X. MEMORANDUM FOR ALL MEMBERS, OFFICERS AND EMPLOYEES[*]

February 23, 1998

FROM: Committee on Standards of Official Conduct

James V. Hansen, Chairman
Howard L. Berman, Ranking Democratic Member

SUBJECT: Outside Earned Income Restrictions on Members and Senior Staff

Introduction. The Ethics Reform Act of 1989 imposed a number of restrictions on the outside earned income of Members and senior staff[1] of the House and Senate, as well as senior officials in the other branches of government. One of these restrictions is a prohibition on their receiving “compensation for practicing a profession which involves a fiduciary relationship.” 5 U.S.C. app. 4 § 502(a)(3); House Rule 47, cl. 2(3) [now House Rule 25, cl. 2(a)].[2]

This Committee is responsible for implementing these provisions in the House, and under them, the Committee has generally held that Members and senior staff may not receive pay for services rendered in the fields of law, real estate or insurance. Otherwise, however, up to now the Committee has implemented these provisions in a way that has allowed compensation for certain professional services, even though they are generally viewed as involving a fiduciary relationship.

After receiving inquiries on whether Members who are doctors may collect fees for providing medical services, the Committee decided to review its policy in this area. With this memorandum, the Committee announces that it will no longer approve the receipt of compensation for any professional services that involve a “fiduciary relationship” as that term is generally defined in law. The prohibition, as now implemented by the Committee, extends to the practice of medicine for compensation. In the Committee’s view, the approach previously used – to the extent it allowed receipt of compensation for such professional services – was not consistent with the terms or the legislative history of the Ethics Reform Act.

Furthermore, that approach was not consistent with that used in the Senate or the Executive Branch.

Elaboration on the background and the terms of the Committee’s action follows.

Background. As a result of the Ethics Reform Act of 1989, both statutory law and the House rules include provisions that prohibit Members and senior staff from doing, as here relevant, three things:

• “receiv[ing] compensation for practicing a profession which involves a fiduciary relationship,”
• “receiv[ing] compensation for affiliating with or being employed by a firm, partnership or other entity which provides professional services involving a fiduciary relationship,” and
• permitting one’s name to be used by such an entity. 5 U.S.C. app. 4 § 502(a); House Rule 47, cl. 2 [now House rule 25, cl. 2].[3]

When the Committee began to implement these provisions in 1990-91, it elected, with regard to the key provision on professional practice, not to use a conventional legal definition of the term “fiduciary relationship.” Instead, as reflected on page 103 of the House Ethics Manual, 102d Cong., 2d Sess. (April 1992), the Committee elected to “evaluate the nature and circumstances of each individual’s particular employment on a case-by-case basis in light of the objectives of the Act.” In this regard, the Committee adopted a three-part test for determining whether any particular employment involved a prohibited fiduciary relationship, i.e., (1) Could the employment result in a conflict of interest between private and public responsibilities? (2) Does the employment create an appearance that an official position is being used for private gain? and (3) Does the compensation appear to be an effort to circumvent the ban on honoraria?

Using this three-part test, the Committee has issued advisory opinions stating that a Member or senior staffer could not earn income from providing legal advice, selling insurance, or acting as a real estate broker (see page 145 of the Manual). However, using this test, the Committee has also occasionally allowed compensation for certain professional services, even though the services involved a “fiduciary relationship” as that term is conventionally defined.

The Committee Action. As noted above, last year the Committee was formally asked, for the first time since the 1989 Act took effect, whether Members who are doctors may receive compensation for practicing medicine. Recently the Committee decided, on the basis of essentially three factors, that those Members may not receive compensation for practicing medicine. First, the statute and rule are straightforward in banning receipt of compensation for practicing a profession involving a fiduciary relationship, and it is undisputed that state laws generally establish a fiduciary relationship between a doctor and his or her patient.

Second, while it has been argued that these provisions were not intended to ban the compensated practice of medicine, the report of the 1989 House Bipartisan Task Force on Ethics, which authored these provisions, states the following with regard to their intended scope:

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

Report of the Bipartisan Task Force on Ethics on H.R.3660, 101st Cong.,1st Sess. 16 (Nov. 15, 1989).

Finally, both in the Senate and in the Executive Branch, these provisions are interpreted to prohibit the receipt of compensation for practicing medicine. (The regulations issued by the U.S. Office of Government Ethics, which are applicable to Executive Branch officials, are set out at 5 C.F.R. § 2636.305.)

In so deciding the question of compensated medical practice, the Committee also decided that the three-part test set out on p. 103 of the Manual will no longer be used to determine whether any professional services involve a prohibited fiduciary relationship. Instead, in making that determination, the Committee will henceforth rely on the above-quoted list of professions set forth in the 1989 Task Force report, as well as the admonition in the report (on page 16) that, “[T]he task force intends that the term fiduciary not be applied in a narrow, technical sense and wants to ensure that honoraria not reemerge in various kinds of professional fees from outside interests.” With regard to any particular profession, the Committee will also look to whether any fiduciary relationship is established by the applicable state law, and to the regulations issued by the U.S. Office of Government Ethics.

In responding to the inquiries on medical practice, the Committee also issued advice on how Members who are doctors may, consistent with the “fiduciary relationship” provisions, continue to practice medicine on a limited basis. Specifically, the Committee advised that a Member who is a doctor does not violate those provisions when 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. In other words, receipt of fees and other income in that amount is not deemed to constitute the practice of medicine for compensation.

The Committee adopted this position on medical practice in response to two points made by Members who are doctors: they need to continue to practice in order to maintain their skills, and perhaps even their license to practice medicine, and medical practice necessarily entails a number of extraordinary expenses, including in particular the cost of malpractice insurance. It is also noteworthy that defining compensation in this manner accords with the definition of that term used by the Office of Government Ethics. 5 C.F.R. § 2636.303(b)(6). This limitation on the receipt of fees and payments for medical services, which is keyed to the actual and necessary expenses incurred in one’s practice, precludes the receipt of compensation from medical practice in any form.

Members and senior staff who receive outside income through the rendering of professional services should consult with the Committee’s Office of Advice and Education (extension 5-7103) regarding the possible applicability of the “fiduciary relationship” provisions in their circumstances. Any questions about this memorandum should likewise be directed to the Office of Advice and Education.