proposed restrictions on Byrne indemnity scenarios - whether arising in a labour hire / host employer, principal contractor / subcontractor context or any other commercial relationship - focussed on 3 prominent changes to the Workers' Compensation & Rehabilitation Act 2003 (Act).
- Firstly, restricting the term 'damages' under the Act to exclude 'a liability to pay damages, for injury sustained by a worker, arising from an indemnity granted by the employer to another person'.
- Secondly, addressing the liability of contributors so that:
- where an employer had provided an indemnity to another person, WorkCover was still able to add the other party to the claim as a contributor; and
- making the agreement or contractual indemnity void to the extent that it required an employer to then indemnify that party for the contribution claim.
- Finally, ensuring the provisions apply to claims for damages retrospectively. That is, to claims commenced before the amendments if a settlement for damages has not been agreed and a Court has not started a hearing or proceedings for the claim. Effectively meaning that only those matters that had been resolved but were waiting for finalisation or where a trial had commenced would escape the proposed legislative changes.
Unfortunately, the proposed changes to the definition of 'damages' to specifically exclude contractual indemnities, as detailed at point 1 above, were not accepted. There is no doubt this was a key provision and would have provided certainty with respect to the issues – WorkCover Queensland would not be required to indemnify employers for their assumed contractual risk.
However, the effect of the new provision under section 236B of the Act which deals with the liability of contributors and voids any agreement between an employer and a third party (ie. host employer, principal contractor, supplier etc) to the extent that it requires the employer to indemnify that party for a contribution claim when made by an insurer against the other person will have a similar outcome. In effect, cutting off a Byrne-style argument at the onset, because the contractual indemnity will be held void and in Byrne it was assumed the contractual indemnity was effective.
WHAT DO I DO WITH MY INDEMNITY CLAUSE?
As a result of these amendments, if a company is currently the beneficiary of an indemnity under a contract, that indemnity clause will be of no force and effect as a result of the insertion of Section 236B into the Act. Such employers should ensure that they retain insurance cover for their own liability at common law for the injury. Conversely, if an employer is the subject of an indemnity clause, likewise their liability will be limited to their normal common law liability for which they hold a policy of insurance with WorkCover Queensland.
The question remains however as to what effect (if any) section 236B will have on other clauses of the contract, such as the normal clause requiring the contractor to take out insurance in favour of the Principal. A failure to take out such insurance may amount to a breach of contract, requiring the contractor (employer) to in effect, indemnify the Principal for any such damages payable to a worker. This claim for breach of contract would also arguably fall under the ambit of Section 236B (3) and therefore be void.
There is little doubt the amendments will be the subject of substantial judicial scrutiny over the coming months. In the meantime, both contractors and principals would be well advised to make sure they have appropriate insurance coverage, without reliance on contractual terms to shift that liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.