Ethics Reminders as Employees Move to or from Gov't
Many businesses and organizations are making plans for executives to go into government jobs, or for government officials to join a private sector team. Sometimes, there are expectations that a former private sector employee now in the government can be called upon to help with all sorts of matters of interest. And sometimes, bringing on a government employee seems like a good way to secure input on regulatory matters on the horizon.
But, like with many areas these days, there are many rules in place that can put a damper on just how valuable a former government employee can be in-house, or just how valuable a former in-house employee can be while serving in government. These revolving door rules need to be understood and factored into decisions about how useful a former employee or a new hire can be. This article will summarize the principal rules at the federal level.
Leaving a Private Employer for a Government Job
Going to the Executive Branch
A federal criminal provision, Title 18 of the U.S. Code, Section 208, prohibits a government employee from participating "personally and substantially" in any "particular matter" that would have a "direct and predictable effect" on the employee's own financial interest or on the financial interests of: (1) the employee's spouse or minor child; (2) a general partner of a partnership in which the employee is a limited or general partner; (3) an organization in which the employee serves as an officer, director, trustee, general partner, or employee; or (4) a person with whom the employee is negotiating for or has an arrangement concerning prospective employment.
Examples of relevance here would be actions by a former employee who is now in government that would affect in a direct and predictable way such individual's stock in the former employer or such individual's retirement fund payout. Also potentially impacted would be actions that would affect the financial interests of the former employer if there is some arrangement in place to be hired back after government service (for example deciding a license matter for the former employer where there is a plan to be hired back in four years).
Because there are potential criminal prosecution implications, caution is in order. The U.S. Office of Government Ethics regulation implementing this restriction, Title 5 of the Code of Federal Regulations, Section 2635.402, contains relevant definitions, helpful examples, and guidance for steering clear of the prohibition.
Normally, in situations where actions relevant to a former employer are problematic, recusal from the matter is the proper recourse. This can prove disappointing to a former employer. But OGE regulations at Title 5 of the Code of Federal Regulations, Section 2635.502, broadly contemplate this course where participation in a "particular matter involving specific parties" would cause a reasonable person to question the employee's impartiality. This relates not only to matters likely to have a direct and predictable effect on the financial interests of the employee's household, but also if a person with whom the employee has a "covered relationship" is or represents a party to such matter.
A covered relationship includes: (1) a person with whom the employee has or seeks a business, contractual, or other financial relationship; (2) a person who is a member of the employee's household or is a relative with whom the employee has a close personal relationship; (3) a person for whom the employee's spouse, parent, or dependent child serves or seeks to serve as an officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee; (4) any person for whom the employee has within the last year served as an officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee; or (5) any organization (other than a political party) in which the employee is an active participant.
The fourth clause just referenced imposes a broader reach than the criminal statute, so a recusal assessment is required if the action contemplated would have an effect on the former employer's financial interests, without regard to whether there is any plan afoot to hire back the government employee involved.
Another OGE rule to note, Title 5 of the Code of Federal Regulations, Section 2635.503, indicates a government employee will be disqualified for two years from participating in any particular matter in which the former employer is a party or represents a party if the employee received a "special" severance payment or benefit in excess of $10,000 from the former employer. A business or organization should consider this constraint when developing a severance package for an employee going into government.
Presidents in recent years also have added restrictions through executive orders, designed to reduce instances where political appointees are participating in matters involving a former employer or client. For example, President Donald Trump's Executive Order 13770 requires such appointees to agree for two years not to participate in "any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts." If such appointees were registered lobbyists within the last two years, they must not for two years participate in any particular matter on which they lobbied or participate "in the specific issue area in which that particular matter falls."
The phrase "former clients" does not include persons to whom services merely included a speech or similar appearance or clients of a former employer to whom the appointee did not personally provide services. Also, the phrase "particular matter involving specific parties" does not include a meeting or other communication with a former employer if the matter is of general applicability (like a proposed regulation) and the meeting or communication is open to all interested parties.
Given the foregoing rules, someone planning to leave the private sector to take a government job must prepare for a daunting process to assure the restrictions will not be violated. Fortunately, each government department or agency and OGE work together to help a prospective government employee craft an "ethics agreement" that lays out which instances will require recusal, which will require divestiture of a financial interest, which will require resignation, and which will require establishment of a blind or diversified trust. These procedures are spelled out at Title 5 of the Code of Federal Regulations, Section 2634.801-805.
Going to the Hill
Generally speaking, the constraints on a former private sector individual going to the Hill are not as pronounced. The Senate restrictions are found in Senate Rule 37. It precludes a member, officer or employee from using official position to introduce or pass legislation if the principal purpose is to further the person's financial interests or the financial interests of a limited class to which such individual belongs (Rule 37.4). This is a fairly vague standard, and generally it does not reach actions that may have an impact on the stock price or general economic health of a former employer.
Another provision requires committee employees to sell "substantial holdings" that may be directly affected by the actions of the employing committee, unless a waiver is granted (Rule 37.7). The nuances here generally are ironed out through consultations with the U.S. Senate Select Committee on Ethics.
The U.S. House of Representatives restrictions are even less precise. General guidance indicates no member or Hill employee may use official position or confidential information for personal gain. Members themselves must abstain from voting on a matter on the House floor if the member has a direct, distinct personal or pecuniary interest in the matter.
These provisions don't preclude action based solely on assisting a former employer or even assisting a former employer in which stock is held unless some clear-cut, direct, and significant connection could be made (perhaps helping a former employer in which the Hill person has significant stock by trying to influence an agency decision that will have foreseeable impact on such stock).
Leaving Government to Take a Private Sector Job
Restraints on Employees from the Executive Branch
Some of the biggest surprises come from the restrictions that former government officials face when signing on with an employer in the private sector. Criminal provisions at Title 18 of the U.S. Code, Section 207 (with regulatory implementation at Title 5 of the Code of Federal Regulations, Section 2641) impose a permanent ban on communications with anyone in government on particular matters involving particular parties where the person while in government had substantial involvement.
The ban is only for two years if the person's involvement while in government only involved a supervisory role. A two-year ban on having communications of substance with the person's former department or agency applies if the person was a "very senior" official. For mere "senior" officials, the ban on contacting the former agency is one-year. These contact bans can impose a significant crimp in what 'value' a newly recruited hire has in the private sector.
The presidential executive order in place imposes even broader restraints if a person is expected to lobby. Trump Executive Order 13770 imposes a five-year ban on a former political appointee lobbying his/her former agency (except for specified rulemaking, adjudication, or licensing matters). Further, a ban is imposed on "lobbying" any "covered" executive branch officials (using Lobbying Disclosure Act definitions) or noncareer Senior Executive Service appointees for the remainder of the administration.
In view of the restrictions imposed on someone coming to the private sector from the executive branch, careful consideration is warranted. Whether someone was "very senior" or "senior" becomes significant, and whether and how the person is going to be expected to lobby the executive branch is another relevant area of inquiry.
Restraints on Persons Leaving the Hill for the Private Sector
Legislative branch revolving-door rules are found in the criminal provisions at Title 18 of the U.S. Code, Section 207, and additional Senate restrictions are found at Senate Rule 37. Former senators have a two-year ban on communications with either the Senate or the House to influence official action. Former House members have a one-year ban. Former "senior" Senate staff (those paid 75% of a senator's salary, or $130,500 for calendar year 2020) have a one-year ban on communicating or appearing on behalf of a new employer before any Senate member or staffer. Former nonsenior Senate staff may not lobby their former employing office or committee for one year.
For former House staff of a member's own office, a one-year ban applies to seeking action from the member or his/her office employees. Former committee staff are precluded from seeking official action from any current member or employee of the committee or from any member who was on the committee during the last 12 months when the former staffer worked there.
Other Considerations Related to the Recruitment Phase
OGE regulations at Title 5 of the Code of Federal Regulations, Sections 2635.601-607, govern several aspects of the process where a business or other organization is contemplating hiring a government employee. While "seeking employment" or later during or after negotiations, recusal may be required. And persons who must file public financial disclosure forms have an obligation to provide notice to the agency ethics official regarding negotiation or agreement related to a future private sector job.
Senators and Senate staff paid at a rate of 120% of the GS-15 pay level ($131,239 in calendar year 2020) are obligated to notify the Ethics Committee within three days of beginning negotiations. All Senate employees must notify their employing member once negotiations have begun. For clear-cut, direct conflicts of interest, there may be a need to recuse from actions of potential benefit to the prospective employer. Similar rules apply on the House side.
There are several hidden surprises in the revolving-door rules at the federal level. Businesses and other organizations dealing with people going to or coming from government should be familiar with the potential limitations that individuals newly installed in a government position or in-house may have. Bottom line, look before you leap.
“Ethics Reminders as Employees Move to or from Gov't,” by Scott E. Thomas and Jennifer L. Carrier was published in Law360 on November 25, 2020.
 See Highlights of the House Ethics Rules, p. 11, available at Highlights of the (house.gov).
 See Conflicts of Interest, www.ethics.senate.gov/public/index.cfm/conflictsofinterest.
 See FAQs about Future Employment and Recusal | House Committee on Ethics, https://ethics.house.gov/faqs/future-employment.