A controversial overhaul of Australia's largest workers' compensation plan will make it "nearly impossible" to file successful claims and deprive employees, unions and experts of their rights.

An investigation into the proposed changes began Friday, with Chris Minns’ administration claiming it is necessary to avoid unsustainable expenses.

NSW Workplace Health and Safety Law and Workers Compensation Scheme protect over 3.6 million workers.

Under the proposed changes, psychological harm caused solely by work stress will no longer be eligible for compensation and a claim to be filed in the context of sexual harassment or bullying will require workers to lead the court or court.

Shane Butcher, the Australian Lawyer League’s lead attorney, told ABC on Friday that the legislation would “greatly deprive” individual workers of their rights, especially those who have suffered psychological harm, if passed in their current form.

"There were few consultations that were only recently, and the people of NSW should be totally worried that if there were no modifications, they would have no rights at all."

“From how to file a claim to how to define psychological harm, to the need to reach the threshold of compensation and when to get compensation, it’s almost impossible.”

The Butcher admits that NSW psychological claims have increased, but “What we can’t do is cut them off and let them feed themselves”.

"Those who need help are navigating the system and separate the people who are trying to use it - what is the balance? There is no balance in this bill," he said. "It just deprives you of the right."

NSW union secretary Mark Morey told the investigation there was “enough room for reform” but legislation was “drag us back to an era where we ignore psychological harm and mental health”.

Speaking to reporters after the investigation, Morey said that “drafting bad legislation” would ensure that “the vast majority of workers will never get the support they need”.

“These are…protecting children, nurses, teachers, people who have the vision and get the job done every day, when they need a little mental health support…this government is taking it off to fill the black hole in the budget,” he said.

NSW finance director Daniel Mookhey told the investigation that revealing the draft is not the government's final position. But without reform, there is a "risk of a whole collapse."

Mookhey refused to make the suggestion that Labour refused to inject more cash into the fund unless reforms were passed, which was a "bold last-pass atum".

He said schools, hospitals and other needs in the state require funding, including preventing psychological harm.

Amber Flohm, Vice Chairman of the NSW Teachers Federation, said teachers have suffered “a significant impact on their mental health” during their work and deserved support.

“This is an alternative trauma to student and employee activities and is often experienced,” she said.

"The treasurer has sent out a blunt instrument that solves a complex mental health problem. Are we serious about suggesting that an Athenian teacher should bear the brunt of trying to cope with the trauma of losing his students?"

Katrina Norris, vice president of the Australian Association of Psychologists, said the plan was completely unsuitable for managing the same requirements as physical injuries.

As proposed, raising the threshold for “permanent damage” to 31%, she said, is conceivable that almost all workers cannot make legitimate mental health requirements.

“This is similar to trying to insert a circular nail into a square hole and creates problems in the way claims are evaluated and managed,” she wrote in a submission.

“The damage 15% requires a person to be unable to operate independently in almost all areas of life.”