Loading...
CC 01-18-2022 Item No. 9. Attachment C - OE3 Side Letter Agreement_Desk Item Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement SIDE LETTER AGREEMENT TO THE 20192022OPERATING ENGINEERS, LOCAL NO. 3 UNION, AFL-CIO MEMORANDUM OF UNDERSTANDING CONCERNING CONSTRUCTIVE RECEIPT AND LEAVE SELLBACKS DATE:November 30, 2021 Background Overview This Side Letter Agreement relates to modifications to the City of sell back provisions whereby an employee has the option to receive the cash value of annual leave earned instead of taking the time off. Specifically, and pursuant to the current Memorandum of Understanding between the City and Operating employees have the options to sell back the following types of leaves: Under Section 9.6,employeesmay exercise theoption twice each calendar year to convert any/or all accumulated compensatory time to cash. Under Section 14.3, employees may convert, on a twice per calendar year basis, unused vacation time for payment subject to the following conditions: i) the employee must have accrued vacation of at least 120 hours; ii) any payments made for unused vacationwill be subject to all appropriate taxes; iii) minimum exchange will be 8 hours; maximum exchange will be 80 hours; and, iv) all changes are irrevocable. Under these Regulations, the IRS considers income to be received for tax purposes ifthe individual actually receives it or has an option to receive it during each tax year. This is known as the constructive receipt doctrine. Application of this constructive receipt doctrine to the City's sell back of leave provisions would mean that any annual leave subject to sell back would have to be taxed as it is -1- Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement earned because the City's program allows the employee an unimpeded option to take this leave as cash rather than to take the time off. However, IRS Regulationsalso provide that the constructive receipt doctrine will not applyif an individual's control over the receipt ofincome is subject to substantial limitations or restrictions. Several private letter rulings have held that income is not constructively received as annual leave accrues if an individual has made an irrevocable election before the tax year in which it accrues to receive only a designated portion of this annual leave as cash. Relying on these private letter rulings as an indication of how the IRS would view the City's sell back ofleave provisions, the City has proposed and the Unionhas agreed to modify the program prospectively to comply withapplicable IRS Regulations. Summary of Modifications to Existing Leave Sell Back Provisions and Intent of This Agreement The modification contained in this Agreement is designed to preserve the employee's ability to receive sell back ofleave provisions but substantially limit that ability so that there is no "constructive receipt" as the IRS definesit. To accomplish this, an employee will be required to make an irrevocable election annually by December 31 or by the preceding Friday if December 31 falls on a Saturday or Sunday, to specify how much pay- in-lieu of leave to be earned in the following calendar year the employee wishes to receive during that calendar year. The details related to theadministration of this modified sell backof leave provisions are set forth below. Unless otherwise noted herein, an employee's right to earn and use annual leave as specified in any applicable MOUor City policies or Personnel Rules, remains unchanged. Terms of Agreement -2- Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement The Cityand the Unionenter into this Agreement and hereby agree to as follows: 1.Effective for all calendar years beginning on and after January 1, 2022, employees may sell back any applicable vacation or comp time leaves (as specified under Sections 14.3 and 9.6 of the MOU, respectively; collectively referred to hereinafter each calendar year, subject to the following rules: a.If an employee fails to elect by December 31each year or by the preceding Friday if December 31falls on a Saturday or Sunday, to receive any of the annual leavehours he or she will earnin the following calendar year as pay- in-lieu, his or her annual leave will accrue in accordance with the applicable MOU, City policy or Personnel Rules provisions. b.If an employee irrevocably elects by December 31each year or by the preceding Friday if December 31falls on a Saturday or Sunday, to receive a portion of the annual leave hours he or she will earn in the following calendar year, not to exceed 80 hours ofvacation or 80 hours of comp time for the calendar year, as pay-in lieu, the City willmake payments to the employee as designated on the City-approved form, which may occur up to twice annually on:the second full pay period in January and the second full pay period in July of the following year. However, an employee cannot request the pay-out of any pay-in-lieu hours until thosehours have been earned and accrued. Further, at the time of payment, the employee must have the requisite number of hours available and meet the requirements pursuant to the applicable MOU section for sell back. Otherwise, the amount to be cashed out will be based on the number of hours available at the time of the sell back payment. c.An employee must make an irrevocable election by December 31each year or.by the preceding Friday if December 31falls on a Saturday or Sunday, if the employee wishes to participate in the pay-in-lieu of annual leave program for the following calendar year. Elections will not automatically carry over from one calendar year to the next calendar year. An employee who fails to elect by December 31 each year or by the preceding Friday if December 31falls on a Saturday or Sunday, to participate in the pay-in-lieu -3- Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement of annual leave program for the following year will be deemed to have elected not to participate and he or she will be prohibited from receiving any pay-in-lieu during that year except as, and only to the extent, permitted under Section 4below. d.Eachyear, in advance of this annual December 31 deadline, the City will provide employees with notice and an explanation regarding the need for an irrevocable election as well as the relevant form for making the election. 2.When pay-in-lieu is cashed out, it will be paid based on the employee's rate of pay at the time it is paid. All pay-in-lieu pay-outs are taxable income, subject to all applicable withholdings and payroll deductions. 3.Existingcaps on theaccrual of annual leave will remain in effect. 4.Effective for calendar years beginning on and after January 1, 2022, an employee's election with regard to pay-in-lieu shall be irrevocable except in the event of an unforeseeable financial emergency subject to the following rules: a.In the event of an unforeseeable emergency, as defined in subsection b, an employee may apply to receive pay-in-lieu of annual leave accrued on or after January 1, 2022, but limited to the amount that is reasonably necessary to satisfy the emergency need, including any amounts that maybe necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated as a result of the cash out. If Human Resources approves an employee's application, the Citywill pay the employee the pay-in-lieu amount it deems necessary to meet the emergency need. b."Unforeseeable emergency" means a severe financial hardship of the employee resulting from an illness or accident of the employee, the employee's spouse, or the employee's dependent (as defined in Internal Revenue Code section 152, and, without regard to Internal Revenue Code sections 152(b)(1), (b)(2), and (d)(l)(B)); loss of the employee's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner's insurance, such as damage that is the result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a direct result of events beyond the control of the employee.For example, the imminent foreclosure or eviction -4- Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement from the employee's home may constitute an unforeseeable emergency. In addition, the need to pay for medical expenses, including non-refundable deductibles, as well as for the cost of prescription drug medication, may constitute an unforeseeable emergency. Finally, the need to pay for the funeral expenses of a spouse or dependent (as defined in Internal Revenue Code section 152, and, without regard to Internal Revenue Code sections 152(6)(1), (6)(2), and (d)(l)(B)) of the employee may also constitute an unforeseeableemergency. Neither the purchase of a home nor the payment of college tuition isan unforeseeable emergency. Pay-in-lieu of annual leave on account of an unforeseeable emergency will not be paid to the extent that such anemergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the employee's assets, to the extent liquidation of such assets would not itself cause severe financial hardship. Employees who face an unforeseen emergency and experience the need for an emergency cash out of annual leave are advised to contact Human Resources for a determination, which will be made based on the individualized and specific circumstances presented. 5.To comply with effective date of this change beginning on or after January 1, 2022, employees must make the requisiteelection by December 31, 2021. 6.Specific provisions in this Agreement supersede any previous agreements, whether oral or written, regarding the subject matter of this Agreement. 7.Upon approval by theCity Council, this Agreement is intended to be read in conjunction with the MOU and where in conflict on the specific issue covered by this Agreement, this Agreement will control. 8.The City and the Unionwill incorporate the language set forth in this Agreement into any successor MOU, as well as into and applicable City policiesand Personnel Rules. The terms and contents contained in this Side Letter Agreement shall remain in force beyond the expiration of the 2019 2022 MOU. -5- Operating Engineers, Side Local No. 3 Union, Letter AFL-CIO Agreement All otherprovisions of the parties' MOUshall otherwise remain infull force and effect. This Side Letter Agreement shall only become binding and effective upon the City adoption of this SideLetter Agreement. The parties' signatures below signify that they have met and conferred in good faith in th accordance with California Government Code Section 3500, «ºɎ¹«·. Agreed to on this 18 day of November2021, by the partiesauthorized representatives. For the CityFor the Union ___________________ ____________________________ _________ Christopher Boucher DateMichael Moore Date ___________________ _________ Kristina Alfaro Date ___________________ _________ Vanessa Guerra Date -6-