CEO 80-11 ‑‑ February 21, 1980
CONFLICT OF INTEREST
DEPARTMENT OF LABOR AND EMPLOYMENT SECURITY EMPLOYEE NEGOTIATING CONTRACT FOR DEPARTMENT WITH PARTNER IN PRIVATE BUSINESS
To: (Name withheld at the person's request.)
Prepared by: Phil Claypool
SUMMARY:
A prohibited conflict of interest exists when an employee of the Department of Labor and Employment Security has negotiated a contract in behalf of the department with a person who is the majority stockholder in a separate corporation in which the department employee owns stock. Based on the distinction found in CEO 78-93 between a proprietorship and its proprietor, the subject employee does not have a contractual relationship with the business entity which is doing business with the department in violation of the first clause of s. 112.313(7)(a), F. S. However, the second clause of that provision is deemed to be violated in the employee's ownership of stock in a corporation, the majority of which is owned by a person with whom he has negotiated and continues to negotiate in his public capacity, as such relationship is found to present a continuing conflict of interest and, at the very least, to impede the full and faithful discharge of his public duties. Reference is made to 8 Fla. Jur.2d Business Relationships s. 56, p. 177; 18 C.J.S. Corporations s. 71, p. 457; and 18 Am. Jur.2d Corporations s. 85, p. 626, relative to ownership of stock constituting a contractual relationship.
QUESTION:
Does a prohibited conflict of interest exist when an employee of the Department of Labor and Employment Security has negotiated a contract in behalf of the department with a person who is the majority stockholder in a separate corporation in which the department employee owns stock?
Your question is answered in the affirmative.
In your letter of inquiry you advise that ____ is employed as the chief of support services for the Department of Labor and Employment Security. As such, you advise, he presently has and has had the responsibility for negotiating a contract for the operation of a cafeteria and vending machines on the premises of one of the department's buildings in Tallahassee. You also advise that the person who has contracted with the department has done so as a sole proprietor. That person, we are advised by ____, is the majority shareholder in a separate cafeteria and vending machine corporation in Tallahassee, in which ____ and his wife own a 2.5‑percent interest. ____ has no interest in the cafeteria/vending contract between the department and the sole proprietorship; his interest is limited to the corporation, which is a separate venture. Finally, you advise that ____ negotiated the terms of the contract between the sole proprietorship and the department and has continued to negotiate, administer, and seek departmental approval of contract changes requested by the sole proprietor since the contract became effective in January 1977.
The Code of Ethics for Public Officers and Employees provides in relevant part:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP. ‑‑ No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he is an officer or employee . . . nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Section 112.313(7)(a), F. S.]
This provision prohibits a public employee from having a contractual relationship with a business entity which is subject to the regulation of or is doing business with his agency. However, under the facts you have presented, the subject employee does not have a contractual relationship with the business entity which is doing business with the department. See s. 112.312(3), F. S., defining "business entity" to include any proprietorship doing business in this state, and CEO 78-93, in which we recognized a distinction between a proprietorship and its proprietor. Instead, the subject employee's relationship is in a separate venture with the proprietor of the business entity which has contracted with the department. Therefore, the first part of s. 112.313(7)(a), above, is not applicable.
However, that section also prohibits a public employee from having a contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. In our view, the subject employee's ownership of stock in a corporation, the majority of which is owned by a person with whom he has negotiated and continues to negotiate in his public capacity, presents a continuing conflict of interest and, at the very least, impedes the full and faithful discharge of his public duties.
The ownership of stock by the subject employee constitutes a contractual relationship with the corporation and its majority stockholder. See 8 Fla. Jur.2d Business Relationships s. 56, p. 177; 18 C.J.S. Corporations s. 71, p. 457; and 18 Am. Jur.2d Corporations s. 85, p. 626, wherein it is stated: "It is generally held that a corporate charter constitutes a contract between the corporation and the stockholders and between the stockholders themselves." While the subject employee may not have a direct financial interest in the department's contract with his costockholder, his economic interest in the corporation would tend to lead to the disregard of his public duties when dealing in his official capacity with the majority stockholder. See s. 112.312(6), F. S., defining "conflict of interest" as "a situation in which regard for a private interest tends to lead to disregard of a public duty or interest." Particularly when the sole proprietorship and the corporation are engaged in the identical type of business, we find that the subject employee's investment in the corporation would impede the full and faithful discharge of his responsibilities to the department in seeing that the department obtains the best terms possible in its contracts.
In a similar situation, we found that a school principal could enter into a partnership with the owner of a company which sold athletic supplies to the school through the principal, when the partnership was in a separate business venture, only because one of the exemptions in s. 112.313(12), F. S., applied. See CEO 79-83. Here, it does not appear that any of the exemptions of that section apply. For example, the competitive bidding exemption of s. 112.313(12)(b) would not be applicable since the subject employee participated in the contract negotiations.
Accordingly, we find that a prohibited conflict of interest does exist when an employee of the Department of Labor and Employment Security has negotiated and continues to negotiate a contract in behalf of the department with a person who is the majority stockholder in a corporation in which the department employee has invested.