|Advisory Opinion No. 98-09:||Application of Public Officers Law §74 to State employees who may be called upon to act on matters involving prior employers or past business relationships.|
The State Ethics Commission ("Commission") has recently been asked for advice as to the implications of the Public Officers Law when a State employee is called upon to act on a matter which involves a prior employer or an entity with which the employee has had a past business relationship. This situation most commonly arises when an individual has moved from the private sector into the public sector.
Pursuant to the authority vested in it by Executive Law §94(15), the Commission renders its opinion that, under Public Officers Law §74, a State employee who enters State service from the private sector must consider recusal from any matter concerning a former employer or business entity with which he or she had a relationship within the prior two years, with the decision to be based upon the standards set forth in this opinion.
Public Officers Law §74, the Code of Ethics, provides the minimum standards against which State officers and employees are expected to gauge their behavior. The Code addresses the conflict between the obligation of public service and private, often personal, financial interest. The rule with respect to conflicts of interest is as follows:
No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest.
Following the rule with respect to conflicts of interest, Public Officers Law §74(3) provides standards of conduct which address actual as well as apparent conflicts of interest:
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The State of New York, like other governmental and private sector employers, is continuously recruiting those who are experienced in the areas in which it acts. It seeks individuals who have shown through their efforts that they have significant talent and abilities. These recruitment efforts seek out not only those who already work for the State or for other governments, but also those who are engaged in the private sector. Hiring an outstanding individual from the private sector and bringing that person into State service is considered a success in the State's never-ending efforts to obtain top quality employees. When such an individual decides to join State service, there is the opportunity to use his or her talents to benefit the State and its citizens. This should be encouraged.
When someone enters State service directly from the private sector, that individual has customarily been engaged in the field of work in which he or she will work for the State. Whether it is, for example, transportation or criminal justice or banking or insurance, the individual will have experience, possibly as an attorney, engineer or other professional, and will have had private employers, private clients or other business relationships. In carrying out public sector work, the employee may have to deal with those with whom he or she had a prior relationship, thereby raising the potential for ethical concerns. Where ethical concerns arise, recusal on the part of the State employee may be required. However, with each recusal, the State loses the benefit of the person's expertise, often to its detriment and the detriment of its citizens.
There is a tension between the need to prevent conflicts of interest or their appearance, as required by Public Officers Law §74, and the State's need for the services of skilled and talented employees recruited from the private sector. This opinion is intended to serve as a guide in resolving those tensions.(1)
In Advisory Opinion No. 94-11, the Commission had occasion to consider the issue of the prior employment and past business relationships of part-time, unpaid members of a State Board responsible for acting on funding applications submitted pursuant to two different programs. The Commission noted that "[g]enerally, prior employment or past business relationships may affect a board member's judgment in his or her State position." It cited paragraphs (d),(f) and (h) of Public Officers Law §74(3), noting that a board member's vote on a funding application submitted by an entity with which the member had a prior relationship might be perceived as the member's using his or her official position to "secure unwarranted privileges or exemptions" for another or giving "reasonable basis for the impression" that he or she can be improperly influenced, or raising suspicion among the public that the member is engaged in acts in violation of his or her trust.
The Commission held that whether a conflict of interest results from a Board member's acts must be determined on a case-by-case basis. It set forth the factors that it would consider in making determinations. First, it would examine how recently the Board member had a prior relationship. In considering the time elapsed, the Commission looked to Public Officers Law §73(8)(a)(i) for guidance. This statute applies a two year rule to the restrictions placed on State employees who leave State Service. The Commission noted that the underlying assumption is that the opportunity to improperly profit from a former employee's State service is greatest during that time period, and the two year period was chosen by the Legislature based upon what it believed to be reasonable.
The Commission concluded in Advisory Opinion No. 94-11 that a similar, though not identical, rule should be applied to a Board member's past employment and business relationships. Without a statutory basis, the Commission believed that it could not impose an absolute rule forbidding Board members from acting on applications from former employers or those with whom they had business relationships within two years of the severing of the prior relationship. However, given the Legislature's decision that two years is a period in which judgments may be problematical, the Commission was prepared to presume that actions taken within two years created the potential for a conflict.
Thus, the Commission adopted a presumption that the vote by a member of a board on a funding application submitted by a former employer or a business with which he or she had a relationship within the last two years creates the potential for a conflict. The Commission noted that such a presumption could be rebutted by looking at other factors, such as the nature and duration of the relationship. For example, the Commission would weigh whether the board member was in an employment relationship with the applicant, which implies daily oversight and control, or was in a consulting relationship, which suggests a more temporary connection; whether the board member was an officer or senior official of the applicant; whether the board member or the applicant had a fiduciary relationship with the other; whether the applicant was the actual former employer or business entity with which the board member had the relationship or whether it is a related, subsidiary, or umbrella organization; and for how long the relationship existed.
Advisory Opinion No. 94-11, while useful, should not be considered as controlling in the case of full time State employees. It dealt with unpaid, part-time board members, many of whom are actively engaged in private activities while serving the State. The applications they considered were for State funding, a subject that is always extremely sensitive. In addition, since a multi-member board was involved, the recusal of one member was not a serious problem, as there were other members of equal status who could make decisions. These considerations are all quite different in the context of the customary work of a full time State employee.
In looking to other jurisdictions, the Commission found no states with statutes or opinions directly addressing the issue. However, the City of Seattle's Code of Ethics requires that a city officer or employee disqualify himself or herself from acting in any transaction which involves any person who at any time within the preceding 12 month period has been a personal private client of the employee or a client of his or her firm or partnership. This has the advantage of clarity, but it seems to go farther than is necessary and may deprive the City of the services of a valued employee. In contrast, the federal government offers a flexible approach.
At the federal level, the Office of Government Ethics has issued regulations concerning a "covered relationship." This includes "any person for whom the employee has, within the last year, served as . . . attorney, consultant, contractor or employee." Under 5 CFR Part 2635.502, where an employee knows that a person with whom he or she has a covered relationship is a party to a matter or represents a party and the employee determines that the circumstances would cause a reasonable person with knowledge of the relevant facts to question his or her impartiality, the employee should not participate without informing the agency designee and receiving authorization from the designee in accordance with a process set forth in the regulations. Under the federal regulations, the agency designee has broad discretion to authorize the employee's participation if, in light of all relevant circumstances, the interests of the Government in the employee's participation outweigh the concern that a reasonable person may question the integrity of the agency's programs (see, OGE Opinion 95x5). Factors which the agency designee may take into consideration include:
The Office of Government Ethics gives examples of how this process works, and includes the following:
A new employee of the Securities and Exchange Commission is assigned to an investigation of insider trading by the brokerage house where she had recently been employed. Because of the sensitivity of the investigation, the agency designee may be unable to conclude that the Government's interest in the employee's participation in the investigation outweighs the concern that a reasonable person may question the integrity of the investigation, even though the employee has severed all financial ties with the company. Based on consideration of all relevant circumstances, the agency designee might determine, however, that it is in the interest of the Government for the employee to pass on a routine filing by the particular brokerage house.
When the federal government attempted, in one instance, to adopt a fixed rule, eliminating the flexibility offered by the regulations, it found itself with a problem. The Lobbying Disclosure Act of 1995 disqualified from eligibility to serve as United States Trade Representative or Deputy Trade Representative anyone who at any time in the past had represented or advised a foreign government in a trade negotiation or trade dispute with the United States. (19 U.S.C. §2171[b]). Two years later, when Charlene Barshefsky was nominated to serve as Trade Representative, the Senate and House passed measures waiving the prohibition with regard to her. During the Senate debate, a resolution and report of the American Bar Association was placed on the record in which the ABA urged repeal of the restriction. The report, authored by the ABA Section of International Law and Practice, set forth the problem that arises when flexibility is denied.
The provision sets a dangerous precedent for limiting the availability of qualified candidates to serve in the U.S. Government. It automatically disqualifies potential nominees solely based on a prior relationship with a particular type of client. Such a rule, which effectively equates an advocate's personal views with those of his or her client, reflects an unwarranted and incorrect view of the lawyer/client relationship, especially in view of the ethical obligations of lawyers and the constitutionally - recognized right to counsel. In addition, such a rule takes no account of the nature, length, significance or contemporaneity of the relationship with the former client.
The report noted that:
[w]hen an individual leaves the private sector and becomes a government official, he or she takes on totally new responsibilities and must move beyond all prior client interests-those of domestic and foreign clients alike. Other than preserving their confidences, an appointee has no continuing obligation to prior clients.
The report further noted that the best qualified candidate for the trade representative position may be someone who has some experience advising foreign clients, citing the adage that it is useful for a prosecutor to have had experience serving as defense counsel. Finally, the report noted that a significant danger of the USTR Amendment is that the same principle could be applied to other government positions involving disciplines other than international trade negotiation. It warned that adoption of a rule that anyone who has given advice to entities in a regulated industry is disqualified from putting his or her expertise to use as a regulator in that industry would dramatically restrict the pool of qualified regulators.
While the Commission shares the concerns expressed by the ABA, it cannot ignore its mandate to interpret the Public Officers Law to prevent conflicts of interest and the appearance of conflicts. As the Commission said in applying §74:
A public servant's actions and affiliations must be above reproach, even if no actual conflict of interest is present. Any associations that give rise to the suspicion of favoritism, self-dealing or personal private gain by State officers and employees shake the public's confidence. (Advisory Opinion No. 96-29)
Thus, while the standards to be used in applying §74 should not effectively preclude individuals from the private sector from joining the State workforce, they must be maintained so as to give the public confidence that such individuals will be acting in the public interest and not in the interest of their previous employer or business associates.
In setting appropriate standards, the Commission begins by considering the time that has passed since the State employee left his or her private sector position. For the reasons discussed in Advisory Opinion No. 94-11 -- primarily, the Legislature's selection of a two year period of preclusion for those who have left State service -- the Commission holds that the period of examination for a potential conflict of interest is two years. Once an employee has been in State service for this period of time, any potential conflict that may have existed is diminished by the passage of time. This gives assurance to State employees that they will not have to examine every previous relationship throughout their period of State service, especially where the period of such service is lengthy.
Within the two year period, the potential for conflict must be examined when an employee has occasion to deal with a person with whom or an entity with which he or she has had a prior relationship. The immediate question facing the employee is whether recusal is required.
Unlike the result reached in Advisory Opinion No. 94-11, with respect to unpaid, part-time board members passing on funding applications, the Commission will not create any presumption of required recusal with respect to full time employees. The work of these employees is too varied to make it likely that there either is or is not a conflict. Thus, the significance of the two year period is that within this period further inquiry must be made, while it need not be made after two years have elapsed.
The next question, of course, is what inquiry is to be made where a matter is within the two year period. Here, the federal regulations serve as a useful guide. As noted above, 5 CFR Part 2635.502 sets forth six factors which serve to help reach a decision. In examining these factors, the Commission finds that the most critical are: the nature of the prior relationship; the nature and importance of the public employee's role in the matter, including the discretion to be exercised; and the sensitivity of the matter. Each of these should be judged in any situation that may arise.
In considering the nature of the prior relationship, certain questions will be presented. Does the matter concern a former employer of the State employee or a client? If a client, was it a client of the employee or of the firm of which the employee was a member? Was it a longstanding client? Was it a significant client in terms of the firm's overall business? Was it personally serviced by the employee? Whatever the nature of the prior relationship, how long did it last?
With regard to the matter before the agency, the federal regulations allow for the consideration of adjustments that can be made in the employee's duties that would reduce or eliminate a potential conflict. For example, where there is some potential for conflict, the close supervision by a supervisor of the affected employee's work would reduce the appearance that the employee might act inappropriately to favor his or her past employer or business associates. Permitting a potentially conflicted employee to play a diminished role might permit the employee to offer the benefit of his or her expertise while reducing the potential for conflict by minimizing the employee's discretion.
The Commission is aware of the difficulty that these standards place on employees of the State who have left the private sector, as they must weigh the above factors to determine whether recusal is required. The alternative, however, is a standard with far less flexibility, which the Commission, for reasons it has set forth, declines to adopt. It believes that the employee's difficulty is significantly diminished by its setting a two year period as the time within a potential conflict based solely on a previous relationship must be considered.
Employees who find themselves faced with the question of whether they are required to recuse themselves based on prior relationships are urged to consult with agency counsel and/or the Commission. Such inquiry should be made before an employee becomes involved in the matter. In responding to any such inquiry, agency counsel should apply the factors set forth in this opinion. The Commission remains available to address questions posed by agency counsel or individual employees, and, upon request, to make a determination as to whether an employee may participate in a particular matter.
State employees should be aware that each employee ultimately bears the responsibility of ensuring that his or her actions are not in violation of Public Officers Law §74.
When a State employee is called upon to act in his or her State position on a matter which involves a prior employer or an entity with which the employee has had a past business relationship and the prior employment or business relationship was within the prior two years, the employee is required to consider recusal from the matter, with the decision to be based upon the standards set forth in this opinion.
Pursuant to Executive Law §94(15), an opinion rendered by the Commission, until and unless amended or revoked, shall be binding on the Commission.
Paul L. Shechtman,
Evans V. Brewster
Henry G. Gossel
O. Peter Sherwood,
Dated: July 15, 1998
1. This opinion addresses only those situations where a State employee has severed all ties with a previous employer or other entity where there is a past business relationship. It is not intended to address, for example, a situation where a State employee has retained a financial interest in a previous employer or left with an understanding that he or she may return in the future.