Navigating the Bermuda Triangle: Workers Compensation, Capacity and Terminating Employment

Led by Director Bill Pardy from the Employment Law & Investigations team, the August 2025 edition of the HR Breakfast Club addressed key employer obligations regarding terminating incapacitated workers, including considering incapacity due to both work-related causes (in the context of accepted workers compensation claims) and non-work-related causes. Below is a brief overview of what you need to know.

Employer’s Obligations in Workers Compensation Claims

There are several obligations for employers that must be complied with to avoid breaches of the Workers Compensation Act 1951 (ACT) . These include: 

• Employers must comply with reasonable obligations imposed under an injury management program or personal injury plan.
• Employers must provide suitable duties if available for a period of up to 6 months post-injury.

Intersection between Workers Compensation and Employment Capacity Issues

A certificate of capacity is considered a key communication tool for the medical practitioner, employer and employee and the starting point for considering capacity issues.  As an employer, this certificate provides guidance on what the employee’s capacity for work is and what issues need to be addressed as part of any return to work process.

Employers should continue to manage their employees through regular communication, contact and support. Further, the employee should be updated on any developments, such as temporary replacement or adjustments needed to facilitate a smooth return to work.

Where queries arise for employers about a certificate of capacity, and steps have been taken to attempt to resolve these queries, it may be appropriate to arrange an independent medical assessment.

Employers should be aware of several specific concerns in relation to psychological injury claims. These include that the definition of injury includes stress, and that the defence of ‘reasonable action’ by the employer is not often accepted by insurers. Additionally,  the costs for an employer of compiling evidence to support a denial of liability for a workers compensation claim should be kept in mind.

What to be Guided by when Considering Termination of Employment

When considering whether to terminate employment, employers must:

• Comply with anti-discrimination laws.
• Consider any limits on termination under the relevant WC legislation if applicable.
• Consider any limits on termination under the Fair Work Act and Fair Work Regulations including that dismissal cannot be enacted due to temporary absence caused by illness or injury.
• Apply the accepted return to work hierarchy in assessing whether the employee could perform an alternative role with the employer.

Further, if an employer does decide to terminate they should:

• Consider the employer’s WHS obligations and the realistic possibility of a durable, genuine return to work.
• Manage / eliminate uncertainty for the injured employee.
• Follow usual processes of communication and consultation.
• Prepare / obtain independent medical advice as to capacity if required.
• Advise the employee of the decision under consideration and allow for adequate time for an evidence-based response.
• Document all actions as they take place.
• Follow own policies and procedures.
• Allow employee appropriate supports.
• Keep the insurer’s claim team informed of decisions.

Closing Remarks

The session demonstrated the importance of maintaining control of the employment relationship and complying with all obligations when addressing capacity issues, as well as ensuring that both physical and psychological work health and safety considerations are adequately addressed.

About Us

If you are an HR professional and would like to attend our future HR Breakfast Club forums, please visit our monthly forum page and register to attend.

If you have any questions or queries about the information in this summary, or if you are experiencing any issues and need advice, please contact the award winning BAL Lawyers Employment & Investigations team on 02 6274 0999.