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HomeMy WebLinkAbout81-004 BaxterSTATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 January 27, 1981 OPINION OF THE COMMISSION The Honorable Brian T. Baxter Deputy Secretary for Employee Relations Office of Budget and Administration 207 Finance Building Harrisburg, PA 17120 RE: Applicability, Impact of Ethics Act Dear Deputy Secretary Baxter: I. Issue: II. Factal Basis for Determination: 81 -004 You request that we review the impact of the Ethics Act upon the proposed Governor's Executive Exchange Program, hereinafter referred to as the "program." The Governor is interested in filling a small number of key senior positions through the establishment and implementa- tion of an exchange program. Basically, the idea is to provide the Commonwealth with expertise of individuals from the private sector through a service purchase contract mechanism (SPC). The program is designed to bring into government some of the best business and private talent while allowing the individuals' in the program to remain on the payroll of their private employer. Recognizing, the ever - growing disparity in renumeration of executives in the private versus the public sector, such an arrangement, you suggest, is the only practical manner by which to attract certain talent to government service. The SPC would typically and technically be made between the Commonwealth and the private business or corporation by whom the individual to be "exchanged" is employed. However, you indicate that the essential services being "purchased" under this contract are for the services of particular indivi- duals on a continuing basis. The SPC that you provided to us as an example of the one to be used in this Program, provides that persons "exchanged" to serve the Commonwealth would in relation to fiscal accounting services: 1. provide direct supervision and technical assistance to agency comptrollers in the application of accoun- ting policies and procedures; The Honoarble ian T. Baxter January 27, 1 Page 2 2. develop, design, and implement a centralized ADP /EDP operation which meets the needs of the centralized data management operations. 3. develop, coordinate, and integrate ADP /EDP operations in the various agencies of the Commonwealth into a unified, efficient, and economical data management system. 4. evaluate the short- and long -term needs of the Common- wealth in both the account management and data managem- ent systems; and develop, with Commonwealth managers, the alternatives to meet these needs. 5. advise the Governor and his Cabinet members on current and developing "state of the art" factors which • impact on the management of Commonwealth operations. 6. develop, design, and implement a fiscal accounting system which efficiently meets the legal and manage- ment needs of the Commonwealth of Pennsylvania. These tasks would be performed using Commonwealth facili- ties, supplies, etc.; and "exchanged" executives under this program would operate out of a Commonwealth office and conform to the typical work schedule of Commonwealth employees. They would supervise regular complement employees. They would be subject to the direction of a Commonwealth official. In the above instance, for example, the Secretary of Budget and Admini- stration would provide "work direction." It should be noted that the sample contract you provided in Section 3 states that the contractor is performing these tasks as an "independent contractor." III. Applicable Law: The most pertinent provision of the Ethics Act is Section 2, which in its definition of "public employee" provides: "Any individual employed by the Commonwealth or a political subdivision who is responsible for taking or recommending official action of a nonministerial nature with regard to: (1) contracting or procurement; (2) administering or monitoring grants or subsidies; (3) planning or zoning; (4) inspecting, licensing, regulating, or auditing any person; or The Honoarble January 27, 1 Page 3 IV. Discussion: ian T. Baxter (5) any other activity where the official action has an economic impact of greater than a de minimus nature on the interests of any person. Public employee shall not include individuals who are employed by the State or any political subdivision thereof in teaching as distinguished from administrative duties." 65 P.S. 402. Also pertinent are the following sub - sections of Section 3: (a) "No public official or public employee shall use his public office or any confidential information received through his holding public office to obtain financial gain other than compen- sation provided by law for himself, a member of his immediate family, or a business with which he is associated." 65 P.S. 403(a). and (e) "No former official or public employee shall represent a person, with or without compensation, on any matter before the governmental body with which he has been associated for one year after he leaves that body." 65 P.S. 403(e). Initially, we must state clearly and unequivocally that the Commission finds no prohibition under the Ethics Act to • this proposed program, in general. In fact, the Ethics Act does not bar the Commonwealth from implementing this laudable program or even speak to this question, per se. Accordingly, we can only address the question of the application or impact of the Ethics Act to persons "exchanged" and supplying services to the Commonwealth under this program. We note that the corporations from which these persons come are not within the scope of this decision. The basic question becomes: Are persons "exchanged" and serving the Commonwealth under this program "public employees" within the coverage of the Ethics Act and if so, what standards of conduct are expected of them by that Act? Answering this question involves a review of the nature of the contract in question, the manner in which the contract is performed and the purposes of the Ethics Act, as well as its specific provisions. The Honoarble ("ian T. Baxter January 27, 14,__ Page 4 Turning to the contract first, we must deal with the fact that the parties to the contract would typically be the Common- wealth and the business or corporation for whom the "exchanged" executive typically works. Typically, persons serving under such a contract would not be deemed employees of the Common- wealth; they would remain attached to the corporation's compli- ment as employees. The corporation and persons it supplies to perform the contract would be considered independent contrac- tors. In the unique factual context of this contract, however, we must look beyond the technical parties to this contract. In doing so we find that, in most cases, the Commonwealth is, in reality, purchasing the continuing services of particular persons, executives or experts. The contract provides for this relationship as opposed to one which might be limited in dura- tion or scope. The "exchanged" executive is in reality, not performing a specific task as an employee of the coporation with whom the Commonwealth contracted, but is engaged in supplying continuing services to the Commonwealth. This person is no longer within the control of the corporation, but the right to control and direct the activities of this person in relation to the contract has effectively been placed with the Commonwealth official who is directing the work. This transfer of the right to control the manner and execution of the work to be done is a basic indicator that an employment relationship exists between the Commonwealth and the "exchanged" executive. In addition to meeting this basic test as an employee - employer relationship, the work being done by the "exchanged" executive is essentially work which would be done by full -time regular employees of the Commonwealth. This work is done using state equipment and supplies, during regular state work hours and on state property. The role of this "exchanged" executive is even more clear when the contract gives him the right to supervise other state employees in meeting the contract goals. In such a unique circumstance the Commission must conclude that a person serving under this exchange program should be consi- dered an "employee" in the generic sense. Accord Massiah- Jackson, 80 -036. Recently, the Commonwealth Court agreed with the Commission that the presence of a common law relationship of master - servant was not required in order to apply the Ethics Act to "public employees." Accordingly, persons arguably and technically thought of as independent contractors will have no recourse to "finicky and precious considerations which attend the process of distinguishing a servant from an independent contractor." Ballou v. State Ethics Commission, Pa. Cmwlth. Ct. , A.2d (No. 1013 C.D. 1980, issued January 22, 1981.) Finally, the purpose of the Act states that the public has a right to be assured that those in a position of public trust should not have conflicts of interest or even a ear to have such conflicts. See Section 1, 65 P.S. 401. t is evident The Honoarble 'ian T. Baxter January 27, 19. Page 5 C that persons serving in this program would serve at the higher levels of state government. By your own description, they would serve in "key" posts. As such, we must find that they would serve in a position of trust which should be covered by the Ethics Act to insure that the protections provided by that Act prevail. These persons, typically would be in positions of taking or recommending official action of a nonministerial nature with respect to the areas outlined in the Ethics Act. Accordingly, in light of the above discussion as a whole, we must conclude that persons serving in this program would generally be considered "public employees" within the coverage of the Ethics Act. Having arrived at this conclusion the impact of this finding must be assessed. First, as "public employees ", persons serving under this program would generally be required to file Financial Interest Statements for each year they serve in the program and for the year after they leave their position with the Commonwealth. Second, no public employee may use confiden- tial information gained while, in this instance, serving with the Commonwealth. Thus, an exchange program worker could not use information not available to the general public for his own gain or forward such information to be used by his corporate employer for that corporation's gain. Norris, 80 -053. Third, this worker could not use his public employment to recommend action which might uniquely benefit his corporate employer. Kelmeckis, 80 -047. For example, if the person was developing an efficient automated check processing method, he could not recommend the purchase of a particular machine to process checks, if his corporate employer happened to be the sole supplier of the particular machine recommended. While the above three criteria relate to the restrictions - placed on these persons as "public employees" the Ethics Act also places restrictions on former public employees. Thus, when these persons have left the exchange program with the Commonwealth, they face restrictions under Section 3(e) of the Ethics Act. Section 3(e) of the Act in this instance would prohibit a former "public employee" from appearing and represen- ting any person before the governmental body with which he was associated for a one -year period following termination of state service. It would be impossible to deliniate the scope of the term "governmental body" here because that review requires specific facts and individual analysis. This question must, if required, be answered on a case -by -case basis. In general, however, the Commission in determining the scope of the phrase "governmental body with which he was associated" has applied a simple concept. The "governmental body" with which a former employee has been associated should cover the bodies where he had influence. See Kline, 79 -001 and Seltzer, 80 -044. The Commission has also interpreted the concept expressed in the prohibition against a former employee "appearing" or "representing" any person before this governmental body. In The Honoarble p T. Baxter January 27, 19 Page 6 particular, the Commission has held that the conduct of former employees should conform to the following standards: 1. Personal appearances before the former governmental body are prohibited. Morris, 80 -039. This includes negotiating contracts; except that a former employee may administer a contract awarded to his employer by his former governmental body. 2. Attempts to influence the former governmental body are prohibited. Covill, 79 -041, Cutt, 79 -023 and Seltzer, supra. 3. Generally, informational inquiries to the governmental body and utilizing knowledge and expertise gained through public employment are not barred. Morris, supra. 4. Appearing in a third forum such as state or federal court is not barred. Berger, 79 -060. 5. Expressing your own opinions and views on your own behalf is not prohibited; Lloyd, 80 -040. This is to be distinguished from representing the views and /or interests of any other person either formally or informally. This action which would include, generally, the concept of "lobbying" is prohibited for the one -year period as to the identified govern- mental bodies. 6. Preparing bid proposals to be submitted to the former governmental body by the executive's employer where that preparation includes the executive signing those proposals and /or if the former employee's name appears on the proposal as the person primarily responsible for providing technical assistance on or administer- ing the contract, if awarded, is prohibited. A former employee may assist in preparing bids where none of the above references are made in the bid and where the former employee is not to assume any of these roles. 7. Participating in any manner in any case or contract over which you had supervision, direct involvement, or responsibility while employed by the Commonwealth except as set forth in No. 1, above is prohibited. V. Conclusion: Under the unique factual circumstances presented by the proposed exchange program and the purposes of the Ethics Act, we concluded that persons serving in this program should be considered "public employees" within the coverage of the Ethics Act. This imposes the following duties and obligations upon a person in this program: The Honoarble , .an T. Baxter January 27, 19L Page 7 1. He must file a Financial Interest Statement for each year he serves the Commonwealth under this program and for the year after he terminates such service. 2. He must not utilize confidential information gained in his public employment for his private gain or that of his family. He may not transmit any such infor- mation to his corporate employer for the gain or advantage of said employer. He must refrain from voting or recommending actions which would inure solely to his personal benefit or to the benefit or gain of his corporate employer. 3 He may not appear or represent any person before the governmental body with which he is found to have been associated for a one -year period after he leaves state service. The term "representing" includes these activities listed below: a.- personal appearance before the former govern- mental body; b. Negotiating contracts with that body; c. attempting to influence that body by lobbying or otherwise; d. preparing, signing and submitting bid proposals to that body or allowing his name to appear in such a proposal as preparer or proposed parti- cipant in the contract if awarded; e. participating in any manner on a case or matter over which he had direct supervision, involve- ment, or responsibility while serving with the program, except that he could administer a contract as opposed to negotiating it as prohi- bited in "b" above. The corporation by which an exchanged executive is employed is not affected by this ruling. Pursuant to Section 7(9)(i), this opinion is a complete defense in any enforcement proceeding initiated by the Commis- sion, and evidence of good faith conduct in any civil or criminal proceeding, providing the requestor has disclosed truthfully all the material facts and committed the acts complained of in reliance on the advice given. This letter is a public record and will be made available as such. PJS /rdp AUL, s I H Chai ►r an