He's trying to rip you off. Or he is an ignoramus, possibly both. The lip on the rotor is normal wear. It could also be harmless rust and dirt buildup. It has absolutely nothing to do with needing a brake job.

To answer your question: I always put new pads on a new rotor. Partly because if the rotor needs replacing the pads are pretty well gone. Partly because in my day rotors were very expensive and it did not pay to chance uneven wear to save a cheap set of pads. Partly because I want the job to last as long as possible.