Psychosocial Hazards at Work: The Legal Risk Every Manager Is Ignoring

White Paper · People & Precedent

Psychosocial Hazards at Work: The Legal Risk Every Manager Is Ignoring

By Vrushali Suvarna

HR Specialist | ER/IR Practitioner | Founder, HRWise.com.au | May 2026

Abstract

Psychological injury claims in Australia reached 17,600 in 2023–24 - a 161% increase over ten years. These claims now account for 12% of all serious workers' compensation filings but 38% of total cost. The average NSW psychological injury claim costs $288,542. In December 2025, an Australian employer was convicted and fined $188,000 for failing to manage psychosocial hazards arising from a performance management process. In September 2025, SafeWork NSW issued a prohibition notice halting a major university restructure. Every Australian jurisdiction now requires employers to explicitly identify, assess, and control psychosocial hazards using the same hierarchy of controls applied to physical risks. This paper explains what has changed, why the exposure is greater than most HR practitioners and managers realise, and provides a practical framework for compliance.

1. A Manager's Blind Spot

Picture this. A mid-level manager is dealing with a persistent performance issue. They've been patient - months of informal conversations, a formal warning, and now a structured performance improvement plan. By every HR process measure, the manager has done the right thing.

What they haven't asked - what nobody has asked - is: what is this process doing to this person's psychological health?

Under Australian law as it stands in 2026, that question is not optional. It is a work health and safety obligation. And the consequences of getting it wrong have moved well beyond improvement notices and policy rewrites. They now include criminal convictions, six-figure fines, and regulators with the power to stop a business process in its tracks.

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Psychological claims now make up 12% of total workers' compensation claims, but 38% of the total cost. The average cost of a psychological injury claim has increased from $146,000 in 2019–20 to $288,542 in 2024–25.

Psychosocial hazards are not new. The duty to protect workers' psychological health has existed under section 19 of the Work Health and Safety Act for years. What is new is the regulatory and enforcement architecture surrounding that duty - and the clear message from courts, regulators and legislators that the era of treating psychological safety as a soft HR matter is over.

This paper sets out what psychosocial hazards are, what the law now explicitly requires, where enforcement is heading, and the practical steps that HR practitioners and managers need to take now.

2. The Scale of the Problem

The data tells a story of sustained, accelerating growth in a category of workplace harm that did not feature prominently in safety conversations a decade ago.

17,600

serious psychological injury claims

Source: Safe Work Australia, 2023–24

161%

increase over ten years

Largest growth of any injury category

35.7 wks

average time off work

vs 7.2 wks for physical injury

$1B+

annual compensation cost

Crossed 5 years ahead of projections

These numbers represent the tip of a much larger iceberg. The direct compensation costs captured by Safe Work Australia's statistics do not include management time, legal fees, lost productivity, team disruption, or the reputational consequences of a high-profile prosecution. They also do not capture the claims that are managed, settled, or withdrawn before reaching the formal statistics.

The NSW Government's own actuarial modelling, released in 2025, warned that iCare - the state's workers' compensation insurer - expects an additional 80,000 psychological injury claims over the next five years if current trends continue. Treasury modelling flagged the system could require an additional $1 billion per year in funding if legislative reforms are not made.

The CEDA (Committee for Economic Development of Australia) had projected in 2021 that mental health claims would reach 20,000 and cost $1 billion by 2030. We hit both figures five years early.

To place the employer cost in direct perspective: in NSW, the median compensation paid for a psychological injury is $67,400 - compared to $16,300 for physical injuries. Workers with psychological injuries are off work for an average of 35.7 weeks - almost five times longer than other serious claims.

3. What the Law Now Requires: A National Shift

The general duty to protect psychological health has always existed under section 19 of the model WHS Act. What has fundamentally changed since 2022 is the specificity, enforceability, and geographic reach of that obligation.

3.1 The National Regulatory Shift

As of 1 December 2025, with the commencement of Victoria's Occupational Health and Safety (Psychological Health) Regulations 2025, every Australian state and territory now has explicit regulatory obligations for psychosocial hazard management. This completes a national shift that began with Safe Work Australia's model WHS Regulations and Code of Practice in 2022.

3.2 What 'Managing Psychosocial Hazards' Actually Means

The model Code of Practice identifies fourteen categories of psychosocial hazard. These are not abstract concepts - they are identifiable features of how work is designed and managed:

Work design hazards

• High or low job demands
• Low job control or autonomy
• Poor role clarity or role conflict
• Poor organisational change management
• Remote or isolated work
• Fatigue / excessive hours
• Job insecurity (Commonwealth Code)

Interpersonal & organisational hazards

• Bullying, harassment, sexual harassment
• Poor workplace relationships / conflict
• Lack of support from managers or peers
• Poor organisational justice
• Traumatic events or material exposure
• Low recognition and reward
• Intrusive surveillance (Commonwealth Code)

The critical legal development for 2025–26 is the mandatory application of the hierarchy of controls to psychosocial hazards. Previously, employers had significant discretion in how they responded to psychological risks. NSW's WHS Regulation 2025 and Victoria's Psychological Health Regulations 2025 both now require employers to work through the hierarchy - elimination first, then substitution, engineering and administrative controls, and finally individual-level interventions.

4. Enforcement Has Arrived: Two Cases Every HR Professional Must Know

The shift from regulatory guidance to active enforcement is no longer theoretical. Two events in 2025 define the new reality.

4.1 Department of Defence - Conviction for Performance Management (December 2025)

On 19 December 2025, a NSW Local Court handed down what has been described as a landmark conviction - the first of a Commonwealth employer in Australia for failing to manage psychosocial risks arising from a performance management process.

The facts are both specific and broadly instructive. The Department of Defence was charged under sections 19 and 33 of the Commonwealth WHS Act in connection with the death of a 34-year-old Royal Australian Air Force Technician who had been placed on four separate Work Plans - used as a performance management tool - within a six-month period. The Department pleaded guilty. The Magistrate imposed a fine of A$188,000, plus an adverse publicity order.

The Court's findings bear careful reading by every HR practitioner:

• The Department had not provided adequate training to supervisors to recognise when a performance management process itself becomes a psychosocial hazard.

• Repeating or prolonging performance management processes without assessing and managing the psychosocial risk created by that process was itself a breach.

• The employer had clear warnings of psychological distress. The worker was not referred to support services. No actions were taken to reduce the pressure they were experiencing.

• The obligation to manage psychosocial risks during performance management is ongoing - it must be assessed and controlled as the process progresses, not just at the start.

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Performance management processes may give rise to psychosocial hazards such as poor organisational justice: where processes are repetitive, prolonged, poorly communicated, or inconsistently applied, they may create or aggravate psychological harm. That psychosocial risk must be assessed and eliminated or minimised so far as is reasonably practicable.

4.2 University of Technology Sydney - Restructure Halted by Prohibition Notice (September 2025)

On 2 September 2025, SafeWork NSW issued a prohibition notice to the University of Technology Sydney, ordering the immediate cancellation of meetings with approximately 800 staff scheduled to discuss a restructure that could result in the redundancy of up to 400 positions (150 academic, 250 operational). The notice described workers as being exposed to 'a serious and imminent risk of psychological harm from actions taken, and planned.'

This was the first reported instance in NSW where a prohibition notice - a tool designed for situations involving immediate physical danger - was used to stop a corporate restructure. The notice carried a potential fine of $663,080 for non-compliance.

The specific trigger was not that UTS was conducting a restructure - that is lawful. The trigger was the manner in which the process was being conducted: meetings scheduled with one day's notice, psychosocial risk assessment consultation being conducted simultaneously with the change proposal process rather than before it, and support measures offered without any explanation of how to access them.

The notice was subsequently lifted following engagement between UTS and SafeWork NSW, with the university agreeing to genuine consultation and revised process management. But as employment lawyer Julian Arndt observed to HRD Australia: 'This story, whether intentionally or not, is publicising the regulator's role and providing a warning to employers undertaking these types of processes that they need to have regard to psychosocial hazards.'

5. A Practitioner's Framework: Six Steps to Defensible Compliance

The good news is that the legal obligation - identify, assess, control, consult, review - maps to a structured process that HR practitioners already understand from physical WHS risk management. The challenge is applying that rigour to hazards that are less visible, more contested, and more deeply embedded in how organisations operate.

The following six-step framework is grounded in the model Code of Practice and the enforcement precedents established in 2025.

Step 1: Conduct a Psychosocial Hazard Inventory - Not a Survey

The starting point is identifying which of the fourteen categories of psychosocial hazard are present in your workplace, and in which roles, teams, and processes. This is not the same as an employee wellbeing survey, which is a diagnostic tool. The hazard identification process requires examining how work is actually designed and managed - job demands, role clarity, decision latitude, change management practices, supervision quality, and interpersonal dynamics.

A practical approach: work through each hazard category in a structured team consultation (with Health & Safety Representatives where they exist), review incident and complaint data, examine exit interview themes, and consider whether any recent organisational changes have introduced new hazards. Document this process. If a SafeWork inspector arrives, you need to be able to demonstrate that you have a system, not just a policy.

Step 2: Embed Psychosocial Risk Assessment Into HR Processes

The Department of Defence prosecution and the UTS prohibition notice share a common thread: the psychosocial risk implications of HR processes were not systematically assessed before or during implementation. Regulators now expect employers to treat HR processes - performance management, disciplinary investigations, redundancy and restructure, significant change management - as potential sources of psychological harm that require active risk management.

In practice, this means: before commencing a performance improvement plan, assess the psychosocial risk that process may create and document your control measures. Before announcing a restructure, assess the change management risks and build consultation and support into the process design - not as an afterthought. This is not about avoiding difficult conversations. It is about conducting them in a way that does not itself become a hazard.

Step 3: Apply the Hierarchy of Controls - Not Just an EAP

The hierarchy for psychosocial hazards follows the same logic as physical safety: eliminate the hazard if reasonably practicable; if not, implement controls that address the source. Individual-level interventions - EAPs, mental health training, resilience programs - are at the bottom of the hierarchy. They can supplement higher-order controls but cannot substitute for them.

Higher-order controls for psychosocial hazards include: redesigning job demands (workload, hours, deadlines); improving role clarity through job descriptions and manager guidance; ensuring adequate staffing levels; improving supervision quality through leadership development and clear standards for manager behaviour; creating effective conflict resolution pathways; ensuring procedural fairness in disciplinary and performance processes; and designing change processes that include genuine consultation, adequate notice, and clear communication.

Step 4: Train Managers - Specifically, Not Generally

The Defence conviction turned on the absence of adequate supervisor training. The obligation is not to provide generic mental health awareness training - it is to ensure that supervisors understand the specific psychosocial hazards associated with the processes they manage, and how to identify early warning signs of harm.

Manager training should cover: what constitutes a psychosocial hazard in the specific context of their role (e.g. conducting performance management, managing remote teams, leading through organisational change); how to recognise signs that a process is causing psychological harm; when and how to pause a process and seek HR or specialist support; and their own obligations under WHS law. This training should be documented, reviewed regularly, and updated when processes or regulations change.

Step 5: Consult Genuinely - With Evidence

Consultation is a legal requirement, not a courtesy. The WHS Act requires PCBUs to consult workers (and their Health & Safety Representatives) when identifying hazards, assessing risks, making decisions about control measures, and reviewing controls. The UTS prohibition notice was triggered in part by consultation that was perceived as inadequate - the psychosocial risk assessment was being consulted on at the same time as the change proposal, rather than before it.

Genuine consultation means: engaging workers and HSRs at the design stage of major changes; providing adequate time and information for meaningful input; considering and responding to the feedback received; and keeping records that demonstrate the process. A consultation checklist completed five minutes before a meeting is not consultation. If SafeWork asks for evidence of consultation, you need to be able to produce it.

Step 6: Review - Particularly When Circumstances Change

Psychosocial risks are dynamic. A risk that was adequately controlled under normal operating conditions may become acute when a team undergoes restructuring, a key manager leaves, workloads increase significantly, or a workplace incident occurs. The WHS Regulations require regular review of control measures, with particular attention to changed circumstances.

Reviews should be documented. Where a review identifies that existing controls are no longer adequate, the response needs to be recorded and implemented - not deferred to the next annual review cycle. If a worker or HSR raises a psychosocial concern, treat it with the same urgency as a physical safety report.

6. The HR-WHS Intersection: Where ER Practitioners Sit

One of the most consistent themes in the 2025 cases is the failure to connect HR process management with WHS obligations. Performance management, disciplinary investigation, restructure - these are processes that sit squarely in the HR function. But from a legal standpoint, they are also WHS processes. The risk is that HR and WHS teams operate in silos, with neither owning the psychosocial dimension of HR-led processes.

In many of the organisations I've worked with over fourteen years, the gap is not in the written policy. It's in the operational handshake between HR and WHS - the point at which a performance management plan or a restructure process is designed and approved, but nobody has asked whether a psychosocial risk assessment has been documented for that process.

The practical answer involves three things: clear ownership (who is responsible for psychosocial risk assessment during HR processes?), documented checklists embedded in process templates, and manager capability development that goes beyond awareness to skill.

HRWise.com.au incorporates a psychosocial risk flag as part of its triage logic for performance management and disciplinary matters - surfacing the key questions practitioners need to consider before a process proceeds, and generating a record of that assessment. For organisations working with smaller HR teams or without dedicated WHS capability, Flex HR offers structured reviews of HR process design against the 2025–26 psychosocial obligations.

7. Key Takeaways

1. 1Psychological injury claims have grown 161% over ten years and now cost the Australian compensation system over $1 billion annually. Average claim cost in NSW: $288,542. Average time off work: 35.7 weeks.
2. 2As of December 2025, every Australian jurisdiction requires employers to explicitly identify, assess, and control psychosocial hazards using the hierarchy of controls - the same framework as physical risks.
3. 3An EAP is not a psychosocial risk control. It is an individual-level intervention at the bottom of the hierarchy. It cannot substitute for higher-order controls addressing workload design, supervision quality, role clarity, and organisational justice.
4. 4The Department of Defence conviction (December 2025) establishes that performance management processes must be assessed for psychosocial risk, with documented controls and responsive management when distress is evident. Supervisors must be trained specifically to manage this risk.
5. 5The UTS prohibition notice (September 2025) demonstrates that restructures and redundancy processes must include genuine psychosocial risk consultation before - not alongside - the change announcement. A regulator can now halt your business process.
6. 6Since 1 March 2026, unions in NSW can initiate civil penalty WHS proceedings on behalf of workers. Psychosocial hazard management has become an industrial relations exposure as well as a safety one.
7. 7HR practitioners need to own the psychosocial dimension of HR-led processes. Document risk assessments for performance management, disciplinary processes, and restructures. Build psychosocial consultation into change management design from the outset.

References

[1] Safe Work Australia. Key Work Health and Safety Statistics Australia 2025. 17,600 serious mental health injury claims in 2023–24; 161% growth over ten years. www.safeworkaustralia.gov.au

[2] NSW Treasurer Daniel Mookhey. Workers Compensation Ministerial Statement to NSW Parliament, 18 March 2025. Average psychological injury claim cost $288,542 in 2024–25.

[3] Mind Your Head (2026). Psychological Injury Claims Surge: Why Mental Health Must Be an Australian Workplace Priority. Cites Safe Work Australia 2025 data. www.mindyourhead.org.au

[4] InCheq (2025). Mental Injury Claims Hit $1B: 5 Years Ahead of Schedule. www.incheq.co

[5] Safe Work Australia. New Model WHS Regulations and Code of Practice: Managing Psychosocial Hazards at Work (2022, revised 2024). www.safeworkaustralia.gov.au

[6] SafeWork NSW. Work Health and Safety Regulation 2025 (NSW); Code of Practice: Managing Psychosocial Hazards at Work. Effective 22 August 2025. www.safework.nsw.gov.au

[7] Risk Training Professionals (2026). How Each Australian State Regulates Psychosocial Health and Safety. www.risktrainingprofessionals.com

[8] HRD Australia / HCAmag (2025). The Psychosocial Risks Hidden in Performance Management Plans. Department of Defence conviction, December 2025. www.hcamag.com

[9] Norton Rose Fulbright (2026). When Performance Management Becomes a Psychosocial Hazard. Analysis of Dept of Defence prosecution. www.nortonrosefulbright.com

[10] Allens Linklaters (2025). Recent Developments in Work Health and Safety Law: UTS Prohibition Notice, 2 September 2025. www.allens.com.au

[11] HRD Australia (2025). 'A Warning to Employers': SafeWork NSW's Intervention in UTS Restructure. www.hcamag.com

[12] Pinsent Masons (2025). NSW Safety Regulator Halts Redundancy Process Because of Psychosocial Safety. www.pinsentmasons.com

[13] Future Advisory (2026). Work Health & Safety Legislation Changes in 2026. NSW unions granted civil penalty proceedings rights from 1 March 2026. www.futureadvisory.com.au

[14] Holding Redlich (2025). Managing Psychosocial Risks: A Top Priority for Employers. www.holdingredlich.com

[15] BlueSafe Online (2026). Psychosocial Hazards at Work: New Employer Obligations in Australia 2025–26. www.bluesafeonline.com.au