It is a serious matter to interfere with the rights of parties to agree between themselves, to whatever contractual terms they chose. Recent amendments to the Queensland workers’ compensation legislation1 have effected a significant change to the way businesses are allowed to contract with each other and allocate risk for injury to workers. The amendments render void and unenforceable, certain contractual clauses where an employer, effectively indemnifies another entity against contribution claims the employer might otherwise have had for damages for injury to a worker. It is doubtful the full ramifications of this proposal have been adequately considered.

The utility of the reform is questionable and has the potential to cause great uncertainty and dispute. Parties who think they have agreed on certain carefully crafted or well understood terms may find the validity of those terms stripped or challenged. Insurance arrangements placed on the basis of agreed risk allocations may prove inadequate or erroneous, causing overlap or gaps in cover, increased premiums and increased litigation. Is this aspect of the reform necessary, economically sound and wise?

The relevant amendments to the legislation stem from the recent judgment in Byrne v People Resourcing (Qld) Pty Ltd & Anor2. Byrne confirmed a long line of court authority that if WorkCover is liable directly to the claimant in negligence or contract, then it must pick up and indemnify all related liabilities of the employer. Therefore contractual variations of the employer’s negligence liability that alter contribution apportionments between defendants will still be indemnified by WorkCover.

Understandably WorkCover Queensland took issue with insuring this additional contractual liability. Its premiums are not based on a careful review of all contractual risk allocation arrangements and it is effectively funding its insured’s contractual concessions out of its own coffers.

The amendments when initially put before parliament proposed a narrowing of section 10 of the Queensland workers’ compensation legislation3 to effectively rectify this. The proposed changes would have limited WorkCover’s obligation to indemnify an employer in respect of an injury sustained by a worker to exclude an indemnity granted by that employer to another person for their liability in respect of the same injury. This amendment alone would have redressed the salient problem.

However, that proposed amendment was abandoned whereas the following more alarming amendment was passed into law:

Section 236B Liability of contributors

(1) This section applies to an agreement between an employer and another person under which the employer indemnifies the other person for any legal liability of the person to pay damages for injury sustained by a worker.

(3) The agreement is void to the extent it provides for the employer, or has the effect of requiring the employer, to indemnify the other person for any contribution claim made by the insurer against the other person. (emphasis added)

The explanatory comments to the Bill proposing these reforms said:

The Bill amends the Act to restore the original policy intent and intended interpretation of various provisions that have been or could be called into question by various recent Queensland court decisions, to provide certainty for insurers, employers, workers and the courts.

The Bill reverses the effect of the judgement in Byrne v People Resourcing (Qld) Pty Ltd & Anor [2014] QSC 269 by prohibiting the contractual transfer of liability for injury costs from principal contractors or host employers to employers with a workers’ compensation insurance policy (such as subcontractors or labour hire employers) and providing that an insurer is not liable to indemnify an employer for a liability to pay damages incurred by a third party contractor under a contractual arrangement.

The amendments as passed do far more than reverse the decision in Byrne and in doing so create significant uncertainties of a different kind. Byrne in no way altered contractual arrangements agreed between parties, it simply confirmed where the insurance indemnity rights lay in respect of those arrangements.

The new section 236B does not effect the scope of the WorkCover indemnity to what the employer’s liability would have been, untampered with by contract. It adopts the blunter remedy of rendering void any contractual terms that effectively pass the burden of liability for an injury claim between contracting parties. Precisely what type of clause might be construed to have this effect is not further clarified, but has the potential to be far reaching. Often the contractual terms for allocation of risk and responsibility themselves are an important factor in assessing the duty of care of each party. The potential for wide scale extended dispute on the application of these amendments is high.

The amendments to section 236B limit free contractual negotiations between parties and in an insidious way, such that common and well worded clauses are suddenly ineffective, possibly unbeknownst to one or all of the parties. This can dramatically alter the risk allocation agreed between the parties, that has been carefully underpinned by contract costing and pricing and appropriately scoped and funded insurance arrangements.

It is far from clear why the amendments needed to go this far, and greatly complicate and confuse the ordinary course of contractual arrangements between parties. WorkCover limiting the scope of its indemnity and allowing commercial liability insurers to cover the remainder would have been a good solution. The proposed section 10 amendments alone were a sensible and adequate response, however these were abandoned in favour of the far more draconian section 236B amendments. A sledgehammer has been used to crack a walnut. The collateral damage will pan out over time. The new section 236B is bound to produce an abundance of litigation while the term “has the effect of requiring the employer, to indemnify the other person” is clarified. Staying clear of this minefield would be a wise move.

Parties contracting with labour hire companies or other subcontract employers on site should urgently review their standard contracts, particularly risk allocation, indemnity and insurance clauses. Clauses that have been used for years and are well understood and accounted for may now be void. The impotence of a clause is only likely to be revealed long after injury occurs when the clause is tested in litigation between the parties attempting to allocate liability. Some careful contract review now may save a multitude of headaches, and allow appropriate insurance cover to be placed for the true retained liability exposure.