Advisory Opinion No. 2021-40

Rhode Island Ethics Commission

Advisory Opinion No. 2021-40

Approved: May 18, 2021

Re: Members of the Retirement Board of the Employees’ Retirement System of the State of Rhode Island

QUESTION PRESENTED:

The Petitioners, members of the Retirement Board of the Employees’ Retirement System of the State of Rhode Island, by a unanimous vote, request an advisory opinion regarding what restrictions, if any, the Code of Ethics places upon certain Retirement Board members with respect to participating in disability adjudications and contested administrative hearings, given that some Retirement Board members are state or municipal elected officials or employees, and others are affiliated with national, state, and local labor or other organizations, under circumstances where the participants at said disability adjudications and contested administrative hearings might include individuals who elected certain Retirement Board members, are state or municipal employees, or are members of the same national, state, or local labor or other organizations as those with which certain Retirement Board members are affiliated.

RESPONSE:

It is the opinion of the Rhode Island Ethics Commission that a Retirement Board member is prohibited by the Code of Ethics from participating in disability adjudications and contested administrative hearings if he or she has reason to believe or expect that a direct monetary gain or a direct monetary loss will accrue, by virtue of his or her official activity, to himself or herself, any person within his or her family, his or her business associate, or his or her employer.  Also, a Retirement Board member shall not use his or her public position, or confidential information received through his or her public position, to obtain financial gain, other than that provided by law, for himself or herself, any person within his or her family, his or her business associate, or his or her employer.  A Retirement Board member is further prohibited by the Code of Ethics from participating in disability adjudications and contested administrative hearings if any person within his or her family or household, his or her business associate, his or her employer, or anyone authorized to appear on behalf of any person within his or her family or household, his or her business associate, or his or her employer, appears to present evidence or arguments before the Retirement Board.  

The Petitioners are members of the Retirement Board of the Employees’ Retirement System of the State of Rhode Island (“Retirement Board”).  The Employees’ Retirement System of the State of Rhode Island (“ERSRI”) was statutorily established “for the purpose of providing retirement allowances for employees of the State of Rhode Island . . . .”  R.I. Gen. Laws § 36-8-2.  The Municipal Employees’ Retirement System of the State of Rhode Island (“MERS”) was similarly established “for the purpose of providing retirement allowances for employees of participating municipalities . . . and benefits to the survivors of those employees.”  Section 45-21-32.  Together, the ERSRI and the MERS are commonly referred to as the “retirement system,” which is managed by the Retirement Board.  The Retirement Board is an independent board, created and established in the Rhode Island Office of the General Treasurer, to “hold and administer, in trust, the funds of the retirement system . . . [and] shall perform such functions as authorized by law.”  Section 36-8-4.  The “general administration and the responsibility for the proper operation of the retirement system . . . are . . . vested in [the] [R]etirement [B]oard.”  36-8-3.

The Retirement Board has fifteen (15) members and is statutorily constituted as follows:

(1) The General Treasurer or designee;

(2) The Director of Administration or designee;

(3) A representative of the Budget Office (or designee), appointed by the  Director of Administration;          

(4) The President of the League of Cities and Towns or designee;

(5) & (6) Two active state employee members of the retirement system, or officials  from a state employee union, elected by active state employees; 

(7) & (8) Two active teacher members of the retirement system or officials from a teachers union, elected by active teachers;      

(9) An active municipal employee member of the retirement system or an official from a municipal employees union, elected by active municipal employees;          

(10) & (11) Two retired members of the retirement system, elected by retired members of the system;           

(12) & (13) Two public members skilled in finance, accounting or pensions, appointed by the Governor; and

(14) & (15) Two public members skilled in finance, accounting or pensions, appointed by the General Treasurer.

Section 36-8-4.

The Retirement Board has established certain standing subcommittees in order to facilitate its operations.  For example, and relative to the instant request, the Disability Subcommittee, composed of five Retirement Board members, meets each month to review an average of twelve applications for ordinary and accidental disability allowances (“applications”) that are first screened by a team of three medical examiners.  The Disability Subcommittee then makes its recommendations to the Retirement Board which then votes as a whole concerning the disposition of the applications.[1]  The Retirement Board also affords an administrative hearing process to members of the system aggrieved by administrative actions other than disability decisions.  The grievance is reviewed by the Retirement Board’s Executive Director, who then issues a decision.  In the event that the aggrieved member wishes to appeal the decision of the Executive Director, an independent hearing officer is appointed to hear the matter, find facts, and offer conclusions of law to the Retirement Board.  The aggrieved member may make exceptions, file briefs, and make oral arguments before the Retirement Board in response to the hearing officer’s recommendation.  The Retirement Board then votes as a whole on the hearing officer’s recommendation, and adjudicates the underlying administrative action appealed by the aggrieved member.  The Retirement Board adjudicates approximately three to five contested administrative hearings per year.

Members of the Retirement Board include a state elected official, several state and municipal employees, and at least one employee of a private entity.  Other Retirement Board members currently hold leadership positions as officers and/or executive board members with national, state, and local labor organizations, including the American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”); the American Federation of State, County and Municipal Employees (“AFSCME”), RI Council 94; and the AFSCME, Council 94, Local 2872 (collectively, “labor unions”).  Some of the same Retirement Board members, and a number of other Retirement Board members, currently hold leadership positions as officers and/or executive board members with other national, state, and local labor organizations, including the National Education Association of Rhode Island (“NEARI”); the NEARI Retired Local; the Rhode Island Federation of Teachers and Health Professionals (“RIFTHP”), and the RI AFT/R Local 8037 (collectively, “teacher unions”).  The Retirement Board members who are affiliated with labor unions and teacher unions have each represented that, to the best of their knowledge, the granting or denial of a person’s disability pension application or the adjudication of a person’s contested administrative hearing has no specific financial impact upon their respective labor organizations.

Cognizant of the Code of Ethics, and desirous of conducting themselves in conformance therewith, the members of the Retirement Board seek general guidance from the Ethics Commission concerning potential conflicts of interest resulting from their various state, municipal, union, or other private affiliations.  Specifically, the members of the Retirement Board are concerned about whether or not the Code of Ethics prohibits them from participating in discussions and voting relative to disability adjudications and contested administrative hearings involving members of the class that elected or appointed them; their constituents; employees of the same state agency or municipality; members of labor unions and teacher unions within which Retirement Board members hold leadership positions; and their private employers.  Finally, the members of the Retirement Board request general guidance regarding what options are available to continue to carry out their statutory and fiduciary duties in the event that required recusals by members of the Disability Subcommittee or the Full Retirement Board jeopardize the ability to attain and maintain a quorum.

Under the Code of Ethics, a public official may not participate in any matter in which he or she has an interest that is in substantial conflict with the proper discharge of his or her duties or employment in the public interest. Section 36-14-5(a).  A public official will have an interest that is in substantial conflict with the proper discharge of his or her duties or employment in the public interest if he or she has reason to believe or expect that a direct monetary gain or a direct monetary loss will accrue, by virtue of his or her official activity, to the official himself or herself, any person within his or her family, his or her business associate, his or her employer, or any business which he or she represents.  Section 36-14-7(a).  Additionally, section 36-14-5(d) of the Code of Ethics prohibits a public official from using his or her public position, or confidential information received through his or her public position, to obtain financial gain, other than that provided by law, for himself or herself, any person within his or her family, his or her business associate, or his or her employer. 

Further, under Commission Regulation 520-RICR-00-00-1.2.1 Additional Circumstances Warranting Recusal (36-14-5002) (“Regulation 1.2.1”), a public official must generally recuse from participation in any matter if any person within his or her family or household, his or her business associate, his or her employer, or any person authorized by any person within his family or household, his or her business associate, or his or her employer to appear on behalf of said family or household member, business associate, or employer, appears or presents evidence or arguments before the public official’s state or municipal agency, unless one of the two exceptions found at Regulation 1.2.1(b) applies.  A business associate is defined as “a person joined together with another person to achieve a common financial objective.”  Section 36-14-2(3).  A person is defined as “an individual or a business entity.”  Section 36-14-2(7).

The Ethics Commission has consistently concluded that persons are “business associates” of the entities for which they serve as either officers or members of the Board of Directors, or in some other leadership position that permits them to direct and affect the financial objectives of the organization.  Consistent therewith, the Ethics Commission has previously noted that members of the Retirement Board who held leadership positions in labor unions were business associates of those organizations.  See  A.O. 2013-14.  See also A.O. 2014-14 (opining that the Director of the Rhode Island Department of Environmental Management (“RIDEM”), who was also a Director of the Rhode Island Boy Scouts (“Boy Scouts”), was a business associate of the Boy Scouts and, therefore, was required to recuse from participating in any RIDEM decisions that would financially impact the Boy Scouts, as well as from any matters in which a Boy Scout representative appeared to represent the organization’s interests). 

The Ethics Commission has also consistently concluded that the Code of Ethics does not consider the relationship between a public official and a public body, such as a state or municipal agency, to be that of “business associates.”  See, e.g., A.O. 2011-29 (opining that a member of the Portsmouth Planning Board, who was also employed as a civil engineer for the Rhode Island Department of Transportation (“RIDOT”), could participate in the Planning Board’s consideration of a development proposal, notwithstanding that in her capacity as a RIDOT-employed engineer the petitioner had been reviewing the same property to ensure that the state’s property interests were protected, because neither the RIDOT nor the Planning Board were considered “businesses” and, therefore, the “business associate” prohibitions that would have otherwise constrained the petitioner while carrying out her public duties did not apply)

While it is clear that a Retirement Board member who serves in a leadership capacity for a labor organization is considered a business associate of the organization itself, the question of whether he is or she is also a business associate of each of the organization’s individual members has undergone a shifting analysis and understanding over the years.  More than twenty years ago, the Ethics Commission took the position that a public official was prohibited from participating in matters concerning members of the same private organization within which the public official served in a leadership position.  For example, in Advisory Opinion 98-156, the Ethics Commission opined, among other things, that a Retirement Board member was prohibited from participating in matters concerning members of the North Providence Federation of Teachers (“NPFT”) and RIFT because, at the time, the petitioner held leadership positions in both of those organizations.[2]  At that time, recognition by the Ethics Commission of a business associate relationship among the leaders of an organization, and between the leaders of the organization and the organization itself, extended to all other members of the organization who had no leadership role.  See, e.g., A.O. 98-44 (opining that a Commissioner of the Fire Safety Code Board of Appeal and Review must not only recuse from participation in appeals involving property owned by Local 799, but must also recuse from appeals involving property owned by any individual member of Local 799, given that the petitioner was a business associate of Local 799 by virtue of his leadership position of President of the organization).

The petitioners from Advisory Opinions 98-156 and 98-44 above were considered business associates not only of the organizations for which they served in leadership positions, and the other leaders with whom they served within those organizations, but also with the rank and file members of those organizations.  As such, the petitioners were prohibited from participating in matters that would impact their respective organizations, fellow leaders, and the rank and file members of their respective organizations.  The ability to direct and affect the financial objectives of an organization is the tie that binds the leaders of that organization as business associates and is a tie that extends to the relationship between those leaders and the organization itself.  However, in more recent years, the Ethics Commission has recognized that rank and file members of an organization are situated differently than are the organization’s leadership, without the same ability to direct and affect the financial objectives of the organization.

In Advisory Opinion 2013-14, the Ethics Commission noted that a Retirement Board member’s “mere membership” in a labor union, as opposed to holding a leadership position, “would not necessarily create a business association.”  However, those members holding such leadership positions were required to recuse from a discussion of litigation that involved and would financially impact their organization as an entity.  In Advisory Opinion 2019-3, the Ethics Commission opined that a member of the South Kingstown School Committee (“SKSC”), who was also employed by NEARI, was prohibited by the Code of Ethics from participating in SKSC matters relating to the negotiation and approval of school department contracts with NEARI local bargaining units, and also from participating in grievance hearings involving school district employees who were NEARI members when such members were represented by a NEARI employee or representative.  Such recusal was required in these instances pursuant to Regulation 1.2.1, because NEARI employees or representatives were appearing to represent school district employees, present evidence, or make arguments before the SKSC.  Inherent in this advisory opinion was a determination that the petitioner would not be required to recuse from matters involving NEARI members who were not represented by a NEARI employee or representative.  

It was also in 2019 that the Ethics Commission issued a Decision and Order dismissing with prejudice an ethics complaint against a Rhode Island State Senator who worked as a municipal high school teacher and who served as an officer for NEARI.  See In re: Valarie Lawson, Complaint No. 2019-7.  The complaint alleged, in pertinent part, that the respondent had co-sponsored legislation which required that all contractual provisions contained in an otherwise expired collective bargaining agreement with certified schoolteachers and municipal employees would continue until such time as a successor agreement was reached between the parties, excluding contractual provisions that limited layoffs.  The complaint further alleged that the respondent advocated for passage on the Senate floor and cast her vote in favor of passage.[3]  The investigation revealed that the financial impact of the legislation was not on NEARI itself, as an entity, but rather on the terms and conditions of employment for municipal employees and teachers, some of whom happened to be NEARI members.  That there was no probable cause to believe that the respondent had used her public office to obtain financial gain to benefit NEARI itself, as an entity, contributed in large part to the complaint’s dismissal.[4]

There is currently no actual pending matter before the Retirement Board for which its members have a specific inquiry.  Nonetheless, the Ethics Commission recognizes the importance of addressing issues which can reasonably be expected to be faced by members of the Retirement Board going forward and will, therefore, provide general guidance only at this time.  Accordingly, it is the opinion of the Ethics Commission that a Retirement Board member is prohibited by the Code of Ethics from participating in disability adjudications and contested administrative hearings if he or she has reason to believe or expect that a direct monetary gain or a direct monetary loss will accrue, by virtue of his or her official activity, to himself or herself, any person within his or her family, his or her business associate, or his or her employer.  Specifically, a Retirement Board member is prohibited from participating in disability adjudications and contested administrative hearings which are likely to result in a financial impact upon himself or herself or upon any individual who serves in a leadership position within a private organization for which the Retirement Board member also serves in a leadership position, or upon the organization itself.  Also, a Retirement Board member shall not use confidential information received through his or her public position to obtain financial gain, other than that provided by law, for himself or herself, any person within his or her family, his or her business associate, or his or her employer. 

A Retirement Board member is further prohibited by the Code of Ethics from participating in disability adjudications and contested administrative hearings if any person within his or her family or household, his or her business associate, his or her employer, or anyone authorized to appear on behalf of any person within his or her family or household, his or her business associate, or his or her employer, appears to present evidence or arguments before the Retirement Board.  A Retirement Board member is not required to recuse from participation in disability adjudications or contested administrative hearings if the applicant is a rank and file member of a private organization within which the Retirement Board member has a leadership position, provided that said rank and file member is not represented by an employee or agent of that organization.  A Retirement Board member who is a state or municipal elected or appointed official is not required to recuse from participation in disability adjudications or contested administrative hearings just because the applicant elected or appointed the Retirement Board member, is a constituent of that Retirement Board member, or is a state or municipal employee, provided that participation is not otherwise prohibited  by the Code of Ethics pursuant to a secondary relationship between the Retirement Board member and the applicant.  Upon recusal by any Retirement Board member, he or she is required to complete a statement of conflict of interest consistent with section 36-14-6.

Finally, the Ethics Commission has recognized and permitted a Rule of Necessity exception in matters where recusals inhibit governmental process, such as where the majority of public body members must recuse themselves and a resulting failure of a quorum renders the entity unable to act.  Under the Rule of Necessity, the official or officials determined to have the least conflict may be permitted to participate so that an important governmental function can be accomplished.  See, e.g., A.O. 2008-9 (opining that the Town of Smithfield Zoning Board of Review could utilize the Rule of Necessity to achieve a quorum of five members to hear and decide an appeal from a decision of the Planning Board, given that three of the seven Zoning Board members had conflicts of interest requiring their recusals).  Public bodies may not, on their own, invoke the Rule of Necessity.  Rather, public bodies are required to seek an advisory opinion from the Ethics Commission permitting the use of the Rule of Necessity each time conflicts of interest would inhibit their necessary governmental processes.  

This Advisory Opinion is strictly limited to the facts stated herein and relates only to the application of the Rhode Island Code of Ethics.  Under the Code of Ethics, advisory opinions are based on the representations made by, or on behalf of, a public official or employee and are not adversarial or investigative proceedings.  Finally, this Commission offers no opinion on the effect that any other statute, regulation, ordinance, constitutional provision, charter provision, or canon of professional ethics may have on this situation. 

Code Citations:
§ 36-14-2(3)   
§ 36-14-2(7)   
§ 36-14-5(a)   
§ 36-14-5(d)   
§ 36-14-6
§ 36-14-7(a)   
§ 36-14-7(b)   
520-RICR-00-00-1.2.1 Additional Circumstances Warranting Recusal (36-14-5002)

Other R.I. Gen. Laws:
§ 36-8-2          
§ 36-8-3          
§ 36-8-4          
§ 45-21-32      

Other Related Authority:       
In re: Valarie Lawson, Complaint No. 2019-7          

Related Advisory Opinions:              
A.O. 2019-3   
A.O. 2014-14
A.O. 2013-14             
A.O. 2011-29 
A.O. 2008-9   
A.O. 98-156   
A.O. 98-44     

Keywords:      
Business Associates   
Union/Bargaining Unit