Does Public Liability Cover Employee Injuries? (No — Here's Why)

·12 min read

Does Public Liability Cover Employee Injuries? (No — Here’s Why)

Imagine this: one of your employees trips over a loose floorboard in your retail shop, fractures their wrist, and is off work for six weeks. Your first instinct is to reach for your public liability insurance policy. After all, you pay the premium to protect your business from injury claims. But here is the legal reality — and it’s a hard one — your public liability policy almost certainly excludes employee injuries. This is not a gap in your cover; it is a deliberate design feature of Australian insurance law, and it exists because employee injuries are governed by a completely separate legal and insurance framework.

As a business owner, understanding this distinction is not optional. It is fundamental to your legal obligations and financial risk management. Let me explain why public liability does not cover employee injuries, what does cover them, and what happens if you get this wrong.

Australian insurance law draws a bright line between injuries to third parties (members of the public, customers, visitors) and injuries to employees. This distinction is embedded in the Insurance Contracts Act 1984 (Cth) and reinforced by state-based workers’ compensation legislation.

Public liability insurance is designed to cover your legal liability for personal injury or property damage caused to third parties — people who are not your employees. When an employee is injured at work, they are not a third party. They are a first party in the employment relationship. The law treats them differently because the employment relationship creates a special duty of care and a statutory compensation scheme.

In almost every Australian public liability policy, you will find a standard exclusion worded something like: “This policy does not apply to liability for injury to any person who is, or who at any time was, an employee of the insured.” This is not a trick in the fine print. It is a fundamental principle of Australian insurance law that has been tested in numerous tribunal and court decisions. For example, in a Queensland tribunal case involving a café worker who slipped in the kitchen, the insurer successfully denied the public liability claim because the injured person was an employee, regardless of whether the employer had workers’ compensation cover at the time.

Why the Exclusion Exists: The Workers’ Compensation Framework

The reason for this exclusion is not arbitrary. It reflects the existence of Australia’s compulsory workers’ compensation system, which is designed specifically to cover employee injuries. Each state and territory has its own workers’ compensation legislation — for example, the Work Health and Safety Act 2011 (Cth) and its state equivalents, along with specific Acts like the Workers Compensation Act 1987 (NSW) or the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic).

Under these laws, employers are required to hold a workers’ compensation policy that covers:

The system is no-fault based. This means that an employee does not need to prove that you were negligent to receive compensation. They only need to show that the injury arose out of or in the course of their employment. This is a fundamental difference from public liability claims, where negligence must be proven.

In 2026, Australian workers’ compensation premiums for small businesses typically range from 1% to 5% of total wages, depending on your industry and claims history. For a small retail business with $200,000 in annual wages, that might be $2,000 to $10,000 per year. For a high-risk industry like construction, the rate can be significantly higher. Compare this to public liability insurance, which for most small businesses ranges from $400 to $2,000 per year — and you can see why the two products are priced and structured differently.

What Happens When You Try to Claim Employee Injury on Public Liability?

Let me be clear: attempting to claim an employee injury under a public liability policy will almost certainly result in a declined claim. Insurers are rigorous about enforcing this exclusion, and the Australian Financial Complaints Authority (AFCA) consistently upholds these decisions.

Consider this scenario: a small manufacturing business has public liability insurance but, due to a cash flow issue, has let their workers’ compensation policy lapse. An employee is seriously injured operating a machine. The business owner tries to claim the injury under their public liability policy. The insurer investigates, discovers the employment relationship, and declines the claim. The business is now personally liable for the employee’s medical costs, lost wages, and potentially common law damages.

In an AFCA determination from 2024, a similar situation arose involving a landscaping business. The owner argued that because the workers’ compensation policy had lapsed, the public liability policy should respond. AFCA rejected this argument, noting that the exclusion in the public liability policy was clear and unambiguous, and that the policy was not designed to substitute for compulsory workers’ compensation cover.

The lesson is brutal but simple: public liability insurance is not a safety net for workers’ compensation gaps. If you fail to maintain workers’ compensation cover, you are personally exposed to unlimited liability for employee injuries.

The Exception: When Public Liability Might Cover an Employee

There is one narrow exception worth understanding, though it is often misunderstood. If an employee is injured by a third party while performing their duties — for example, a delivery driver hit by a negligent motorist — the employee may have a claim against that third party. In that case, the third party’s public liability insurance (or motor vehicle insurance) would respond. But your public liability policy still does not cover your employee’s injury directly.

Another scenario: if an employee is injured while visiting another business’s premises — say, a sales representative slips on a wet floor at a client’s warehouse — the client’s public liability insurance may cover the injury. But again, this is not your policy covering your employee. It is a third party’s policy covering a visitor.

Some public liability policies include a limited extension for “voluntary workers” or “casual workers” who are not covered by workers’ compensation (for example, unpaid interns in some circumstances). But this is rare and must be explicitly stated in the policy. Do not assume this cover exists. Always check the policy wording and ask your broker or insurer directly.

State-by-State Variations: Why Location Matters

The exclusion of employee injuries from public liability is consistent across Australia, but the underlying workers’ compensation systems vary significantly by state and territory. This creates important differences in how employee injury claims are handled.

New South Wales operates a scheme under Workers Compensation Act 1987 and Workplace Injury Management and Workers Compensation Act 1998. The system includes a “claims experience” component that can affect future premiums.

Victoria uses the Workplace Injury Rehabilitation and Compensation Act 2013 and has a separate “WorkCover” scheme with specific return-to-work obligations.

Queensland operates under the Workers’ Compensation and Rehabilitation Act 2003 and has a more generous common law damages threshold compared to some other states.

Western Australia allows workers to elect common law damages in certain circumstances, which can create additional liability for employers who fail to maintain workers’ compensation cover.

South Australia, Tasmania, the ACT, and the Northern Territory each have their own schemes with different benefit levels, premium calculation methods, and dispute resolution processes.

What does this mean for you? If you operate in multiple states, you need separate workers’ compensation policies for each jurisdiction. Your public liability policy, however, will typically cover you Australia-wide but will still exclude employee injuries regardless of where they occur.

The Risk of Misclassification: Independent Contractors and the Grey Zone

One of the most common traps for business owners is misclassifying workers. If you engage someone as an independent contractor but they are later deemed to be an employee by a court or tribunal, your public liability policy will not cover their injury — even if you honestly believed they were a contractor.

Australian courts use a multi-factor test to determine employment status, considering elements like control, integration into the business, and economic dependence. The Fair Work Act 2009 (Cth) and recent case law, including the Jamsek and Personnel Contracting decisions by the High Court, have clarified that the focus is on the terms of the contract rather than how the relationship operates in practice. However, if the contract is a sham, the true nature of the relationship will prevail.

If a worker is injured and later found to be an employee, you face two problems: first, your public liability insurer will decline the claim, and second, you may face penalties for failing to hold workers’ compensation cover. In 2025, a small cleaning business in Victoria was fined $45,000 for misclassifying three cleaners as contractors and not having workers’ compensation cover. When one cleaner was injured, the business had to pay $120,000 in medical costs and lost wages out of pocket.

The safest approach is to have a clear policy on worker classification and to seek legal advice if you are unsure. Some businesses choose to take out workers’ compensation cover for all workers, including contractors, as a protective measure. Platforms like BizCover can help you compare public liability policies, but they cannot advise on worker classification — that requires legal guidance.

Practical Steps: Protecting Your Business

Given that public liability does not cover employee injuries, here is what you need to do:

First, ensure you have a current workers’ compensation policy for every state where you employ workers. This is not optional. In most states, failing to hold workers’ compensation cover is a criminal offence with significant penalties, including fines and, in extreme cases, imprisonment.

Second, understand your premium calculation. Workers’ compensation premiums are based on your industry classification, total wages, and claims history. You can reduce your premium by implementing strong workplace health and safety practices and managing claims effectively.

Third, do not rely on your public liability insurer to cover any gaps. If you have a lapse in workers’ compensation cover, you are personally exposed. Some businesses set up automatic renewals or use insurance brokers to manage this risk.

Fourth, train your staff and management on the difference between public liability and workers’ compensation claims. When an injury occurs, the correct procedure is to report it through your workers’ compensation system, not your public liability insurer. Reporting an employee injury to the wrong insurer can delay claims and create confusion.

Fifth, review your public liability policy annually. While the employee exclusion is standard, policy wordings can vary. Ensure you understand all exclusions and extensions. If you engage volunteers, interns, or work experience students, check whether your policy provides any cover for them — but do not assume it does.

Conclusion: Two Separate Systems, Two Separate Policies

Public liability insurance and workers’ compensation insurance serve different purposes, cover different people, and operate under different legal frameworks. Trying to use one to cover the other is like using your home insurance to cover your car — it simply does not work, and the consequences of getting it wrong can be financially devastating.

As a business owner, your obligation is clear: maintain both policies, understand what each covers, and never assume that a public liability policy will respond to an employee injury. The law is settled on this point, and Australian insurers, tribunals, and courts consistently enforce the distinction.

If you are unsure about your current cover, speak to a licensed insurance broker or legal advisor. The cost of proper advice is far less than the cost of a declined claim.

Frequently Asked Questions

Can I add an endorsement to my public liability policy to cover employee injuries?

No. Australian insurers do not offer endorsements that override the standard employee injury exclusion in public liability policies. Employee injuries must be covered under a separate workers’ compensation policy. Some policies may provide limited cover for volunteers or unpaid workers, but this is rare and must be explicitly stated.

What if my employee is injured by a customer’s negligence?

If a customer negligently injures your employee, the employee may have a claim against the customer. The customer’s public liability insurance would respond to that claim. Your public liability policy does not cover your employee’s injury, even if caused by a third party. Your employee should also lodge a workers’ compensation claim for immediate benefits.

Does public liability cover injuries to independent contractors?

It depends on the contractor’s status. If a person is genuinely an independent contractor and not an employee, your public liability policy may cover injuries they sustain on your premises — but only if you are found legally liable. However, if the contractor is later deemed to be an employee, the exclusion applies. It is safer to have workers’ compensation cover for all workers if there is any doubt.

What happens if I don’t have workers’ compensation insurance and an employee is injured?

You face significant legal and financial consequences. You will be personally liable for all medical expenses, lost wages, and potentially common law damages. You may also face criminal penalties, including fines and, in serious cases, imprisonment. Your public liability policy will not cover these costs.

Can an employee sue me directly for a workplace injury?

In most Australian states, workers’ compensation legislation provides a “bar” on common law claims against employers, meaning employees generally cannot sue you directly. However, if you fail to hold workers’ compensation cover, this bar may not apply, and the employee can pursue a common law claim for negligence. This is a major risk of non-compliance.

Does my public liability policy cover injuries to volunteers?

Some public liability policies provide limited cover for volunteers, but this varies by insurer and policy wording. Volunteers are not covered by workers’ compensation in most states, so it is important to check your policy. If you regularly use volunteers, ask your insurer specifically about this cover.

How do I know if my workers’ compensation premium is correct?

Your premium is calculated based on your industry classification, total wages, and claims history. You can request a review from your insurer or the state regulator if you believe your classification is incorrect. Engaging a broker who specialises in workers’ compensation can also help ensure you are not overpaying.

Should I compare public liability policies on comparison platforms?

Platforms like BizCover can help you compare public liability policies from different insurers, which is useful for finding competitive pricing. However, remember that all standard public liability policies exclude employee injuries, so the comparison should focus on other features like coverage limits, exclusions, and customer service. For workers’ compensation, you will need to go directly to insurers or use a specialist broker.

Quote