IV. Restrictions on Outside Employment Applicable to Members and Senior Staff

A Member [or an] officer, or employee of the House [paid at or above the “senior staff” rate], may not –

(a) receive compensation for affiliating with or being employed by a firm, partnership, association, corporation, or other entity that provides professional services involving a fiduciary relationship, except for the practice of medicine;

(b) permit his name to be used by such a firm, partnership, association, corporation, or other entity;

(c) receive compensation for practicing a profession that involves a fiduciary relationship, except for the practice of medicine;

(d) serve for compensation as an officer or member of the board of an association, corporation, or other entity; or

(e) receive compensation for teaching, without the prior notification and approval of the Committee on Standards of Official Conduct. [House Rule 25, clause 2. See also 5 U.S.C. app. 4 § 502(a).]

Who Is a “Senior Staff” Person for Purposes of the Restrictions on Outside Employment and Outside Earned Income Limitations?

The Ethics Reform Act of 1989 enacted significant limitations on the outside employment and earned income of House Members – primarily with respect to compensation from the practice of any profession and the receipt of honoraria – and also extended those limitations to highly paid staff. The officers and employees to whom those limitations are applicable are those paid, for more than 90 days in a calendar year, at a rate equal to or exceeding 120% of the minimum rate of basic pay for GS-15 of the executive branch’s General Schedule (House Rule 25, cl. 4(a)(1)). These limitations do not apply to any officer or employee who is paid at or above that rate for 90 days or less in a calendar year.

In calendar year 2008, the GS-15 rate of basic pay is $95,390 (locality pay is not considered in making this determination). Accordingly, in calendar year 2008, the outside employment and earned income limitations apply to House staff paid at or above the rate of $114,468. As noted above, this chapter refers to the officers and employees paid at or above this rate as “senior staff,” “senior employees,” or individuals “paid at the senior staff rate.” The senior staff rate for other years is available from the staff of the Standards Committee.

Under federal law and House rules, the outside earned income of House Members and senior staff is subject to an overall annual limitation, which is explained in more detail later in this chapter. In calendar year 2008, that limitation is $25,830. In addition, the provisions of law and rules enacted by the Ethics Reform Act of 1989 restrict, and in some cases prohibit, compensation for certain types of services, regardless of whether the individual’s income has reached the cap, as follows.

Prohibition Against Receipt of Compensation for the Practice of Law or Other Professions, and Related Prohibitions

Under the Ethics Reform Act, Members and senior staff are prohibited from engaging in professions that provide services involving a fiduciary relationship, including the practice of law and the sale of insurance or real estate. There were essentially two reasons for the establishment of the fiduciary relationship prohibitions. First, these professional activities were believed to pose a particular risk of conflict of interest:

There is also concern that receipt of legal fees and other compensation for professional services, and directors’ fees from serving on boards of corporations, associations, nonprofit organizations, and other entities, creates at least the appearance of impropriety and the potential for conflicts of interest. Based on the fundamental principle that a public office is a public trust, all officials of the government are expected to act in the interests of the beneficiaries of that trust, that is, the general public.

When certain private positions and employment create for the Member or public official a fiduciary or a representational responsibility to a private client or a limited number of private parties, then such outside activities create the potential for a serious conflict of interest. The conflict occurs in the clash of those responsibilities and the divergence of public and private interests on a particular governmental matter or in general government policy. [59]

[59] Id. at 14, 135 Cong. Rec. at H9256.

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Second, there was a desire to ensure that honoraria – which, as detailed above, was banned under other provisions of the Act – “not reemerge in various kinds of professional fees from outside interests.”[60]

Professions Covered by the Prohibitions. What types of professional activities are embraced by these prohibitions? The statute does not define “fiduciary,” a term generally denoting an obligation to act in another person’s best interests or for that person’s benefit, or a relationship of trust in which one relies on the integrity, fidelity, and judgment of another. [61] However, the Bipartisan Task Force Report states that in order for the underlying purposes to be achieved, “the term fiduciary [should] not be applied in a narrow, technical sense.” [62] The report further states:

The task force intends the ban to reach, for example, services such as legal, real estate, consulting and advising, insurance, medicine, architecture, or financial.[63]

[63] Id.

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In the same vein, in the debate preceding passage of this law, one of the Members who served on the Bipartisan Task Force explained that “it eliminates the ability of Members of Congress to earn income from professional fees such as law practice, insurance, or accounting, any income that could be funneled from lobbyists to Members under the guise of personal services.”[64]

A Standards Committee advisory memorandum of February 23, 1998 (included in the appendices) contains a Committee determination that the practice of medicine is a profession involving a fiduciary relationship and hence is subject to the fiduciary relationship prohibitions. That memorandum further advised that henceforth, in determining whether a profession is covered by these provisions, the Committee would rely on the above-quoted list of professions in the Bipartisan Task Force Report, and would also look to (1) whether applicable state law establishes any fiduciary relationship with regard to that profession, and (2) the regulations on covered professions issued for the Executive Branch by the U.S. Office of Government Ethics (5 C.F.R. § 2636.305(b)(2) (2006)). [65] However, as discussed further below, the Committee has issued guidance permitting Members to accept fees for the practice of medicine in certain limited circumstances.

The applicability of the fiduciary relationship prohibitions to consulting or advising on business matters and political consulting, and to medical practice, is further addressed in this next section of this chapter.

There are three separate prohibitions relating to professions involving a fiduciary relationship. Except with regard to the practice of medicine, these prohibitions are set forth in virtually identical form in both statutory law and the House rules, as follows.

Prohibition Against Receiving Compensation From Practice of a Covered Profession. Members and senior staff are prohibited from “receiv[ing] compensation for practicing a profession that involves a fiduciary relationship.”[66] Accordingly, Members and senior staff may not receive compensation for providing professional services in the fields noted above, and may not participate in any arrangement under which fees for any such services that they render are paid to any other individual or entity.

The prohibition applies only to compensation for services that the individual provides while serving as a Member or senior employee, and it does not apply to compensation for services provided prior to assuming office. Thus, for example, a Member who had been an insurance agent may accept renewal commissions generated by policies sold prior to becoming a Member, and a Member who had been a leasing agent may accept renewal commissions with respect to leases that were entered into prior to that time. It appears that in most such arrangements, payment of the commission is not contingent upon the performance of any future services by the recipient, and the only contingency is that the insured or the lessee continue to pay premiums or rent, as the case may be.[67] Similarly, a Member who had been an attorney may accept a fee for legal work completed prior to becoming a Member.[68]

Any such renewal commission or other income received by a Member or senior employee for services provided prior to assuming office must be reported on Schedule I of the Financial Disclosure Statement of the Member or senior staff person for the year in which the income was received. However, as detailed below, such income does not count against the individual’s outside earned income limitation for that year.

As noted above, the prohibition extends generally to “consulting and advising.” They clearly apply to consulting and advising in professional fields such as law, accounting, investing, and real estate or insurance sales. In addition, as a general matter, the prohibition extends to consulting or advising on business matters. However, where certain requirements are satisfied, a Member or senior staff person is not prohibited from accepting compensation for business consulting from a business in which the Member or staff person (or his or her family) holds a controlling interest. In order for business consulting on a paid basis to be permissible, (1) the family-owned business may not be a law firm, an insurance agency, or any other entity that provides professional services involving a fiduciary relationship, (2) the services provided by the Member or senior staff person may not be in a professional field such as law or accounting, and (3) the other limitations on outside earned income and employment set forth in this chapter must be observed. Any Member or senior staff person who wishes to receive compensation for consulting services provided to a family-owned business should first consult with the Standards Committee.

As a general matter, the prohibition also extends to consulting or advising on political matters and public relations. However, a senior staff person is not prohibited from accepting compensation for political consulting services that he or she provides to either a candidate (including one’s employing Member), a political party, or a Member’s leadership PAC.[69] Senior staff who wish to consult for any other type of political organization or entity should consult the Standards Committee for guidance before undertaking any such employment. In addition, in order to be permissible, the political consulting services for which the senior staff person is compensated may not be in a professional field such as law or accounting, and the other limitations on outside earned income and employment set forth in this chapter must be observed.

With regard to the practice of medicine, as noted above, in 1998 the Standards Committee determined that medical practice is a profession covered by the prohibitions. In 2003 the House amended its rules to exempt medical practice from the fiduciary relationship prohibitions, but no corresponding change has yet been made in the prohibitions as set out in statutory law.[70] Notwithstanding the existing statutory prohibition, the Standards Committee has authorized Member- physicians to practice medicine for a limited amount of compensation. Specifically, the Committee advised that a Member who is a doctor does not violate the prohibition if he or she receives, in any calendar year, fees or other payments for medical services that do not exceed the actual and necessary expenses incurred by the Member during the year in connection with the practice. The particulars of and the reasons for that Committee determination are set forth in the February 1998 memorandum included in the appendices to this Manual. Any Member-physician wishing to accept payment for providing medical services should review that memorandum and consult with the Standards Committee. In particular, Members who practice medicine for compensation must file an annual accounting with the Standards Committee that describes the total fees charged, payments received, and any expenses.

Occasionally a Member or senior staff person is named or requested to act as the personal representative or executor of the estate of a deceased individual. If the Member or senior staff person is an attorney, then any fees for serving as personal representative or executor would be deemed to constitute compensation for legal services and hence could not be accepted. However, the Standards Committee has recognized an exception to this rule when the deceased individual is an immediate family member of the Member or senior staff person. In that circumstance, the fees normally paid to a personal representative or executor may be accepted, but they would count against the individual’s outside earned income limitation for the year(s) in which the services are rendered.

Finally, occasionally an incoming Member or senior staff practiced a profession involving a fiduciary relationship prior to taking office, and wishes to complete a matter after taking office. As a general rule, any such “winding up” work must be done on an uncompensated basis. Nevertheless, in certain very limited circumstances, the Standards Committee may allow the Member or senior staff person to accept compensation for that work. Any incoming Member or employee wishing to continue work under these circumstances should consult with the Standards Committee for more detailed guidance.

Example 24. A Member, before his election to the House, was vice president and general counsel of a small manufacturing company. After he assumes office, the company would like him to continue in his prior capacities, but at a reduced salary to reflect his reduced time commitment to the company. The Member may not accept any compensation from the company under these circumstances since the payment would be compensation for providing legal advice, a professional service involving a fiduciary relationship. (Such compensation would also be an impermissible officer’s fee (see below).)

Example 25. A political consulting firm that specializes in advising candidates for state office offers a consulting contract to a Member. The firm is hoping to attract new clients by making available the demonstrated political savvy and expertise of the Member. The Member may not enter into the contract because the consulting services the Member would provide are among those for which a Member may not receive compensation, and in any event, it appears that the purpose of the contract is to capitalize on the individual’s status as a Member.

Example 26. A Member who is a lawyer would like to represent an indigent client on a pro bono (unpaid) basis. Since she will not be compensated, she may do so, provided that she observes all other limits on the practice of law by Members (see the section on law practice earlier in this chapter).

Example 27. The House pay of a staff person is increased to a rate above the senior staff rate. While she was paid below the senior staff rate, she earned outside income as an insurance and real estate broker. As of the time she becomes a senior employee, she may no longer do so.

Example 28. A Member who is an attorney is named the executor of his late uncle’s estate. Because the service would be on behalf of a family member, he may accept payment of executor’s fees at the customary rate.

Prohibition Against Receiving Compensation for Affiliating With an Entity That Provides Covered Professional Services. Members and senior staff are also prohibited from “receiv[ing] compensation for affiliating with or being employed by a firm, partnership, association, corporation, or other entity that provides professional services involving a fiduciary relationship.”[71] Under this prohibition, Members and senior staff may not receive compensation for affiliating with or being employed by such an entity in any capacity.

Under this prohibition, a Member or senior staff person may not receive compensation for serving as, for example, a business manager or administrative assistant of a law firm, a medical practice, or a real estate or insurance agency. As to whether a particular firm provides professional services involving a fiduciary relationship (meaning that compensation for the services would be covered by this prohibition), see the description of covered professions that is provided above in this chapter.

Example 29. A Member is in her final year in the House, having announced her retirement. Upon leaving the House she will join a law firm and will open a new office for the firm. Before her term expires, she wishes to begin organizing the office by, for example, arranging for office space and interviewing potential employees. She may not receive any compensation from the law firm even for any non-legal work that she does in the time before her House term expires.

Example 30. A staff person whose House pay exceeds the senior staff rate ceased selling real estate prior after coming to work on the Hill. In order to maintain his license, however, he must remain affiliated with a real estate firm. As long as he is not actively selling and he receives no compensation, he may maintain this affiliation. However, the firm may not publicly use his name (see below).

Prohibition Against Permitting One’s Name To Be Used by an Entity That Provides Covered Professional Services. A Member or senior staff person is further prohibited from “permit[ting] his name to be used by . . . a firm, partnership, association, corporation, or other entity” that “provides professional services involving a fiduciary relationship.”[72] While the other two fiduciary relationship prohibitions relate to receipt of compensation, the ban on allowing one’s name to be used by a covered organization applies regardless of whether the organization compensates the Member or employee. The ban extends, for example, to use of the name of the Member or senior staff person on the letterhead, advertising, or signage of any covered organization.

Under this provision, when the name of an incoming Member or senior staff person had been used in the name of a law firm, real estate agency, or other organization that provides fiduciary services, the name of that organization must be changed to eliminate the name of the Member or senior staff person. However, the requirement does not apply when the organization’s name in fact reflects a “family” name, as opposed to that of the individual Member or staff person. On this point, the Bipartisan Task Force Report states, “the fact that a Member, officer, or employee is presently associated with a law firm founded by, and still bearing the name of, his father would not require the firm to drop the ‘family’ name.”[73]

In addition, federal law at 5 U.S.C. § 501 provides that a firm, business, or organization that practices before the federal government may not use the name of a Member of Congress to advertise the business. These limitations are in accord with model rules of the American Bar Association (ABA) that prohibit the facade of retaining a government lawyer’s name in a firm when the individual is not actively and regularly practicing.[74]

Example 31. A Member was a name partner in a law firm before election to Congress. Upon his election, the firm changed its name to reflect his resignation but requested that it be allowed to list him as “of counsel” on its letterhead so as to maintain the goodwill of his former clients. Even if he accepts no compensation from the firm, the Member must refuse the request.

Example 32. Member Jane Doe is a certified public accountant. Prior to her election, she was employed by the accounting firm of Doe & Moe, named for its founder and her father, Joe Doe. Since the firm was not actually named for her, it does not have to change its name upon her election.

Prohibition Against Serving for Compensation as an Officer or Board Member of Any Organization

The ban on paid board service – like the restrictions on paid teaching discussed in the next section – arises from the same set of concerns as the fiduciary relationship prohibitions. The ban on accepting compensation for serving as an officer or board member applies to all entities, including nonprofit and campaign organizations, and governmental entities. As a general matter, Members and senior staff may serve in such capacities, but they may not be paid any directors’ fees or other compensation for that service.[75] They may accept reimbursements for travel and other expenses in carrying out the duties of a board member and may be covered by an insurance policy as a member of a board, [76] provided that acceptance is permissible under the applicable provision of the gift rule (House Rule 25, cl. 5(a)(3)(G)(i)).

Example 33. A Member serves on the board of a hospital in his district. He receives no salary, but the hospital pays for his travel expenses if he makes a special trip to attend a board meeting, and he is covered under the hospital’s officers’ and directors’ liability policy. These arrangements do not violate the prohibition against compensated board service.

Example 34. A staff person whose pay is above the senior staff rate works on a Member’s campaign on her own time and outside of congressional space. The staff person may be paid for her campaign work, subject to the outside earned income cap, as long as she is not paid as the campaign’s treasurer or any other officer for the campaign.

Requirement for Prior Committee Approval of Compensation for Teaching

Members and senior staff may not teach for compensation unless they receive prior written approval from the Standards Committee for each semester or academic year in which the teaching will occur. This requirement ensures that teaching does not become an avenue for circumventing the honoraria ban. In order to receive approval, the teaching must conform to the following criteria:

(1) The teaching is part of a regular course of instruction at an established academic institution.

(2) All compensation comes from the funds of the institution and none is derived from federal grants or earmarked appropriations.

(3) The payment is for services on an ongoing basis, not for individual presentations or lectures.

(4) The teacher’s responsibilities include class preparation and student evaluation (for example, grading papers, testing, and homework).

(5) The students receive credit for the course taught.

(6) The compensation does not exceed that normally received by others at the institution for a comparable level of instruction and amount of work.

(7) No official resources, including staff time, are used in connection with the teaching.

(8) The teaching does not interfere with official responsibilities nor is it otherwise inconsistent with the performance of congressional duties.

(9) The employment or compensation does not present a significant potential for conflict of interest.

Items 1 through 6 should be confirmed in writing by the institution at which the paid teaching will occur. Documentation may be in the form of an explanatory letter or copy of a teaching contract attached to the request for Committee approval. Items 7 through 9 should be affirmed in writing by the individual seeking to teach.

The Standards Committee also normally approves requests to teach for compensation in less formal settings such as Sunday school, piano lessons, aerobics classes, and other situations clearly unrelated to official duties or an individual’s status in Congress. No documentation need be submitted from the employing institution in such instances, but Committee approval is required. Compensation received for teaching at any institution is subject to the outside earned income limit for Members and covered staff, discussed later in this chapter.

Requirement for Committee Approval of Publishing Contracts, and Prohibition Against Receipt of Any Advance Payment of Royalties

Three provisions of House Rule 25 apply where a Member or staff person paid at the senior staff rate wishes to enter into a contract for the publication of a book. Briefly stated, those provisions:

• Prohibit the receipt of copyright royalties unless the contract is first approved by the Standards Committee, with the criteria for approval being that the royalties are to be received from an established publisher pursuant to “usual and customary contractual terms;”
• Prohibit the receipt of any advance payment on copyright royalties (a researcher or other individual working for a Member on a book may receive an advance directly from the publisher, provided that the individual neither is employed by the House nor is a relative of any House Member, officer, or employee); and
• Exempt from the outside earned income limitation any copyright royalties received under a publishing contract that complies with the above rules.

Elaboration on these provisions follows.

The Requirement for Prior Approval of Publishing Contracts. A Member or senior employee may not “receive copyright royalties under a contract
. . . unless that contract is first approved” by the Standards Committee (House Rule 25, cl. 3(b)). The criteria for Committee approval are that the royalties “are received from an established publisher under usual and customary contractual terms” (id. cl. 3(b), 4(d)(1)(E)).

In determining whether a publisher is an “established” one for purposes of the rule, the Committee will consider, among other things, information on the company that is available in standard industry reference books, such as the year that the company was founded and the number of titles that it has in print. In determining whether the terms of a proposed contract are “usual and customary” ones, the Committee requires representations from the publisher as to the contract terms that it offers to similarly situated authors and whether the terms offered to the Member or employee differ in any way from its standard terms. In reviewing contract terms, the Committee considers, among other terms, those that benefit the author, including the royalty rates, any provision that entitles the author to copies of the book either without charge or at a reduced price, and any provision for a book tour sponsored by the publisher.

At times a Member wishes to enter into a publishing contract that provides that any royalties are to be paid directly to a charity that the Member designates in the contract. Any publishing contract of a Member or senior staff person that provides for the payment of royalties to a charity or other person must nevertheless be submitted to the Standards Committee for prior approval.

Contracts with a publisher for a congressional author to self-publish a book are permitted, provided the contract contains the publisher’s standard terms, available to all authors. Such contracts may not provide any advance on royalties.

The Prohibition Against Receipt of an Advance on Copyright Royalties. Under a provision of the rules that was approved in late 1995, Members and senior staff are prohibited from “receiv[ing] an advance payment on copyright royalties” (House Rule 25, cl. 3(a)). However, the rule does not prohibit an individual who is working with a Member or senior employee on a publication, such as a literary agent or researcher, from receiving an advance on copyright royalties, provided that the individual is neither a House employee nor a relative of a Member or an employee. Specifically, the rule against advances on copyright royalties

does not prohibit a literary agent, researcher, or other individual (other than an individual employed by the House or a relative of a Member,
. . . officer, or employee) working on behalf of a Member, . . . officer, or employee with respect to a publication from receiving an advance payment of a copyright royalty directly from a publisher and solely for the benefit of that literary agent, researcher, or other individual.[77]

[77] House Rule 25, cl. 3(a).

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Exemption of Certain Copyright Royalties From the Outside Earned Income Limitation. The outside earned income of Members and senior staff are subject to the outside earned income limitation discussed later in this chapter. However, among the types of income that are exempt from the annual limitation are “copyright royalties received from established publishers under usual and customary contractual terms” (House Rule 25, cl. 4(d)(1)(E)). Underlying this provision of the rules is the concept that such royalties are a return on the author’s intellectual property, akin to other unrestricted returns on property.[78]

It is important to note that the only copyright royalties that are exempt from the outside earned income limit are those “received from an established publisher under usual and customary contractual terms.” In the 104th Congress the Standards Committee determined that the amounts a Member had received for the sales of his book did not satisfy the requirements of the rule and hence were not exempt from the outside income limitation.[79] In that instance, the Member’s book was published in a foreign country under an arrangement in which the Member received a flat fee of $25,000, as well as additional payments from a marketing agent based on a rate of 40% of the proceeds of sales. Moreover, all of the payments from the marketing agent derived from bulk book sales to businesses, trade associations, and other entities in that country. The payments that the Member had received for his book exceeded the outside earned income limit by $112,258. Because refund of the excess to the purchasers of the book was impracticable, the Committee required the Member to donate the amount in excess of the outside earned income limitation either to qualified charities or the U.S. Treasury for debt reduction.

Other Rules on Book-Related Activities. The writing of a book by a Member or staff person is not considered official House business, even when the subject of the book is congressional issues or one’s experiences in Congress. The same applies to other book-related activities, such as seeking and entering into a contract with a publisher or others, and promoting one’s book. Instead, such activities are considered outside business activities, and this is so even if the Member or employee has contracted that any royalties will be paid to charity. Accordingly, those activities are subject to the laws, rules, and standards of conduct governing the outside employment of Members and all staff that are discussed earlier in this chapter.

Thus, for example, a Member or staff person may not use any House resources – including office supplies or equipment, or staff time – in any book-related activity in which he or she is engaging. In addition, at times the publisher wishes to arrange a book tour, or an individual or organization wishes to host a book-related event or otherwise assist or further sales of one’s book. For Members and staff, the acceptability of such an offer is governed by the gift rule (House Rule 25, clause 5). As a general matter, the provision of the gift rule implicated by such offers is that which allows a Member or staff person to accept benefits resulting from his or her outside activities, provided that two requirements are satisfied: (1) The benefits have not been offered or enhanced because of the individual’s position with the House, and (2) those benefits are customarily provided to others in similar circumstances (House Rule 25, cl. 5(a) (3)(G)(i)).

In addition, under provisions of the House Rules and statutory law that prohibit the conversion of campaign funds to personal use, a Member is prohibited from using campaign funds or resources either to purchase copies of a book from which he or she receives royalties, or in furtherance of any activity that involves sales of such a book (House Rule 23, cl. 6; 2 U.S.C. § 439a). Chapter 8 regarding campaign activity provides further detail on this point.

Another relevant provision of the rules is the honoraria ban, which is discussed in more detail earlier in this chapter. While the ban generally prohibits Members and staff from receiving payment for, among other things, an article, a distinction is made between books and articles. A book author’s royalties generally reflect the book’s sales, that is, the public’s assessment of the book’s worth. An article, on the other hand, typically garners a one-time fee, based only on what the publisher is willing to pay the particular author (and not necessarily related to the marketability of the piece). To be exempt from the honoraria prohibition, a book must be published by an established publisher pursuant to a usual and customary royalty agreement, as discussed above.

In an investigation in the 101^st Congress, the Committee found reason to believe that certain income that a Member reported as book royalties was actually excessive honoraria. The Committee’s Statement of Alleged Violations charged that the Member, having reached his outside earned income limit, arranged bulk book sales to groups before whom he spoke in lieu of collecting honoraria.[80] The Member resigned before the Committee could proceed further.

Bulk book sales are not, however, invalid per se. In another case, the Committee declined to initiate a Preliminary Inquiry based on allegations (among others) that a bulk book sale might have been an improper gift or political contribution, where the Member received no personal financial benefit from the sale.[81] Unlike the previous case, there were no allegations that the sale was arranged to compensate the Member for personal services.

Example 35. A Member writes a book of memoirs about his years in public service. An established publisher offers the Member its usual and customary royalty terms for the right to publish the book. The Member may have the book published and collect royalties under the contract, once he receives written approval from the Committee. The royalties will be deemed “unearned income” and will not count against the Member’s outside earned income cap.