If I work for a Texas state agency, does stock I got through a former job's pension plan, or a relative's business stake, create a conflict of interest?

Texas AG Opinion JM-1107: Conflict-of-Interest Rules for the Department of Information Resources

Plain-English summary

When the Texas Legislature created the Department of Information Resources in 1989 to coordinate state agencies' computer and telecommunications technology, it built in conflict-of-interest rules to keep the people running it from being financially entangled with the technology vendors they oversee. Two provisions were at issue. A board member or employee may not own, directly or indirectly, more than a 10 percent interest in a business that has a substantial interest in the information-resources-technologies industry and that may contract with state government (section 8(a)(3)), and may not receive more than 25 percent of their income from such a business (section 8(a)(4)).

The department needed to hire skilled computer professionals, many coming straight out of the private sector, and asked the Attorney General how these rules applied in three common situations. First, what about stock an applicant picked up in a former employer through a pension or stock-ownership plan? The Attorney General said that counts. The statute reaches interests held "directly or indirectly," which is expansive language, and stock held through a retirement or ownership plan still gives the person a personal stake in the former employer's economic health, creating the very risk of divided loyalties the rule guards against. So when the department measures whether someone crosses the 10 percent line, it has to include that plan-acquired stock.

Second, what if an applicant's parent owns part of such a business? Here the answer flipped. The Attorney General found no law that attributes a parent's ownership to a child. Earlier opinions on similar family-relationship questions had reached the same conclusion, one holding that a county could buy fuel from a company owned by a commissioner's brother because the family relationship alone did not create a prohibited interest. Unless the facts show the employee actually owns or controls the parent's interest, that interest is not counted against the employee.

Third, what about a spouse's holdings, given that Texas is a community-property state? Drawing on prior opinions that had folded community-property analysis into conflict-of-interest questions, the Attorney General concluded the department must consider an employee's community interest in a spouse's business interests and income when applying both section 8(a)(3) and section 8(a)(4). Because that depends heavily on the particular facts, whether any specific person is actually barred has to be decided case by case, applying the community-property rules (then in Family Code chapter 5) to that person's situation. The opinion was careful to note it was answering only questions of statutory construction, not any constitutional issue.

Currency note

This opinion was issued in 1989. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Department of Information Resources statute cited here as article 4413(32j), V.T.C.S., was later recodified into the Texas Government Code, and the marital-property provisions then in Family Code chapter 5 were recodified into the current Family Code. The conflict-of-interest thresholds and definitions may have been amended in the process. Anyone applying these rules today should work from the current Government Code and Family Code rather than the 1989 citations here.

Who this opinion affected (as of 1989)

The Department of Information Resources and its hiring managers: The opinion gave them a working method for screening applicants and employees against the conflict rules, telling them to count plan-acquired stock and a spouse's community interest, but not a parent's separate interest absent actual control.

Applicants and employees coming from private tech companies: For new hires, the opinion clarified that retirement-plan stock in a former employer could disqualify them if it exceeded the 10 percent threshold, while a parent's business stake generally would not touch them.

Spouses of agency staff: Because Texas community-property law gave an employee an interest in a spouse's holdings and income, a spouse's ownership in a covered technology business could affect the employee's eligibility, to be judged case by case.

Common questions

Does stock from a former employer's pension plan count toward the conflict limit?
Yes. The Attorney General advised that stock acquired through a pension or stock-ownership plan counts toward the 10 percent ownership interest in section 8(a)(3), because the statute reaches indirect interests and the stock still gives the person a stake in the former employer.

Does a parent's ownership in a tech business disqualify me?
Generally no. The opinion found no law attributing a parent's interest to a child. Unless the facts show you actually own or control the parent's interest, it is not counted against you.

Does my spouse's business interest or income matter?
Yes. Because Texas is a community-property state, the department must consider your community interest in your spouse's business interests and income when applying both section 8(a)(3) and section 8(a)(4).

Is there a bright-line rule for who is barred?
No. Whether a specific person is disqualified must be resolved case by case, applying community-property law to that person's particular facts.

Background and statutory framework

Article 4413(32j), V.T.C.S., enacted by the 71st Legislature as House Bill 2736, established the Department of Information Resources, transferred to it the powers of the former Automated Information and Telecommunications Council, and abolished the council. Acts 1989, 71st Leg., ch. 788, § 1. The department's purpose was to coordinate and direct state agencies' use of information-resources technologies and to ensure cost-effective methods. Id. § 1. "Information resources technologies" was defined as data processing and telecommunications hardware, software, services, supplies, personnel, facility resources, maintenance, and training. Id. § 3(4).

Section 8 set the conflict-of-interest rules. Section 8(a)(3) bars a board member or employee from owning, controlling, or having, directly or indirectly, more than a 10 percent interest in a business entity that has a substantial interest in the information-resources-technologies industry and that may contract with state government. Section 8(a)(4) bars receiving more than 25 percent of one's income from such a business. The opinion addressed only the ownership-magnitude question the department raised, not whether a given entity has a substantial industry interest or may contract with the state, noting those conditions must also be met before employment is barred.

On the pension-plan question, the Attorney General read the "directly or indirectly" language as expansive enough to include stock acquired through an employees' pension or stock-ownership plan, since such stock still creates a personal stake in the former employer and a risk of divided loyalties. On the parent question, the opinion found no law attributing a parent's interest to a child and relied on prior opinions treating family relationships as insufficient by themselves to create a prohibited interest. Attorney General Opinion H-354 (1974) (commissioners court could buy fuel from a corporation owned by a commissioner's brother, because "the mere relationship of two brothers is not, in and of itself, sufficient to establish the prohibited interest"); see also Attorney General Opinion O-2856 (1940); Letter Opinion 88-44 (1988). On the spouse question, prior opinions had considered community-property law in conflict-of-interest analysis, Attorney General Opinion JM-817 (1987) and Attorney General Opinion JM-126 (1984), so the department was directed to consider community-property interests in applying sections 8(a)(3) and 8(a)(4), resolving specific cases by applying the community-property rules (Fam. Code ch. 5) to the facts. The opinion addressed only statutory construction, not any constitutional issue. See Attorney General Opinion JM-872 (1988).

Citations

Statutory authorities:

• V.T.C.S. art. 4413(32j), § 8 (conflict-of-interest provisions, including §§ 8(a)(3) and 8(a)(4))
• V.T.C.S. art. 4413(32j), § 3(4) (definition of "information resources technologies"); § 1 (purpose of the department)
• Family Code ch. 5 (community property law, as then codified)

Attorney General opinions referenced:

• H-354 (1974); O-2856 (1940); Letter Opinion 88-44 (1988); JM-817 (1987); JM-126 (1984); JM-872 (1988)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1107
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1989/jm1107.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative.

October 9, 1989

Ms. Lynn B. Polson
Acting Executive Director
Department of Information Resources
P. O. Box 13564
Austin, Texas 78711

Opinion No. JM-1107

Re: Construction of conflict of interest provisions of article 4413(32j), V.T.C.S., which creates the Department of Information Resources (RQ-1802)

Dear Ms. Polson:

On behalf of the Department of Information Resources you request an interpretation of the conflict of interest provisions in section 8 of article 4413(32j), V.T.C.S. This statute, enacted by the 71st Legislature as House Bill 2736, establishes the Department of Information Resources, grants it powers and duties formerly vested in the Automated Information and Telecommunications Council, and abolishes the council. See Acts 1989, 71st Leg., ch. 788, § 1, at 3569. You are concerned about the following two conflict of interest provisions:

(a) A member of the board or an employee of the department may not:

. . . .

(3) own, control, or have, directly or indirectly, more than a 10 percent interest in a business entity that has a substantial interest in the information resources technologies industry and that may contract with state government;

(4) receive more than 25 percent of the person's income from a business entity that has a substantial interest in the information resources technologies industry and that may contract with state government . . . .

V.T.C.S. art. 4413(32j), § 8. "Information resources technologies" is defined as "data processing and telecommunications hardware, software, services, supplies, personnel, facility resources, maintenance, and training." Id. § 3(4).

The Department of Information Resources was established to coordinate and direct the use of information resources technologies by state agencies and to ensure that the most cost effective and useful methods are implemented. Id. § 1. To carry out these goals, you state that you must employ highly trained professionals with expertise in various areas of computer technology. Many of these individuals have worked in the private sector.

You are concerned about the effect of section 8(a)(3) on your employment of persons who may have acquired stock in their former employers through pension and stock ownership plans. You also ask whether this section prohibits the department from employing individuals whose parents have partial ownership in such businesses.

Section 8(a)(3) applies if an employee owns more than a 10 percent interest in a business entity that has "a substantial interest in the information resources technologies industry" and that "may contract with state government." Your questions relate only to the person's ownership interest in a business entity, and not to the magnitude of the entity's interest in the industry or the possibility that it may contract with the state. Nor do we address these aspects of sections 8(a)(3) and 8(a)(4), except to point out that these conditions must also exist for an individual's employment to be barred.

Section 8(a)(3) applies to persons who "own, control, or have, directly or indirectly, more than a 10 percent interest" in the described business entity. V.T.C.S. art. 4413(32j), § 8 (emphasis added). This is expansive language, and in our opinion it includes stock acquired by the person through an employees' pension or stock ownership plan. The individual's interest in the stock gives him a personal stake in the former employer's economic welfare, and creates a risk of divided loyalties if he were employed by the department. Accordingly, when you determine whether an applicant or employee has more than a 10 percent interest in a business entity under section 8(a)(3), you must count stock in former employers acquired through pension and stock ownership plans.

We find no provision of law that attributes to an individual a parent's ownership interest in a business entity. Prior opinions of this office dealing with an analogous question indicate that the parent's interest should not be attributed to a child. Attorney General Opinion H-354 (1974) determined that the commissioners court of a county could purchase fuel from a corporation owned by a brother of one of the commissioners. The county was prohibited by law from entering into a contract in which a commissioner had a direct or indirect pecuniary interest, but, the opinion stated, "the mere relationship of two brothers is not, in and of itself, sufficient to establish the prohibited interest." Attorney General Opinion H-354 at 3. See also Attorney General Opinion O-2856 (1940); Letter Opinion 88-44 (1988). The fact that an applicant's or employee's parent owns an interest in a business does not mean that the applicant or employee would "own, control, or have" that interest. In the absence of other facts showing that a person actually owns or controls a parent's interest in a business entity, the parent's interest should not be included in determining whether the person owns, controls or has more than a 10 percent interest in a particular business entity.

You ask whether section 8(a)(3) prohibits the department from employing individuals whose spouses have partial ownership in a business entity with a "substantial interest in the information resources technologies industry and that may contract with state government." With respect to section 8(a)(4), you ask whether community property laws apply in determining whether an individual receives more than 25 percent of his income from this kind of business entity.

Prior opinions of this office have considered community property laws in addressing questions of conflict of interest under particular statutes or common law rules. See Attorney General Opinion JM-817 (1987) (university regent has a personal pecuniary interest in spouse's salary from corporation and income from his ownership interest); Attorney General Opinion JM-126 (1984) (state officer's community interest in her husband's salary does not constitute a "substantial pecuniary interest" in the facility that employs husband). On the basis of these opinions, we conclude that you should consider community property laws in applying sections 8(a)(3) and 8(a)(4).

You have not asked us about the application of the conflict of interest provisions to a particular case involving community property interests. Whether specific individuals are barred from working for the department must be resolved on a case-by-case basis, by applying the community property laws to the facts of each case. See, e.g., Fam. Code ch. 5.

You do not ask, and we do not address, any constitutional issue, either with respect to composition or to duties. You inquire only about statutory construction. See Attorney General Opinion JM-872 (1988).

SUMMARY

In applying the conflict of interest provisions found in sections 8(a)(3) and 8(a)(4) of article 4413(32j), V.T.C.S., the Department of Information Resources should consider an employee's community property interest in his spouse's interests in or income from "a business entity that has a substantial interest in the information resources technologies industry and that may contract with state government." Whether specific individuals are barred from working for the department must be determined on a case-by-case basis. An applicant's or employee's stock in a business entity acquired while an employee of the business through a pension or stock ownership plan should also be counted in determining that individual's ownership interest. A parent's interest in a business entity should not be attributed to an individual, unless the facts show that he actually controls it.

Very truly yours,

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General