Opinion  EC-COI-85-24

Date:	04/02/1985
Organization:	State Ethics Commission

A state employee would have a financial interest in his wife's proposed contract with his state agency because he shares in the management and control of his wife's business.

Facts

You are a full-time employee of state agency ABC and are not permitted to engage in personal or private work during normal working hours.

In 1961, you and your wife started a business and incorporated as the DEF Corporation (DEF), taking its name from your respective first names. Until 1967, both you and your wife ran the business and had an ownership interest in DEF, and you also consulted to the company. In 1967, you reduced your involvement with DEF and left the primary running of the business to your wife.

Currently the business operates out of your home, which you own jointly with your wife, and DEF pays a portion of the utilities costs and mortgage. Your wife owns all of the shares of the corporation, and the annual gross income of DEF is approximately $500,000. Since the corporation's creation, you have regularly played a role as a financial advisor and have continued in that role since 1967. You state that your advice is in two forms. Approximately once a month, you offer advice to your wife over the wisdom of purchasing the company's products, as well as over how DEF's money should be invested. You also meet with DEF's accountant/bookkeeper on a monthly basis to review DEF's books. Although your wife characterizes your contribution as more akin to spousal discussion rather than to status as a financial consultant, you perform your services on a regular basis.

DEF is now interested in selling technical equipment to ABC. DEF has not done business with ABC since you joined ABC in 1972, pursuant to a directive of the ABC counsel.

Question

Would DEF's contracting with ABC place you in violation of G.L. c. 268A, § 7?

Answer

Yes, as long as you maintain your current advisor relationship to DEF.

Discussion

As an employee of ABC, you are a state employee for the purposes of G.L. c. 268A and are therefore subject to the restrictions of that statute. Under G.L. c. 268A, § 7, you are prohibited from having a financial interest in a contract made by a state agency (other than your employment contract). For example, you could not personally contract with ABC.^[1] For the reasons stated below, the Commission concludes that your wife's financial interest in her proposed ABC contract would be attributable to you, and that you would therefore have a financial interest prohibited by § 7.

When the wife of a state employee contracts with a state agency, the financial interest which may accrue to the wife is not automatically attributed to the state employee solely as a result of the marriage relationship. For example, in EC-COI-79-77,^[2] the Commission concluded that § 7 did not prohibit the wife of a state employee from being employed by a state agency. However, there are cases where the nature of the interest and the circumstances involved will necessarily result in attribution of the financial interest to the state employee. Where the husband shares in the management and control of his wife's business, or has a formal ownership interest in the proceeds of the wife's contract, the financial interest of the wife will be attributed to the husband for the purposes of § 7. For example, in EC-COI-83-111, the Commission concluded that a husband state employee retained a financial interest in his wife's sale to his state agency of land which until recently they had owned jointly. The Commission reached a similar conclusion in EC-COI-83-37, in which the husband was a general and limited partner in a partnership which had a contract with a state agency. Upon learning of his impending employment by the state, he assigned all of his rights in the partnership to his spouse for no consideration. Prior to that assignment, his spouse was not involved with the partnership. In view of the circumstance surrounding the assignment, the Commission concluded that the husband would have a financial interest in the partnership for § 7 purposes. See, also, EC-COI-84-13; 83-125.

The key question in each case is whether the state employee can fairly be said to have a financial interest in his wife's contract with the commonwealth. See, Buss, The Massachusetts Conflict of Interest Statute: An Analysis, 45 B.U.L. Rev. 299, 375 (1965). Cf. Starr v. Board of Health of Clinton, 356 Mass. 426 (1969). Because you share in the management and control of your wife's business, you will be deemed to have a financial interest in her contract with ABC. Your contributions are substantive, regular, and affect the financial decisions of your wife's company. Therefore, as long as you maintain your advisory relationship to the company, you will share your wife's financial interest in her ABC contract.

To avoid violating § 7, you must, at a minimum, cease advising your wife concerning the purchase of products, how DEF's money should be invested, and meeting with DEF's accountant/bookkeeper to review DEF's books. Although desirable to dispel any impression that you contribute to your wife's company, it is not necessary for your wife to change the name of DEF. See, EC-COI-83-123.^[3]

 

End Of Decision

^[1] Although recent amendments to § 7(b) have eased somewhat the broad prohibition against contracts with other state agencies, the statute retains the prohibition against an employee contracting with his own state agency.

^[2] These citations refer to previous advisory opinions issued by the Commission. Copies of these and all other advisory opinions may be obtained at the Commission's offices.

^[3] No exemptions under § 7 are available to you. Unlike faculty members, you are not a special state employee because you are not permitted to engage in personal or private work during normal working hours. See, G.L c. 268A, § 1(o); § 7(d), (e).