Small businesses using everyday tools like spreadsheets might face union inspections under NSW’s Bill. Matthew Addison says reforms go far beyond gig economy concerns.
What’s happening: The NSW Government’s Workers Compensation Legislation Amendment Bill 2025 proposes that employers using any digital work system, including algorithms, artificial intelligence, automation, online platforms or software, must ensure those systems do not cause stress or overwork. The COSBOA has condemned Schedule 4 of the reforms, warning they grant unions open-ended rights to access small business systems and data whilst the broader Bill faces fierce opposition over psychological injury provisions.
Why this matters: Without reform, the premiums paid by businesses are set to increase by 36 per cent over three years to 2028, and the Government’s reforms will ensure businesses are not hit with an unnecessary $1 billion per year insurance premium increase. However, the Bill’s digital work system definition could apply to many businesses using everyday tools like rostering and scheduling software, creating uncertainty for operators across hospitality, retail and trades sectors who could face union inspections of systems containing commercially sensitive data.
The NSW Government’s proposed workers compensation reforms have sparked fierce opposition from small business groups and industry bodies, who warn that broadly worded provisions could expose ordinary business software to union oversight whilst creating unmanageable compliance burdens amid a compensation system financial crisis.
The NSW Government introduced the Workers Compensation Legislation Amendment Bill 2025 to the Legislative Assembly on 6 August 2025, driven by what Treasurer Daniel Mookhey describes as an unsustainable situation. Since 2018, the number of psychological claims has doubled, and since 2020, the average cost of psychological injury claims has almost doubled.
According to the State Insurance Regulatory Authority, psychological injury claims increased by 64 per cent, jumping from 5,616 in 2019 to 2020 to 9,195 in 2023 to 2024, and the average cost per psychological injury claim nearly doubled from $146,000 in 2020 to $288,000 in 2025. Under the status quo, just 50 per cent of workers with psychological claims are back at work within a year, whilst for physical injuries, the rate is 95 per cent.
If current trends continue, an additional 80,000 psychological injury claims could be lodged over the next five years, and in the absence of reform, even claim free businesses may experience a 36 per cent rise in premiums by 2027 to 2028.
The Bill’s broader reforms include significantly narrowing the definition of compensable psychological injuries, increasing permanent impairment thresholds from 15 per cent to 25 per cent initially, and then to 31 per cent, and establishing new dispute resolution processes through the Industrial Relations Commission for bullying and harassment claims before they can proceed as workers compensation claims.
Broad digital definition
Yet it is Schedule 4 of the Bill that has triggered particular alarm amongst small business groups. The schedule introduces a new duty on persons conducting a business or undertaking concerning the use of digital work systems, defining them as an algorithm, artificial intelligence, automation, online platform or software, a potentially very broad definition that could apply to many businesses, not just those businesses that use apps to allocate jobs to gig workers.
The proposed new duty requires businesses using digital work systems to ensure, so far as is reasonably practicable, that the allocation of work by or using the digital work system is without risks to the health and safety of any person. Without limitation, businesses must consider whether the allocation of work creates excessive or unreasonable workloads for workers, the use of excessive or unreasonable metrics to assess and track performance, excessive or unreasonable monitoring or surveillance of workers, or discriminatory practices or decision making.
Matthew Addison, Chair of COSBOA, said: “This Bill is a sledgehammer to crack a nut, and small businesses will bear the brunt. It gives unions open-ended rights to access small business systems and data, including customer details, commercial information and staff rosters, on the vague basis that a digital tool might be causing stress.”
He continued: “The legislation seeks to address the misuse of artificial intelligence and technology in the gig economy, but the provisions go far beyond that. Small business owners, like café operators, tradespeople and retailers, aren’t using gig platforms or complex algorithms. They’re using everyday tools like rostering and scheduling software. These reforms risk treating ordinary technology as if it were AI, and that’s a huge overreach that will be unworkable in practice.”
Union inspection powers
The Bill expands the rights of WHS entry permit holders under Section 118 of the WHS Act, with businesses required to provide permit holders with reasonable assistance to access and inspect digital work systems relevant to a suspected contravention. Examples of inspectable items include code or algorithms, performance metrics, records, data logs, and audit trails generated by digital systems, according to the Bill’s explanatory notes.
COSBOA argues that the Bill’s definition of digital work system is so broad it captures nearly every modern business tool, from time and attendance apps to point of sale software and project management platforms. The lack of clarity about what constitutes reasonably practicable compliance would leave small businesses exposed to uncertainty and potential liability.
The proposal to give union officials access to inspect digital systems also poses an unacceptable threat to privacy, confidentiality and business integrity, according to the organisation.
“These systems often contain commercially sensitive and personal data. Allowing unfettered third-party access, without notice or confidentiality protections, is a serious risk, not just to the business, but to employees and customers as well,” Mr Addison said.
The reforms have arisen because of recent reports of abuse of artificial intelligence in the gig economy, with companies using the technology to excessively or preferentially allocate work to those who work longer shifts. In late 2023, Amazon was fined €32 million in France for excessive surveillance of its workers, with breaches of the European Union’s General Data Protection Regulation found, including a system that monitored employee activity and generated alerts relating to the speed of workers completing tasks, along with break times.
However, legal experts have noted the breadth of the proposed provisions. The introduction of the Digital Work System Duty, given its wide scope, has the potential to create significant industrial disputes when combined with the recently passed dispute resolution reforms.
Industry backlash grows
COSBOA is not alone in its concerns. Australian Industry Group Head of New South Wales, Helen Waldron, said artificial intelligence and technological advancements will create significant opportunities and productivity improvements at a time when we are continuing to grapple with persistently low productivity levels, and the last thing we need is a heavy-handed change to legislation that will stifle innovation and industry efforts to improve productivity.
The Bill will regulate various matters that are best dealt with through comprehensive and carefully developed national workplace relations laws, and these changes will have significant impacts both now and in the future, according to Waldron.
The timing of the NSW reforms has also attracted criticism. It comes at a time when Safe Work Australia has been tasked to undertake a best practice review with a focus on how we can ensure harmonisation of WHS laws into the future, and it also comes at a time when the Federal Government is convening a roundtable discussion over matters that will include whether there is a need to regulate employers’ implementation of artificial intelligence at a national level.
COSBOA demands that the NSW Government immediately withdraw or substantially amend Schedule 4 and take a more balanced approach that protects workers without overwhelming small employers.
Specifically, the organisation recommends the Government withdraw or significantly amend Schedule 4 to narrow its scope, exclude small businesses with fewer than 50 employees, exclude standard off the shelf software used for normal business operations, and introduce clear guidance, confidentiality protections and notice requirements for any digital system access.
In addition, COSBOA calls for a clear transition period and dedicated advisory support to help small businesses understand and meet any new obligations.
The organisation has criticised the NSW Government for moving ahead of national processes, with consultations on AI and digital regulation currently underway through Safe Work Australia and the Federal Government.
“NSW shouldn’t jump ahead of national reforms and risk divergence from national frameworks. Small businesses need one consistent national approach, not a patchwork of rules that differ from state to state,” Mr Addison said.
COSBOA has also rejected other elements of the Bill, including automatic employer liability for psychological injury claims and new employer excess payments, which it says will pile more administrative and financial pressure on small businesses that lack HR or legal support.
“No one disputes the need to manage mental health risks at work,” Mr Addison said. “But this proposal risks creating confusion, red tape and fear, not safer workplaces. Small business needs clarity and support, not open-ended digital oversight.”
The NSW Government argues that without reform, 340,000 NSW businesses will have to pay a 36 per cent increase in premiums over the next three years, even if they have no claims against them. Just 50 per cent of workers with a psychological injury typically return to work within a year, compared to 95 per cent of workers with a physical injury, according to government data.
The Bill currently before the Parliament has been informed by consultation with unions and experts, including through the release of an exposure draft and a parliamentary inquiry, and it includes a range of refinements to proposals that were contained in the exposure draft and is complemented by $344 million in new funding for a Workplace Mental Health package.
The Workplace Mental Health package includes SafeWork funding for injury prevention, with more than 50 new inspectors specialising in psychological injury, wraparound psychological support services for people navigating the claims process, WH and S compliance and enforcement to strengthen psychosocial hazard prevention, and eight weeks’ income and medical or vocational support to access immediate support.
The broader workers compensation reforms have progressed through the NSW Legislative Assembly, with the Government calling on Parliament to pass the legislation. The Workers Compensation Legislation Amendment Bill 2025 is now expected to go before the upper house, with the Government arguing the current system is failing injured workers, failing businesses and failing the state.
As Small business groups push for practical workers compensation reform reported in June, NSW workers compensation reforms must cut costs and reduce complexity to truly support SMEs, with COSBOA urging clear, practical relief measures rather than additional administrative burdens.
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