This matter related to an application for extension of time. However, the most interesting part of this decision is that his honour’s references to the true meaning and purpose of “payment in lieu of notice”.

Spoiler alert, his honour found that the employment ends on the last day worked.

Legal Precedents

In consideration on the date the termination of employment took effect, his honour referred to a number of precedents:

Mihajlovic v Lifeline Macarthur

A Full Bench of the Commission gave meaning to the term “dismissed” in the context of s.386(1)(a) of the Act and a person’s “employment with his or her employer has been terminated on the employer’s initiative” when:

“…the person’s employment relationship with the employer has ended, and that where the employee has been terminated on notice, the employment relationship ends when the notice period expires. Because s.386(1) defines when a person has been dismissed for the purpose of s.394(1), the same propositions apply to the meaning of the expression “A person who has been dismissed” in s.394(1). Section 394(1) therefore requires a person’s employment to have terminated in order for that person to make an application for an unfair dismissal remedy.” 

Siagian v Sanel Pty Ltd (Siagian)

The question of when the employment relationship ends when an employee is terminated with pay in lieu of notice was considered by Chief Justice Wilcox

“Counsel’s second argument is that, because of the payment in lieu of notice, the termination did not occur on 29 March but at the date of expiration of the period for which payment was made, 15 April. If this argument is correct, s.170EE orders are available.

“This argument also raises a complex problem. The problem arises because of the ambiguity inherent in the words “payment in lieu of notice”. The ambiguity was pointed out by Waite J, in Leech v Preston Borough Council [1985] ICR 192 at 196:

“… it is clear from the authorities cited to us, … all of which are confirmed by the experience of our lay members, that the expression ‘payment in lieu of notice’ is regularly used throughout industry in one or other of two quite different senses. The first, which is the grammatically correct one, is when it is used to describe the payment to an employee whom it is proposed to dismiss summarily of a lump sum representing compensation for the wages or salary which he would have received if he had been given the notice to which he is entitled by law. The second, which is the colloquial and grammatically inaccurate one, is when the term is used as a convenient shorthand way of telling an employee that he is being given the full period of notice to which he is entitled by law but is at the same time excused any duty (and refused any right) that he would otherwise have under his employment contract to attend at the workplace during the notice period.”

“Although Waite J did not spell out the result that flowed from each meaning, it is clear from other decisions that, in the first case, the employee’s employment terminates upon the date of payment of the lump sum. In the second case, the employment extends until the expiration of the period for which the payment was made”.

“The question whether a payment in lieu of notice immediately terminates the employment is always one of fact. In Leech at 196-197 Waite J said that the proper inference as to the sense in which the expression is used may turn upon “very subtle indications or nuances of wording which will have to be weighed carefully according to their context”. The difficulty, of course, is that the parties will normally not have made the position clear. They will probably not have averted to the distinction made by Waite J. The Court will be left to put its own interpretation on their actions.”

“The Chief Justice expressed the opinion that there is a prima facie position that where parties use the words “payment in lieu of notice”, there is to be no notice and the employment is to terminate immediately. Having considered a range of authorities, His Honour stated:

“In his work The Contract of Employment (1975) M R Freedland at 188 says:

“It would seem that a lawful termination by payment in lieu of notice normally results in an immediate termination of the contract of employment. The termination will not be projected to the end of the notional period of notice. The payment should be regarded as a lump-sum payment, equal to the amount of wages during the period of notice, rather than as payment of actual wages for a period of notice during which the services of the employee are not required. … It would seem also that termination with payment in lieu of notice will, in practice, be regarded as resulting in an immediate termination of employment for the purposes of liabilities of employer and employee to social security contributions. It would in general seem correct to hold that such payments in lieu of notice result in an immediate termination of the contract of employment because the payment is related to wages only in that these quantify the payment.”

“I think these statements are justified by the authorities. It seems to me that, in the absence of evidence of a contrary intention, it should usually be inferred that the employer intended the termination to take effect immediately. This conclusion not only reflects the more accurate meaning of the phrase “payment in lieu of notice”; it accords with common sense. An employer who wishes to terminate an employee’s services, and is prepared to pay out a period of notice without requiring the employee to work, will surely usually wish to end the relationship immediately. If the employee is not to work, there is no advantage to the employer in keeping the relationship alive during the period for which payment is made; and there is the disadvantage that the employer will be burdened with employment related costs, such as workers’ compensation insurance, payroll tax, liability for leave payments etc. The employer also incurs the risk that some new burden will be imposed in respect of the employment during the period.”

And thus, endeth the lesson.