I've been in this situation with a coworker (as an AFC, which I sort of still am), and not escalating can actually be akin to being nonreactive and actually make her want you more (especially if you're teasing her and being naturally Cocky and Funny™ without ever having read DeAngelo and being completely unaware of pickup)...

But I think the answer is pretty simple here, just state or otherwise imply that you don't date people you work with under any circumstances, unless of course you're in a job where that's obviously not true because its not your career or the restaurant industry (in which everyone fucks each other) or something...

I've had to LJBF ex-girlfriends (I actually wanted to be friends with them, and am) and I've also done it to a few girls that were attracted to me. It depends on the personnality of the woman we're talking about, but in most cases so long as you have a legitimate reason:
- I'm really into someone else
- I'm not ready for a relationship yet

they'll back off abit, if you want to keep them as a friend after this point you'll need to put in the effort to let them know you want to be friends, but as with men when we're LJBF'd some women will back off because they feel as though they got shot down.

EXCEPTIONS:
I have however found that some women are a little more agressive, and that even if you LJBF'd them with a legit reason.. they'll go after you that much more. They'll tell you that they just want to be friends with you and then consistently try to seduce you.
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Best advice I could give you would be:
1) give them a reason that won't hurt their feelings but that gets the message across (you have to believe this reason cause if you don't it'll show in your body language)

2) Try to maintain the friendship by hanging out with them in very friendly contexts (ex: don't take her out for supper)

3) Stand your ground (if she starts trying to seduce you, let her know that you're just not looking for that)

dJ vIrAl