shaw bransford & roth case law update

MSPB Reverses Suspension of Employee Charged with Creating Appearance of Conflict of Interest

The Department of Homeland Security (“DHS”) suspended a Contracting Officer Representative for 30 days after alleging that the employee created the appearance of a conflict of interest and failed to disclose an outside business venture, but the Merit Systems Protection Board reversed an administrative judge’s initial decision upholding the penalty, finding that no appearance of a conflict of interest had been created and that the employee had no prior duty to disclose the outside activity at issue.

Beginning in May 2013, the employee was assigned to conduct market research on call centers around Dallas, and from July to September 2013, the employee was assigned to conduct research in bilingual call centers nationwide. However, on September 4, 2013, the employee emailed his supervisor and stated that his wife’s company, “Texas Based Acquisitions,” (“TBA”) was working on a “joint venture” with a call center that could compete for a Government contract. The employee also contacted an ethics counselor on September 4, 2013, stating that he was the president of TBA, and asking whether a conflict of interest existed that would prevent TBA from competing for a call center contract, and if so, what amount of time would need to elapse before TBA could compete. Although his supervisor asked him to continue his market research work with call centers, and although the employee stated his work with TBA focused primarily on grounds maintenance and landscaping, the employee asked that he be recused, and the agency granted that request while opening an investigation into the employee’s activities. At the conclusion of that investigation, the Agency proposed the employee’s removal. The deciding official only sustained two of the five charges at issue, and mitigated the penalty to a 30-day suspension. The employee appealed to an MSPB administrative judge, but the charge was sustained. The employee then petitioned the full Board for review. On February 4, 2016, the Merit Systems Protection Board reversed the initial decision.

In finding that the agency did not prove that the employee’s outside activities created the appearance of a conflict of interest, the Board cited Fontes v. Department of Transportation, 51 M.S.P.R. 655, 663 (1991), to set out the rule at issue as follows: “To prove the existence of a conflict of interest, an agency must establish that its employee was acting in two separate capacities, at least one of which involved his official duties and that the nature of his interests or duties in one capacity had a ‘direct and predictable effect’ on his interests or duties in his other capacity.” The Board also found that an agency must show the employee’s interests or duties in one capacity would “reasonably create an appearance” of having an effect on his interests or duties in the other capacity. According to the Board, if an employee knows that a matter is likely to have a direct and predictable effect on the financial interest of a member of his household, and the employee determines that the circumstances would cause a reasonable person with knowledge of the relevant facts to question his impartiality, the employee should not participate in the matter without authorization.

The Board also cited Special Counsel v. Nichols, 36 M.S.P.R. 445, 455 (1988) for its position that “[f]undamental fairness precludes disciplining an employee for creating the appearance of an ethical violation unless he should have known it would appear improper to a reasonable observer under the circumstances.”

Finding that the agency had not produced sufficient evidence to support its conclusion that TBA was involved with call centers during the time the employee was conducting market research on call centers, the Board found that although the employee’s work with call centers gave him access to information about those businesses, the employee had not done anything outside of “internal discussions” with his wife’s company about whether working with call centers was feasible. The Board also noted that the employee at that point asked for ethics guidance about TBA’s future activities before making any use of any information he gained. Although the Agency concluded that the employee would have used that information after receiving a response, the Board found that this conclusion was speculative, and that a reasonable person would not believe he violated the Government-wide standards of conduct.

The Board also found that the Agency relied entirely on the employee’s own email to an ethics counselor in concluding that the employee made contact with call centers regarding a joint venture prior to the employee notifying his supervisor and ethics counselor about his activities. But the agency ignored the rest of the contents of that email, which stated that the employee “had not spoken to any call center.” During the investigation which led to his proposed removal, the employee also submitted a written statement clarifying that “TBA had not pursued any involvement with a call center for the purposes of pursuing a Government contract and that there only had been internal conversations concerning a joint venture with a bilingual call center in the future.”

Under 5 U.S.C. § 7513, creating the appearance of an ethical violation requires some action by the employee, according to Board case law. The Board found that there was no evidence of any action taken by the employee or TBA that met that standard of loss of impartiality, and that once the employee began considering a post-retirement plan for TBA to participate in Government contracts related to call center service, he raised the matter with agency officials. The Board cited Capozzella v. Federal Bureau of Investigation, 11 M.S.P.R. 552, 557 (1982), stating that a charge related only to an employee’s thought process is not misconduct.

The Board also reviewed the Agency’s second charge: failure to report an offense, status, or relationship. Agreeing with the administrative judge’s refusal to sustain the first specification of this charge, the Board found that the agency hadn’t provided evidence that the employee “began to explore the idea of seeking Government contracts for call centers service before he was assigned to conduct market research on call centers for the agency. The second specification of the second charge, which was sustained by the administrative judge, was that the employee did not notify anyone in his supervisory chain or an ethics counselor about his status as an officer of TBA. The Board found that there was no evidence the employee had an obligation to do so. Specifically, the agency produced no evidence or argument establishing that it has a regulation requiring employees to obtain prior approval “before engaging in all outside activities.”

The Board found that TBA, prior to August 2013, had a primary business focus of landscaping and grounds maintenance. The Board also found that the employee anticipated retiring by August 28, 2013 (his supervisor asked him to continue work), and that TBA had not considered getting into Government contracts until late August 2013, which precipitated the employee’s contact with his supervisor and ethics counselor regarding how long TBA would have to wait to compete in a government contract to comport with the agency’s rules. In sum, the Board found that the agency didn’t provide any evidence that the employee should have preemptively disqualified himself from the market research project prior to the date that he actually reported his outside activities.

For the above stated reasons, the Merit Systems Protection Board granted the employee’s petition for review and reversed the initial decision.

Read the full case: Ryan v. Department of Homeland Security


This case law update was written by Conor D. Dirks, associate attorney, Shaw Bransford & Roth, PC.

For thirty years, Shaw Bransford & Roth P.C. has provided superior representation on a wide range of federal employment law issues, from representing federal employees nationwide in administrative investigations, disciplinary and performance actions, and Bivens lawsuits, to handling security clearance adjudications and employment discrimination cases.

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