When Payments in Lieu of Notice Must be Delivered to Parting Employees

The Federal Court has clarified when payments in lieu of notice must be paid to employees prior to the termination date.

In the case of Southern Migrant and Refugee Centre Inc v Shum (No 3), Ms Shum’s employment was terminated by way of redundancy on 19 June 2017. On the same day, the employer sent Ms Shum correspondence specifying that her employment had ceased with immediate effect, and that she would receive payment in lieu of notice in the week following her termination. This payment was provided to Ms Shum on 23 June 2017, four days after the termination date. On appeal, it was held that, under section 117(2)(b) of the Fair Work Act, payment in lieu of notice must be made as a mandatory prerequisite to lawful termination. Consequently, the employer’s payment to Ms Shun after the date of termination amounted to a contravention.

It is common for employers elect to make payment in lieu of notice. This payment must be equivalent to the employee’s full rate of pay for the time they would have worked during the notice period and it is no longer permissible to make this payment after the termination date.

Non-compliance with this obligation will amount to a contravention of the FW Act and may subject the employer to pecuniary penalties that increase in severity the longer the delay in payment subsists.