Terminating the Employment Relationship

3. O VERTIME AND C OMPENSATORY T IME O FF Wages also include other forms of vested, paid time-off, including accrued compensatory time off (“CTO”), which some employers allow an employee to choose in lieu of overtime. An employee shall upon termination be paid for unused accumulated CTO at the higher of: (1) the employee’s final regular rate of pay, or (2) the employee’s average regular rate of pay during the last three years of employment. 378 All overtime paid pursuant to the federal Fair Labor Standards Act (FLSA) must be paid at one and one half times the employee's regular rate of pay. 379 Under the FLSA, the term “regular rate of pay” does not mean an employee’s base or contractual rate of pay. Rather, the FLSA regular rate of pay is based upon all compensation for employment except for certain excluded payments. Longevity pay, educational incentive pay and senior/master officer pay are all types of compensation that must be included in an employee’s regular rate of pay under the FLSA. 380 The phrases “final regular rate of pay” and “average rate of pay” involve calculations that are beyond the scope of this workbook, but are discussed in detail in Liebert Cassidy Whitmore’s FLSA (Fair Labor Standards Act) Guide. 4. P OTENTIAL P ENALTIES FOR W ITHHOLDING W AGES Failure to pay an employee wages upon termination could subject an agency to penalties. The Labor Code provides that if an employer willfully fails to pay any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action is commenced. A separated employee may file a lawsuit for these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise. 381 B. U NEMPLOYMENT I NSURANCE B ENEFITS R EQUIREMENTS A frequent issue that arises upon separation of employment is unemployment benefits. In order to be eligible for unemployment compensation, a claimant must be an employee of the employer as determined under common law. 382 Employers often challenge a claim or appeal the State’s determination for unemployment compensation on the grounds that an employee was terminated for good cause, or the employee voluntarily quit and therefore, is not entitled to receive unemployment compensation. Regardless of the employer’s notion of what is considered “good cause” for the termination, the Unemployment Insurance Code is very specific as to what types of employee conduct or misconduct will preclude the individual from receiving unemployment compensation. Under the Unemployment Insurance Code, an employee is disqualified from receiving unemployment compensation if he or she left her employment voluntarily, without good cause, or was discharged for misconduct connected with his or her employment. 383 For the most part, when an employee separates his/her employment with the employer, the California Economic

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