Opinion  EC-COI-11-1

Date:	02/18/2011
Organization:	State Ethics Commission

Section 7 applies where a newly-elected state legislator has a financial interest in a state contract negotiated prior to his election.

Facts

A newly-elected state legislator seeks guidance with respect to steps he must take to comply with Section 7 of the conflict of interest law, General Laws chapter 268A. Section 7 prohibits state employees from having financial interests in state contracts, unless an exemption applies.

The legislator, who was sworn in in January 2011, is the 100% owner of a small family business. In addition to the legislator, the business has two full-time employees and a bookkeeper. The business provides services to a state agency; this has been the usual practice for at least 30 years. Sometimes the business uses independent contractors in addition to its two regular employees to help with the work. As it has done in prior years, the business entered into a contract with the state agency prior to the legislator's election. The contract was a standard form contract and the terms are not individually negotiable. Under the standard contract, the state agency specified the price and equipment for the services to be provided. The contract will expire in several months.

Prior to being sworn in, the legislator sought advice from the Commission's Legal Division and was advised that, once he became a state employee upon his swearing-in, the contract between his business and the state would give him a prohibited financial interest in a state contract in violation of Section 7, and that no exemption under Section 7 was available to allow him to retain that financial interest. The legislator was advised that he would need to take steps to eliminate that financial interest. While Section 7(a) of the conflict of interest law requires that prohibited financial interests must be terminated within 30 days after a state employee learns of the violation, the legislator was given extra time, until 30 days after being sworn in, to comply with the law.

The legislator states that he has explored various ways to comply with the law. First, because the contract itself specifies the use of his business's equipment and personnel, it is not feasible to eliminate his financial interest in the contract by having the state agency contract directly with his employees. It is also not feasible to sell the part of his family business which will provide services under the state contract because that equipment is in use for other purposes. He is reluctant to sell a business that has been in his family for 50 years, and he is also concerned that early termination of the contract will put his employees out of work. He requests that the Commission allow the contract to run its course and terminate in several months, on its expiration date, rather than requiring an earlier termination.

Question

Where a newly-elected state legislator has a financial interest in a state contract negotiated prior to his election and using standard agency contract terms that were not individually negotiated with his company, and where the contract will terminate by its own terms in several months and early termination has the potential to create a hardship for the employees who do the work, may the legislator be allowed until the contract expiration date to eliminate the prohibited financial interest in a state contract?

Answer

Yes. Here, the evils aimed at by Section 7 - use of position by state employees to obtain contractual benefits, and public perception that state employees have an "inside track" to such opportunities - are not present here, where a family business has a 30 year history of entering into such contracts, the contract in question was entered into prior to the legislator's election, and it was a standard form contract not individually negotiated with the legislator's company. In light of the potential hardship to the company employees who may be out of work if the contract is terminated prematurely, the legislator may have until the contract termination date to eliminate the prohibited financial interest in a state contract.

Analysis

Section 7 of the conflict of interest law prohibits state employees from having a financial interest in a state contract, unless an exemption applies. Section 7 is intended to prevent state employee from using their positions to obtain contractual benefits from the state and to avoid any public perception that state employees have an "inside track" on such opportunities. EC-COI-94-4.

While the facts here do not give rise to any concern about an "inside track," the legislator's company's contract with the state agency gives him a prohibited financial interest in a state contract, unless an exemption applies. Members of the General Court have only one potential exemption available, under Section 7(c), and it applies only where the member has a 10% or less interest in the contracting company. Since the legislator is the 100% owner of his family business, he cannot use that exemption, and no other exemption is available. Consequently, in order to comply with Section 7, the legislator must divest himself of that financial interest.

The statute requires that such divestment be accomplished within 30 days from when a violator learns of the violation. However, the Commission has previously permitted extra time to dispose of prohibited financial interests in public contracts where strict application of the 30 day rule would cause hardship to innocent third parties. EC-COI-96-4. The Commission has also permitted extra time when legal constraints will prevent complete divestment within the required 30 days. EC-COI-91-2.

In the particular circumstances of this contract, it appears likely that requiring immediate termination of the contract will cause hardship to the employees of the legislator's company. The Commission finds that additional time is warranted to prevent such undue hardship, and that, therefore, the contract between the legislator and the state agency may be allowed to continue until its stated termination date. Going forward, the legislator will of course remain subject to the prohibition against having a financial interest in a state contract unless an exemption applies for as long as he remains a state employee.

 

End of Opinion