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Opinion EC-COI-87-8

Date: 04/06/1987
Organization: State Ethics Commission

The treasurer and owner of a for profit business corporation was advised that he was a municipal employee by virtue of a contract between the corporation and a city agency.


You are treasurer and owner of Y Consulting, Inc., a for-profit
business corporation which provides real estate and economic
development consulting. The directors and officers of the
corporation are you as treasurer, your wife as president, and a
third individual who is clerk. There are three full-time
professional employees of the company: you, your wife and a third
individual. The corporation shares the time of a secretary with
another business located in the same building. In 1986 the
corporation employed as consultants eight

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individuals including architects, engineers and market researchers.
In 1986, the corporation had 31 different clients, eight of which
were municipalities; the remaining 23 were individuals, business
corporations, and nonprofit corporations. The corporation does
business primarily in Massachusetts.

Firm Associates, Inc., d/b/a Y Associates, was incorporated in
1984. You were sole owner, president and the only professional
employee. In 1985 Firm Associates became a sole proprietorship and
operated as such throughout 1985. Then, in 1986, Y Associates again
did business through a corporation, Y Consulting Inc., incorporated
on January 1,1986. In 1984,1985 and 1986 you signed contracts
between Firm Associates and the City of Z (City). Contracts were
all signed in the same way, in a non-corporate capacity, and the
invoices for services provided pursuant to those contracts appear
on a letterhead which does not refer to a corporation. You
personally rendered 100% of the services during 1984, 1985 and 1986
to the City. All three of the above contracts were substantially
identical. None of contracts specifically identifies you as the
person to provide the services, however, you exclusively performed
all the services of Firm Associates which were rendered to the
City. Further, the contracts read as a whole clearly contemplate
your provision of services. For example, contracts provided for
"membership on ... the XYZ Committee and the Mayor's Economic
Development Cabinet," services which it would have been reasonable
for the City to assume would be performed by you.

The corporation has executed a new contract with the City for
1987. The form of the contract has substantially changed. The 1987
contract with the City is with Y Consulting, Inc. and Ms. X has
signed the contract as president of the corporation. All invoices
have been and will be submitted on corporate letterhead. The
contract does not specify which employees of the corporation will
provide the services required under the contract. As to form, the
City has contracted with a corporation to provide real estate
development services. In the 1987 contract, the parties agreed to
delete the general category of "Economic Development Coordination",
and thus, you were not assumed to serve as member of the XYZ
Committee or the Mayor's Economic Development Cabinet. Under the
1987 contract, the community development department does not expect
to deal exclusively with you, but rather expects that services will
be provided by various employees of the corporation based on
ability and other appropriate factors. To summarize, the
differences between the previous contracts and the 1987 contract
with Firm Consulting, Inc. are as follows: the 1987 contract with
the City was the contract of that corporation and not of any
individual; the name of the party contracting with the City was
changed from Firm Associates to Y Consulting, Inc., which was
then identified as a Massachusetts corporation; the corporation was
identified as the vendor whereas previously the contracts had
identified Firm Associates as the consultant; the scope of services
was amended so as not to require your individual services; and Ms.
X, your wife, signed the contract as president of the corporation
rather than by you, as had been the case in the past.

You intend to concentrate your efforts with regard to the 1987
contract on project management, particularly, ABC Place and the
proposed development of the BCD center and of CDE park. Your
services with respect to ABC Place are a continuation of the
services which you provided in 1986. You have asked the Commission
to assume that your services under the 1987 contract might comprise
as much as 90% of the total fees to be billed by Y Consu]ting, Inc.
to the City. The services billed under the contract between the
City and Y Consulting, Inc. will represent approximately 10% of the
revenue of the corporation in 1987, based on the actual figure for


Are you a municipal employee under G.L. c. 268A, s.1(g), by
virtue of the 1987 contract between Y Consulting, Inc., and the




The definition of "municipal employee" under G.L. c. 268A,
s.1(g)[1] is very broad. It covers not only individuals who work
on a full-time basis for a municipality, but also individuals who
perform services for a municipality on an intermittent basis under
a contract of hire. The statute, for example, leaves no doubt that
a lawyer, architect or the like rendering professional services to
a municipal agency would be a municipal employee. Buss, The
Massachusetts Conflict of Interest law: An Analysis, 45 B.U. Law
Rev. 299,311(1965). It is obvious that a professional who performs
services for a municipal agency would remain subject to the
conflict law notwithstanding his having formed a corporation. For
example, an attorney who formed a professional corporation would
be deemed a municipal employee if he performed legal consulting
work for a municipal agency irrespective of the form of the
paperwork. See Manning, Federal Conflict of Interest law, p.32

The Commission has recognized that there are situations which
may arise where the connection between an individual and a
municipal agency is too remote to warrant municipal employee
status. In recognition of this principle the Commission has
previously held that a contract between a state or

Page 138

municipal agency and a corporation does not generally operate to
bring employees of the corporation within a definition of public
employee. See, e.g., EC-COI-83-129. To give an obvious example. a
secretary who performed typing services for Arthur D. Little, Inc.
would not be deemed a state employee by virtue of the fact that
Arthur D. Little had a contract with a state agency.

The Commission, however, has not had occasion to establish a set
of standards to determine when a principal, owner, or other
individual who plays a significant role in the performance of a
contract should be deemed to be a public employee.[2] The facts of
this case demonstrate the need to establish such standards,
particularly in light of the increased use of consultants by
municipal, county and state agencies. In the interim, the factors
considered by the Commission include, but are not limited to, the

1. Whether the individual's services are expressly or
impliedly contracted for;

2. The type and size of the corporation. For example, an
individual who is president, treasurer and sole stock holder
of a closely held corporation may be deemed a public employee
if the corporation has a contract with a public agency;

3. The degree of specialized knowledge or expertise required
of the service. For example, an individual who performs highly
specialized services for a corporation which contracts with
a public agency to provide those services may be deemed to be
performing Services directly to the agency;

4. The extent to which the individual personally performs
services under the contract, or controls and directs the terms
of the contract or the services provided thereunder and;

5. The extent to which the person has performed similar
services to the public entity in the past.

Applying the above criteria to the facts of this case, the
Commission concludes that you are a municipal employee within the
meaning of the conflict law. Of particular significance is the
history of your prior relationship to the City. In 1984,1985 and
1986 the City believed that it was dealing with you as an
individual. This conclusion is underscored by the fact that you
provided all the services on the city contracts. The contract for
1987 is essentially the same as the previous contracts except for
the deletion of the requirement of membership on and consulting to
the XYZ Committee and the Mayor's Economic Development Cabinet.
Some of the services which are outlined in the 1987 contract are
indeed continuation of the same services which were provided for
in 1986, e.g. ABC Place. The scope of services which you
contemplate providing under the 1987 contract is not substantially
different than the scope of services previously provided. The fact
that you contemplate performing up to 90% of the services outweighs
the fact that you can retain, on an as needed basis, professional
consultants for various work to be performed under the contract or
the fact that the City does not require that you exclusively
perform the professional services required. Your duty and loyalty
to the City is not changed because you may reduce the scope of the
services which you personally provide to the City by 10 percent.

This case is distinguishable from cases where an employee of the
corporation is performing ministerial or routine services. Services
to be provided in this case are professional, highly specialized
and call for discretion and judgment. For example, regarding the
ABC Project, the corporation is to select developers, establish a
system for managing the project from the selection of the developer
through project completion, and oversee all municipal participation
in the project. The contract here resembles a professional retainer
agreement where the contract contains an open ended clause which
permits the corporation to perform other services as may be
requested in writing up to a maximum ceiling. Indeed, in providing
the services to the municipality you must oversee other
professional consultants including architects, engineers and market

The small size of the corporation, and the fact that you and
your wife are 100% equitable owners for the corporation, are also
factors which lead the Commission to conclude that the 1987
contract was based on your expertise and experience as an
individual as much as the reputation of the corporate entity. In
other words, the standards in which the City has come to expect in
dealing with Y Associates, Inc. are the standards that the City had
come to expect in its dealings with you as an individual in
1984,1985 and 1986 when Y Associates and you, as an individual,
were one and the same.

For all of the above reasons the Commission concludes that you
are a municipal employee for conflict law purposes.

[1] "Municipal employee," a person performing services for or
holding an office, position, employment or membership in a
municipal agency. whether by election, appointment, contract of
hire or engagement, whether serving with or without compensation,
on a full, regular, part-time, intermittent, or consultant basis,
but excluding(1) elected members of a town meeting and (2) members
of a charter commission established under Article LXXXIX of the
Amendments to the Constitution

[2] The Commission has stated that the project manager of a
corporation, "without more,"is not a state employee by virtue of
his employer's contract with a state agency EC-COI-86-21. On the
other hand, the Commission, in the same opinion, held that public
employee status will apply where "the terms of the contract
indicate that his [the employee's] specific services are being
contracted for."

End Of Decision


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