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HomeMy WebLinkAbout22-538 ConfidentialPHONE: 717-783-1610 TOLL FREE: 1-800-932-0936 To the Requester: STATE ETHICS COMMISSION FINANCE BUILDING 613 NORTH STREET, ROOM 309 HARRISBURG, PA 17120-0400 FACSIMILE: 717-787-0806 WEBSITE: www.ethics.pa.gov ADVICE OF COUNSEL October 11, 2022 22-538 This responds to your correspondence dated September 20, 2022, by which you requested a confidential advisory from the Pennsylvania State Ethics Commission ("Commission"), seeking guidance as to the two issues presented below: Issues: Based upon the submitted facts, would the issuance of a severance payment by an Employer to an Employee constitute a "contingent and severance payment" prohibited by Section 1103(e) of the Public Official and Employee Ethics Act ("Ethics Act"), 65 Pa.C.S. § 1103(e)? Brief Answer: NO. Based upon the submitted facts, the issuance of a severance payment by the Employer to the Employee would not constitute a prohibited "contingent and severance payment" under Section 1103(e) of the Ethics Act, but rather, it would instead be a permissible payment pursuant to Section 1103(e)(2)(ii) of the Ethics Act which excludes from prohibition "[r]eceipt of a... severance payment ... resulting from termination or withdrawal therefrom upon the assumption or acceptance of public office or employment." 2. Based upon the submitted facts, would Section 1103(e) of the Ethics Act prohibit or restrict the Employer from making the proposed severance payment to the Employee and the Employee from accepting such a payment? BriefAnswer: NO. Based upon the submitted facts, the Employer would not be prohibited or restricted from making the proposed severance payment to the Employee and the Employee from accepting such a payment. Confidential Advice, 22-538 October 11, 2022 Page 2 Facts: You have been authorized by [Political Subdivision] and [Employee] (the "Employee"), a member of the [Governmental Body of Political Subdivision] ("Governmental Body"), to request a confidential advisory from the Commission on the Employee's behalf. You have submitted facts, the material portion of which may be fairly summarized as follows. The [Employer] (the "Employer") is a 501(c)(3) nonprofit corporation that provides professional leadership development training and programs for school principals and school system leaders in the [Political Subdivision] and other [political subdivisions] in [an area of Pennsylvania]. The [Employer] seeks and receives contributions from a variety of foundations, businesses and individuals. In addition, the [Employer] contracts with the [Political Subdivision] to develop and provide professional development training to [Political Subdivision] employees. The [Governmental Body] for the [Political Subdivision] is required to approve each contract with the [Employer]. Prior to becoming a member of the [Governmental Body], [Employee] was a senior staff member of the [Employer]. After becoming aware of an opportunity for interested residents to apply for an open position on the [Governmental Body], [Employee], on [DATE], submitted an application without informing the [Employer]. [Employee] was interviewed and subsequently, nominated as one of eight finalists to be considered for appointment to the [Governmental Body]. [Employee] subsequently was appointed by the Mayor on [DATE]. Neither the Executive Director of [Employer] nor anyone on its board of directors knew of [Employee's] application until shortly before her nomination was announced in a local newspaper on [DATE], the same day [Employee] learned of the same. Because the [Governmental Body] approves contracts between the [Political Subdivision] and [Employer], and [Employer] receives confidential information about [Political Subdivision] employees who participate in the [Employer's] programs, after [Employer] learned that [Employee] had been nominated to serve on the [Governmental Body], [Employer] advised [Employee] of their concern that a conflict or an appearance of a conflict of interest could exist. [Employer] subsequently informed [Employee] that they had explored multiple options to determine if it was feasible to screen [Employee] from actions or decisions that could create a conflict or an appearance of a conflict. [Employer] ultimately advised [Employee] that it could not do so and that [Employee] could not continue to be an employee of [Employer] if she became a member of the [Governmental Body]. Members of the [Governmental Body] serve without compensation. After weighing her options, [Employee] chose to serve on the [Governmental Body]. And assuming a severance payment would follow, agreed to separate from [Employer]. [Employee's] last day as an employee of [Employer] was two days prior to the first [Governmental Body] Action meeting that she attended as a member of the [Governmental Body]. Before leaving her employment with [Employer], the parties were negotiating a severance agreement in which [Employee] would receive a lump sum payment equivalent to three months of salary and benefits (the "Severance Payment"), as well as some support for outplacement/job search assistance. Separation agreement negotiations were ongoing when [Employee] left her (CONFIDENTIAL - NOT TO BE DISSEMINATED TO THE PUBLIC) Confidential Advice, 22-538 October 11, 2022 Page 3 employment with [Employer] and assumed her duties with the [Governmental Body]. The parties have not yet executed a severance agreement because [Employer] and [Employee] would like confirmation from the Commission that such a payment is permissible. Any severance agreement would not include any agreement that would in any way, directly or indirectly, affect [Employee's] vote as a member of the [Governmental Body]. If paid, [Employer] and [Employee] will treat the Severance Payment as income paid by [Employer] to [Employee] and appropriate amounts will be withheld from the Severance Payment as is required by law with respect to income paid by [Employer] to its employees. [Employee] understands that the Severance Payment will be income paid to her and that she will be required to disclose that she received income from [Employer] in 2022 on the Statement of Financial Interests form that she will be required to file pursuant to the Ethics Act in 2023. Based upon the above submitted facts, you seek guidance as to the following questions: Whether payment of the Severance Payment by [Employer] to [Employee] would constitute a "contingent and severance payment" prohibited under Section 1103(e) of the Ethics Act, or apermissible paymentpursuantto Section 1103(e)(2)(ii) of the Ethics Act which excludes from prohibition "[r]eceipt of a ... severance payment... resulting from termination or withdrawal therefrom upon the assumption or acceptance of public office or employment." 2. Whether the Ethics Act would prohibit (i) [Employer] from making the proposed Severance Payment to [Employee], and (ii) [Employee] from accepting the Severance Payment. Discussion: Pursuant to Sections 1107(10) and 1107(11) of the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), advisories are issued to the requester based upon the facts that the requester has submitted. In issuing the advisory based upon the facts that the requester has submitted, the Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts that have not been submitted. It is the burden of the requester to truthfully disclose all material facts relevant to the inquiry. 65 Pa.C.S. §§ 1107(10), (11). An advisory only affords a defense to the extent the requester has truthfully disclosed all material facts. Sections 1103(e) of the Ethics Act provides: § 1103(e). Contingent and severance payments.-- (1) No person shall solicit or accept a severance payment or anything of monetary value contingent upon the assumption or acceptance of public office or employment. (2) This subsection shall not prohibit: (CONFIDENTIAL - NOT TO BE DISSEMINATED TO THE PUBLIC) Confidential Advice, 22-538 October 11, 2022 Page 4 (i) Payments received pursuant to an employment agreement in existence prior to the time a person becomes a candidate or is notified by a member of a transition team, a search committee, or a person with appointive power that he is under consideration for public office or makes application for public employment. (ii) Receipt of a salary, fees, severance payment or proceeds resulting from the sale of a person's interest in a corporation, professional corporation, partnership or other entity resulting from termination or withdrawal therefrom upon the assumption or acceptance of public office or employment. (3) Payments made or received pursuant to paragraph 2(i) or (ii) shall not be based on the agreement, written or otherwise, that the vote or official action pf the prospective public official or employee would be influenced thereby. 65 Pa.C.S. § 1103(e). Pursuant to Section 1103(e), "a person is prohibited from soliciting or accepting a severance payment or anything of monetary value contingent upon the assumption or acceptance of public office or employment." Confidential, Opinion 17-544. The Commission has determined that the operative phrase in this section is "contingent." (See Confidential, Opinion 91-005 (citing Confidential, Opinion 90-014)). Inasmuch as [Employee] is currently a public official and has resigned her employment with [Employer], the proposed Severance Payment does not appear to be "contingent upon the assumption or acceptance of public office or employment." Moreover, the offer of the Severance Payment is rooted in the Employer's desire to assist a valued former employee transition to a different career path, one that does not provide [Employee] with any compensation. The proposed Severance Payment is not premised on a future promise of [Employee] taking action in her capacity as a public official. Since the Severance Payment is unrelated to the acceptance of public office, it does not appear as though Section 1103(e) is applicable to this situation. As the Commission held in Minor, Opinion 90-016, "the operative condition as to the severance does not relate to the acceptance of the offer but to the condition that the individual leave under favorable circumstances..." Here too, the condition as to the Severance Payment does not relate to the acceptance of public office, but rather that [Employee] has chosen to engage in a career transition. Other than forbidding payment of a severance payment "contingent upon the assumption or acceptance of public office or employment", the Ethics Act does not prohibit an employer of an individual who also is a public official from making a severance payment. Under the facts presented here, there is nothing to suggest that the Severance Payment is intended to be contingent; in fact, the contrary has occurred. [Employee] began her position as a [Governmental Body] (CONFIDENTIAL — NOT TO BE DISSEMINATED TO THE PUBLIC) Confidential Advice, 22-538 October 11, 2022 Page 5 member of the [Political Subdivision] two days after she resigned her employment with [Employer]. [Employee's] resignation is to transition to a position where she can improve the [Political Subdivision] as a whole and not contingent upon the proposed payment of the severance. As such, issuance of the Severance Payment would not be prohibited by the Ethics Act. Once paid and received, the Severance Payment would be considered income as that term is defined by the Act. Section 1102 of the Ethics Act defines "income" as: "Income." Any money or thing of value received or to be received as a claim on future services or in recognition of services rendered in the past, whether in the form of a payment, fee, salary, expense, allowance, forbearance, forgiveness, interest, dividend, royalty, rent, capital gain, reward, severance payment, proceeds from the sale of a financial interest in a corporation, professional corporation, partnership or other entity resulting from termination or withdrawal therefrom upon assumption of public office or employment or any other form of recompense or any combination thereof. The term refers to gross income and includes prize winnings and tax-exempt income. The term does not include gifts, governmentally mandated payments or benefits, retirement, pension or annuity payments funded totally by contributions of the public official or employee, or miscellaneous, incidental income of minor dependent children. 65 Pa. C.S.§ 1102 (emphasis added). Therefore, payment by the Employer of the Severance Payment to the Employee would be "income" to the Employee and not a "gift". The term "gift" is defined as "[a]nything which is received without consideration of equal or greater value." 65 Pa.C.S. §13A03. Since payment of the Severance Payment is in consideration of the Employee's service to the organization, same would not be a "gift." As income, the Severance Payment is required to be disclosed by the Employee upon her 2022 calendar year Statement of Financial Interests within Block 10 ("Direct or Indirect Sources of Income" )i. Conclusion: Based exclusively upon the facts provided within the request for an advisory, the following conclusions are set forth: 1. Payment of the Severance Payment by the Employer to the Employee will not constitute a "contingent and severance payment" prohibited under 65 Pa.C.S. § 1103(e) of the Ethics Act. 1 65 Pa.C.S.§ I 105(b)(5) requires disclosure of "[t]he name and address of any direct or indirect source of income totaling in the aggregate $1,300 or more." If the Proposed Severance payment exceeding the $1,300 threshold, then it would be required to be disclosed as a source of income. (CONFIDENTIAL - NOT TO BE DISSEMINATED TO THE PUBLIC) Confidential Advice, 22-538 October 11, 2022 Page 6 2. The Ethics Act does not prohibit the Employer from making the proposed Severance Payment to Employee. Payment by the Employer of the Severance Payment to the Employee would be "income" to the Employee and not a "gift". The receipt of the Severance Payment would be required to be disclosed by the Employee under Block 10 ("Direct or Indirect Sources of Income") in Employee's annual Statement of Financial Interests. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Act. Pursuant to Section 1107(11) of the Ethics Act, an Advice is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any other civil or criminal proceeding, provided the requester has disclosed truthfully all the material facts and committed the acts complained of in reliance on the Advice given. An adapted version of this letter will be made available as a public record. Finally, if you disagree with this Advice or if you have any reason to challenge same, you may appeal the Advice to the full Commission. A personal appearance before the Commission will be scheduled and a formal Opinion will be issued by the Commission. Any such appeal must be in writing and must be actually received at the Commission within thirty (30) days of the date of this Advice pursuant to 51 Pa. Code § 13.2(h). The appeal may be received at the Commission by hand delivery, United States mail, delivery service, or by FAX transmission (717-787-0806). Failure to file such an appeal at the Commission within thirty (30) days may result in the dismissal of the appeal. Respectfully, Bridget K. Guilfoyle Chief Counsel (CONFIDENTIAL - NOT TO BE DISSEMINATED TO THE PUBLIC)