Understanding Payment in Lieu of Notice: What You Need to Know

Employment Law: 26 September 2023

Author: Qiuyi Zhang - Our People

The National Employment Standards (NES) under the Fair Work Act 2009 (Cth) (FW Act) mandate the minimum notice period an employer must provide to terminate an employee's contract. However, the concept of "payment in lieu of notice" is often misunderstood. This article aims to provide an overview of what payment in lieu of notice entails, its legal implications, and common misconceptions in practice.

What is Payment in Lieu of Notice?

Payment in lieu of notice refers to a payment an employer provides to an employee when their employment is terminated without requiring the employee to attend work through that period. Instead of working during the notice period, the employee receives a payment equivalent to the salary they would have earned during that time. The employee’s termination date is then said to be the date the notice was paid out.

Termination should be in writing

Under the FW Act, an employer must not terminate an employee’s employment without providing written notice of termination. Generally, there is no requirement as to particular wording that should be used in notice of termination, however, employers should be careful with such wording to avoid claims being made against them under the FW Act.

As to payment in lieu of notice and any agreement to bring the termination forward, this should also be put in writing to avoid any future disputes.

Do employees have a right to payment in lieu of notice?

The short answer is generally no. In the absence of a contractual term or award provision, an employee should not assume that he or she has a right to payment in lieu of notice and proceed to demand to be paid out for the balance of the notice period without attending work. The payment in lieu of notice is an option given by the FW Act to the employer and if an employer does not agree to payment of notice in lieu, an employee will generally not be entitled to receive notice unless he or she works out that period. A way that employees sometimes try to circumvent this is by taking personal leave during the notice period.

Parties can also agree to part of the notice being worked and the remainder paid in lieu.

What if an employer does not pay notice or notice in lieu?

Such failure to comply with the NES and FW Act is a breach and opens the employer to payment of penalties. However, there are circumstances where an employer does not have to pay notice such as in cases where the employee has engaged in serious misconduct (i.e. summary dismissal) or where he or she has repudiated the employment agreement.

Conclusion

Aitken Partners is frequently engaged to advise on matters regarding termination payments including payment of notice and notice in lieu. If you require any assistance, please do not hesitate to contact our employment law team.