Can an employer read all messages sent through Lync?

Simple answer Yes. Don't treat your work IM like your personal IM. Regardless of cloud or physical onsite installation the logs are available to your employer. If you would not send the IM to your Boss or a member of HR, do not send it. Use other means of IM or communication for personal banter. CYA. Link to MS security paper (pg 6 toward the bottom): White Paper

Lync stores messages in the Outlook mailbox of the user in question under a folder titled Conversation History. You can view all of these saved messages by expanding your inbox and looking through them.

Everything visible here would also be visible to anyone who has delegated access to your mailbox, which almost definitely includes your manager.