CITY OF
lFPl'E Local 21
Cupertino
Employees
Association
CUPERTINO
2019 - 2022 MOU
Side
Letter
Agreement
SIDE LETTER AGREEMENT TO THE
2019 - 2022 IFPTE, LOCAL 21, CUPERTINO EMPtOYEES
ASSOCIATION MEMORANDUM OF UNDERST ANDING
CONCERNING CONSTRUCTIVE RECEIPT AND [,EAVE
SELLBACKS
DATE: November 30, 2021
Background Overview
This Side Letter Agreement ("Agreement") relates to modifications to the City of Cupertino's ("City") 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 IFPTE, Local 21, Cupertino Employees Association ("Union") effective July 16, 2019 through June 30, 2022 ("MOU"), employees have the options to sell back the fonowing types of leaves:
@ Under Section 7.6, employees may exercise the option twice eaaz calendar year to convert any/or an accumulated compensatory time to cash. * Under Section 17, employees may convert, on a twice per calendar year basis, unused vacation time for payment subject to the following conditions: i) the employee musthave accrued vacation of at least 120 hours; ii) any payments made for unused vacationwin be subject to all appropriate taxes; iii) minimum exchange will be 8 hours; maximum exohange wffl be 80 hours; and, iv) all ianges are irrevocable.
Under these Internal Revenue Service ("IRS") Regulations, the IRS considers income to be received for tax purposes if the individual actually receives it or has an option to receive it during each tax year. This is known as the constructive receipt doctrine. -1-
CITY OF 2019 - 2022 MOU
lFPl'E, Local 21
Cupertino
Employees
Association
CUPERTINO
Side
Letter
Agreement
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 earned because the City's program allows the employee anunimpeded option to take this lepye as cash rather than to take the time off.
However, IRS Regulations also provide that the constructive receipt doctrine will not apply if an individual's control over the receipt of income 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 iii wl-ach 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 of leave provisions, the City has proposed and the Union has agreed to modify the program prospectively to comply with applicable IRS Regulations.
Surnrnarv 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 of leave provisions but substantially limit that ability so that there is no "constructive receipt" as the IRS defines it. 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 muchpay- in-lieu of leave to be eamed in the following calendaryear the employee wishes to receive during that calendar year.
The details related to the administration of this modified sell back of leave provisions are set forth below. Unless otherwise noted herein, an employee's right to eam and use annual leave as specified in any applicable MOU or City policies or Personnel Rules, remains unchanged.
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CITY OF 2019 - 2022 MOU
lFPl'E, Local 21
Cupertino
Employees
Association
CUPERTINO
Side
Letter
Agreement
Terms of Agreement
The City and the Union enter into this Agreement and hereby agree to as fonows:
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 7.6 and 17 of the MOU, respectively; collectively referred to hereinafter as "annual leave hours"), each calendar year, subject to the fonowing rules:
a. If an employee fails to elect by December 31 eadi year or by the preceding Friday if December 31 falls on a Saturday or Sunday, to receive any of the annual leave hours he or she will eam in the fonowing calendar year as pay- in-lieu, his orher annual leave will accrue in accordance withthe applicable MOU, City policy or Personnel Rules provisions.
b. If an employee irrevocably elects by December 31 eadi year or by the preceding Friday if December 31 falls on a Sahirday 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 of vacation or 80 hours of comp time for the calendar year, as pay-in lieu, the City will make 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 July and the second full pay period in December of the following year. However, an employee cannot request the pay-out of any pay-in-lieu hours until those hours 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 31 each year or by the preceding Friday if December 31 falls 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 -3-
CITY OF 2019 - 2022 MOU
IFPIE, Local 21
Cupertino
Employees
Association
CUPERTINO
Side
Letter
Agreement
who fails to elect by December 31 each year or by the preceding Friday if December 31 falls on a Saturday or Sunday, to participate in the pay-in-lieu 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 thatyear except as, and only to the extent, permitted under Section 4 below.
d. Each year, 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 payron deductions.
3. Existing caps on the accrual 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 ruIes:
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 emergeng need, including any arnoiu"its that may be 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 City will 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 -4-
CITY OF 2019 - 2022 MOU
lti'PTE Local 21
Cupertino
Employees
Association
CUPERTINO
Side
Letter
Agreement
unforeseeable circumstances arising as a direct result of events beyond the control of the employee. For example, the imminent foreclosure or eviction 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 in"iforeseeable emergency. Finally, the need to pay for the funeral expenses of a spouse or dependent (as defined inn Internal Revenue Code section 152, and, without regard to Intemal Revenue Code sections 152(6)(1), (6)(2), and (d)(l)(B)) of the employee may also constitute an unforeseeable emergency. Neither the purchase of a home nor the payment of college tuition is anunforeseeable emergency. Pay-in-lieu of annualleave on account of an iu'iforeseeable emergency willnot be paid to the extent that such an emergeng 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 sudi 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 circiunstances presented.
5. To comply with effective date of this change beginning on or after January 1, 2022, employees must make the requisite election 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 the City 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 Union wffl incorporate the language set forth in this Agreement into any successor MOU, as well as into and applicable City policies and 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-
CITY OF 2019 - 2022 MOU
IFPTE Local 21
Cupertino
Employees
Association
CUPERTINO
Side
Letter
Agreement
All other provisions of the parties' MOU shall otherwise remain in full force and effect.
This Side Letter Agreement shall only become binding and effective upon the City Council's approval and adoption of this Side Letter Agreement.
The parties' signatures below signify that they have met and conferred in good faith in accordance with California Government Code Section 3500, et seq. Agreed to on this 18' day of November 2021, by the parties' authorized representatives.
For the City For the Union
StanleyYoung 12/15/21
Christopher Boucher Date Stanley Young Date
Kristina Alfaro Date
Vanessa Guerra Date
StanleyA. yo&g (Dec 15, zozi'rf:oy PST)
Emai(: [email protected] Email: [email protected] Email: [email protected]
Signatura: W
KristinaAlfaro (oeJsi 2021 09:09 PST)
Email: [email protected]
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2021-12-14 Rev CEA Side Letter Agreement
(Clean)
Final Audit Report 2021-12-16
Created:
BY:
Status:
Transaction ID:
202al-12-15
Vanessa Guerra([email protected])
Signed
CBJCHBCAABAA3klMusHnQpgy5Hal4jzWYsFr-bazUY
'12021-12-14 Rev CEA Side Letter Agreement (Clean)" History '5 Document created by Vanessa Guerra ([email protected]) 2021-12-15 - 7:05:29 PM GMT- IP address: 108.213.70.66 R Document emailed to Stanley A. Young ([email protected]) for signature 2021-12-15 - 7:06:15 PM GMT
Email viewed by Stanley A. Young (syoung@ifpte2'l.org)
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