Self-Dealing, Financial Interests and the Rule of Necessity for Municipal Employees- Conflict of Interest Law Primer

The information provided is educational in nature and should not be considered legal advice. Persons with questions about a specific situation should contact the State Ethics Commission at (617) 371-9500 for free confidential advice.

The conflict of interest law, G. L. c. 268A, is intended to prevent, among other things, self-dealing.  Section 19 of the law generally prohibits a municipal employee (paid or unpaid, appointed or elected, full-time or part-time) from participating in any particular matter in which the municipal employee, an immediate family member or partner, or a business organization in which he or she has certain affiliations, has a financial interest.

Immediate Family

A municipal employee generally may not act on matters affecting the financial interest of the municipal employee him or herself, his or her spouse and/or the parents, siblings and children of both the municipal employee and the spouse.  In-laws who marry into the "immediate family" are not considered to be members of the immediate family. For example, a town clerk's sister-in-law, who married the town clerk's brother, is not a member of the clerk's immediate family; the clerk's sister-in-law, who is his spouse's sister, is a member of the immediate family. Similarly, nieces, nephews, cousins and grandchildren are not members of the employee's immediate family.  (They are, however, relatives, and acting on matters involving relatives may give rise to the appearance of a conflict of interest.  Section 23(b)(3) of the conflict law addresses this.)

In determining if a municipal employee may act in matters involving an immediate family member, it is the family member's financial interest that must be considered.  For example, a particular matter before a board of health might affect the financial interest of the business organization that employs a board of health member's mother.  That financial interest alone won't disqualify the member from acting, however, unless the particular matter also affects the mother's financial interests.

Business Organization

A municipal employee who is an officer, director, trustee, partner or employee of a business organization may not participate in matters affecting the financial interest of that person or organization.  The term business organization includes a non-profit organization that is substantially engaged in business activities, such as buying and selling goods or providing services in return for a fee.  A municipal employee also may not participate in matters affecting the financial interest of any person or organization with whom he is negotiating or has any arrangement concerning future employment.  In that situation, it does not matter if the organization is a private, for-profit business, a non-profit organization or another municipal agency.

Financial Interest

Although the conflict of interest law does not define the term financial interest, the Ethics Commission has a long-standing interpretation of that phrase.  The restrictions of the conflict of interest law apply in any instance when the private financial interests are directly and immediately affected or when it is reasonably foreseeable that the financial interests would be affected.

Example:  A municipal employee who owns property abutting a municipal building project has a financial interest in the project.  The Ethics Commission presumes a financial interest in matters affecting abutting or nearby property.

The conflict of interest law generally prohibits any type of official action, regardless of whether the financial interest is large or small, or whether the proposed action would positively or negatively affect the private financial interest.

Example:  A municipal engineer owns property abutting a proposed landfill.  If the landfill is approved, it will negatively affect the value of the engineer's property.  The engineer may not participate in reviewing any proposals for the landfill or any discussions concerning the landfill.

Participating and Voting

Participation includes not only voting on a matter, but also formal and informal lobbying of colleagues, reviewing, discussing, giving advice and/or making recommendations on particular matters.  Therefore, a municipal employee will be deemed to have participated in a particular matter if he discusses the matter, even if he abstains from the vote of the board.  Often, discussing, providing advice or making recommendations about a particular matter may have more of an effect than the employee's single vote.  It does not follow, however, that if a municipal employee votes without participating in any discussion or otherwise acting regarding the matter in question, that vote will not amount to participation.  Regardless of whether the vote tally is unanimous or split, voting constitutes participation. Finally, many actions, such as signing payroll warrants, which may seem to be routine or ministerial, in fact, constitute participation in the particular matter.  Signing payroll warrants, for example, is making a decision to approve the payroll.  Such a decision is a particular matter.

The decision to delegate a matter to a co-worker or to a subordinate also constitutes participation in the particular matter.

Exemptions

The law includes three exemptions from the general prohibition.  Often, exemptions of the conflict law require the municipal employee to make a written disclosure to the municipal employee's appointing authority.  A municipal employee's appointing authority is not necessarily his or her immediate supervisor; the appointing authority is the official or board responsible for the municipal employee's appointment to his or her position.  Making an oral disclosure, or making a written disclosure to an immediate supervisor, who is not an appointing authority, or to a co-worker or a subordinate who is also involved in a matter, is not sufficient to comply with the conflict of interest law.

A municipal employee can always comply with section 19 by simply not participating in the relevant particular matter. The law does not require a municipal official to disclose the reasons why he or she has decided not to participate.

  1. The exemption most often used by appointed municipal employees is section 19(b)(1).  A municipal employee who first advises his or her appointing authority of the nature and circumstances of the particular matter, makes full disclosure of the financial interest, and then receives, in advance, a written determination made by the appointing authority allowing participating, may act in matters in which he or she would otherwise be prohibited from participating.  This exemption is not available to elected municipal employees because they do not have an appointing authority.

The determination made by the appointing authority is that the financial interest is not so substantial as to be deemed likely to affect the integrity of the services which the municipality may expect from the employee.  Whether the municipal official receives the written determination rests solely with the appointing authority.  The Ethics Commission has no role in making the determination.

  1. Section 19(b)(2) allows an elected municipal official to make demand bank deposits of municipal funds if he or she first files with the municipal clerk a statement making full disclosure of the financial interest.  Thus, the elected town treasurer may use this exemption if she intends to make a demand bank deposit of municipal funds in a bank in which she serves, for example, as an officer, director, trustee or employee.
     
  2. Finally, section 19(b)(3) allows any municipal employee to participate in a particular matter involving a determination of general policy if the financial interest of the municipal employee or members of his immediate family is shared with a substantial segment of the population of the municipality.  Generally, this exemption applies to particular matters such as real estate tax rates or municipal utility rates.

What is a financial interest?

Although the conflict of interest law does not define the term financial interest, the Ethics Commission has a long-standing practice of interpreting the phrase. The restrictions of the conflict law apply in any instance when the private financial interests are directly and immediately affected or when it is reasonably foreseeable that the financial interests would be affected.

Example:  A selectman who owns a restaurant in town has a financial interest in awarding a liquor license to a business competitor if it would be reasonably foreseeable that the granting of the license to a competitor's restaurant would affect the selectman's restaurant sales.

Example:  A planning board member who is a trustee of a business organization which opposes a project before the board will be prohibited from voting on that project if she knows that the organization will spend financial resources to oppose the project if it is approved by the board.  In contrast, if the organization has no intention of spending resources based on the decision, then the organization does not have a financial interest and the board member's participation would not violate this section of the conflict law.  In order to participate, the board member will need to file a written disclosure under section 23(b)(3) before acting in the matter.

The conflict law generally prohibits any type of official action, regardless of whether the financial interest is large or small, and regardless of whether the proposed action would positively or negatively affect the private financial interest.

Example:  A municipal employee responsible for hiring summer employees may not participate in the hiring process if an immediate family member is an applicant, even if it is clear that the immediate family member will not be hired and therefore, has a negative financial interest.

What is the rule of necessity?

If a member of a town or city board has a conflict of interest, that member will be disqualified from acting on that board matter.  In some cases, especially when more than one member is disqualified, a board cannot act because it does not have a quorum or some other number of members required to take a valid affirmative vote.  (If the number for a quorum is not set by law, a quorum is generally a majority of the board members.)  In these instances, an elected board can use what is called the rule of necessity to permit the participation of the disqualified members in order to allow the board to act.

The rule of necessity is not a law written and passed by the Legislature.  Rather, the rule of necessity was developed because judges applied it in their court decisions.

How does the rule of necessity work?

The rule of necessity works in the following way:

  1. It may only be used if an elected board is legally required to act on a matter and it lacks enough members to take valid action solely because members are disqualified by the conflict of interest law from participating in the matter.

    Example: A five member board has a meeting and all members are present.  Three of the five members have conflicts.  Three members are the quorum necessary for a decision.  The two members without conflicts do not make a quorum.  The board cannot act.  The rule of necessity will permit all members to participate.

    Example:  A five member board has a meeting and four members are present (one member is sick at home).  Two of the four present members have conflicts.  A quorum is three.  The one member who is sick at home does not have a conflict.  The rule of necessity may not be used because there is a quorum of the board which is able to act.  Because one member of the board is absent does not permit use of the rule of necessity.

    Example:  A five member board has a meeting and all members are present.  One member has a conflict and is disqualified.  The vote is a two-to-two tie. The rule of necessity may not be used to break the tie.  In general, a tie vote defeats the issue being voted on.  Stated differently, a tie vote will maintain the status quo.

    Example:  All five members of a five member board are present.  A quorum is three.  However, one agenda item requires four votes, rather than the usual simple majority, for an affirmative decision.  Two of the board members have conflicts.  Although a quorum is available, the required four votes needed for this particular matter cannot be obtained without the participation of one or both of the members who have conflicts.  The rule of necessity may be invoked and all five members may participate.
    • The rule of necessity should be invoked by one or more of the otherwise disqualified members only upon advice from town or city counsel or the Ethics Commission because improper use of the rule could result in a violation of the conflict of interest law.
    • If it is proper for the rule of necessity to be used, it should be clearly indicated in the minutes of the meeting that the board was unable to obtain a quorum due to disqualification of members and, as a last resort, all those disqualified may now participate under the authority of the rule of necessity.  Each disqualified member who wishes to participate under the rule of necessity must first disclose publicly the facts that created the conflict.


Note:  Invoking the rule of necessity does not require previously disqualified members to participate; it merely permits their participation.

  1. The rule of necessity may only be used as a last resort.  Every effort must be made to find another board capable under the law of acting in place of the board that could not obtain a quorum.

The rule of necessity is also applicable to individual elected municipal officials, such as the mayor of a municipality.  For an individual elected municipal official to be able to use the rule of necessity, the same requirements explained above apply: the official must be legally required to act on a matter in which he is disqualified by a conflict of interest from acting, and there is no one else legally qualified to act in that matter.  In that situation, the individual elected municipal official may invoke the rule of necessity to the minimum extent necessary to allow him or her to take the required actions otherwise barred by the conflict of interest law.  If the legal duty to act permits the state official to delegate that duty, then the official may invoke the rule of necessity for the limited purpose of designating another person to carry out the required action.  If he delegates, he cannot otherwise participate in the matter.  However, if the legal duty to act is non-delegable, then the individual elected official may invoke the rule of necessity to take all actions required legally of her.  Any such invocation of the rule of necessity should be documented by the elected municipal official in a writing filed publicly with the municipal clerk.

Example: The General Laws confer upon a Mayor the sole power to act as her City’s bargaining representative for purposes of negotiating a collective bargaining agreement with the City’s firefighters, but permit the Mayor to select a “designated representative” to negotiate such an agreement in her place. The Mayor’s spouse is a firefighter who has a financial interest in his union’s collective bargaining agreement with the City. Section 19 of the conflict of interest law would prohibit the Mayor from participating in the firefighters’ collective bargaining agreement. The Mayor may invoke the rule of necessity to designate an alternate to serve as the City's collective bargaining representative with the firefighter's union. If she does so, the Mayor cannot otherwise participate in the matter.

Example: The General Laws require a Mayor to take a variety of actions with respect to making changes to the health insurance coverage that the City offers to its subscribers, and do not contain any provision authorizing anyone to act in the place of the Mayor or permitting the Mayor to delegate those duties. The Mayor himself is a subscriber to his City’s health insurance coverage, and would be disqualified by Section 19 of the conflict of interest law from participating in matters relating to the City’s coverage, because he has a financial interest in those matters. The Mayor may invoke the rule of necessity to permit him to take all actions required legally of him in his official capacity under the General Laws with respect to changes to the City’s health insurance coverage.

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