Ethics Primer: Financial Interests in Contracts

The information provided is educational in nature and should not be considered legal advice. Persons with questions about a specific situation should contact the Ethics Commission for free confidential advice.

Section 20 of G.L. c. 268A, the conflict of interest law, generally prohibits a municipal employee (paid or unpaid, appointed or elected, full-time or part-time) from having a financial interest, directly or indirectly, in a contract made by an agency of the municipality in which he serves. However, the section also provides numerous exemptions from this prohibition.

Who must get an exemption?

There are three types of municipal employees who must qualify for an exemption.

First, any current municipal employee who wants to add another municipal position that is appointed and compensated must qualify for an exemption. Similarly, if the municipal employee wishes to have a financial interest in a municipal contract that does not involve another municipal position, she must also qualify for an exemption.

Second, if a prospective municipal employee already has a financial interest in a contract with his municipality, he must qualify for an exemption when he begins to serve as a municipal employee.

Third, if a current appointed and compensated municipal employee wants to add an unpaid municipal position or an elected municipal position (whether paid or unpaid), she will need to qualify for an exemption. However, unlike the first two types of municipal employees described above, she needs to qualify for an exemption that will allow her to continue to be paid in her current municipal position while also serving in her appointed/unpaid or elected position.

Who does not need an exemption?

Section 20 does not prohibit anyone from holding a number of unpaid positions. Section 20 does not prohibit anyone from holding more than one popularly elected position, even if one or more of those elected positions is paid.

Special Municipal Employees

The Legislature created ’special municipal employee’ status to allow municipalities to engage individuals who, otherwise, might not be able to serve because of their private activities in their municipalities or because they already are municipal, or special municipal, employees in another capacity in their municipality.

1. The mayor and members of the boards of aldermen, city council or selectmen in a town with a population over 10,000 persons may not be special municipal employees;
2. Selectmen in a town with a population of fewer than 10,000 persons are automatically special municipal employees;

For all other positions, the city council, board of aldermen, town council or board of selectmen may classify municipal positions as special if:

1. All employees who hold equivalent positions or serve on the same board are designated special municipal employees; AND

2. the employees are unpaid; or are permitted personal and private employment during normal working hours; or do not earn compensation for more than 800 hours during the preceding 365 days.

Special municipal employee status narrows, but does not eliminate, the scope of the restrictions on a special municipal employee’s conduct.

Exemptions

The Legislature recognized that the needs of different municipalities may differ. The following exemptions allow a great deal of local control in order to allow municipalities to meet their individual needs.

1. A municipal employee who is not a special municipal employee may have a financial interest in a contract with his municipality if:
   • the municipal employee is not employed by and does not participate in or have responsibility for the activities of the contracting agency or an agency which regulates the activities of that agency;
   • if the contract is made after public notice or competitive bidding; and
   • if the municipal employee files with the clerk a disclosure of his and/or his family’s interest.

   In addition, if the contract is for personal services, additional requirements must be met; a municipal employee seeking a contract for personal services should seek advice from the Ethics Commission

   • A special municipal employee may have a financial interest if she "does not participate in or have official responsibility for any of the activities of the contracting agency" and she files with the clerk of the city or town a disclosure of her interest and her immediate family’s interest.

   • A special municipal employee who either participates in or has official responsibility for any of the activities of the contracting agency must not only file the same disclosure as described in §20(c) but also obtain the approval of the "city council or board of aldermen, if there is no city council, board of selectmen or the district prudential committee" for an exemption.

As the general prohibition and the §20(b) exemption indicate, it is much more difficult for municipal employees to qualify for exemptions. However, there are specific exemptions for types of positions or financial interests that are available to both municipal and special municipal employees. These include:

• a municipal employee who receives benefits in connection with the rental, improvement, or rehabilitation of his residence;
• a municipal employee who adds a part-time, call or volunteer job with police, fire, rescue or ambulance departments;
• a municipal employee who is eligible for a local housing authority subsidy; and
• a municipal employee who owns housing in which tenants receive a local housing authority subsidy.

There are also exemptions for municipal employees to retain their municipal jobs and to also serve as elected selectmen and town or city councilors. Similarly, there is an exemption for an employee of a housing authority who is elected to an office other than mayor.

Finally, §20 does not prohibit an employee in a town having a population of less than three thousand five hundred persons from holding more than one appointed position with that town, provided that the board of selectmen approves the exemption of his interest from this section. This exemption does not allow an elected municipal official to be appointed to additional positions in which he would have a financial interest in a contract.

It’s complicated! You can contact the Ethics Commission at 617-371-9500 for specific advice.