As the Trump administration continues to eliminate federal positions and reduce contract and grant outlays, many private companies will likely be eyeing current and former government employees for employment over the coming months. However, companies looking to hire former government employees must keep in mind the strict and nuanced rules that govern their hiring, and, in some cases, prohibit contractors from paying former government employees and limit their ability to appear before their former agencies.
First, the current administration has begun what will almost certainly be the largest reduction in the federal workforce since the Clinton administration, which cut more than 350,000 federal positions over eight years. While some of the workforce reductions are subject to ongoing litigation, estimates are that approximately 75,000 employees accepted a buyout offer, 10,000 USAID employees have been terminated, thousands more probationary employees across the government have been terminated, and agencies are currently developing reduction in force/reorganization plans in accordance with President Trump’s workforce reduction Executive Order (EO) 14210 and the Office of Management and Budget’s (OMB) February 26 implementing guidance.
As a result, in the coming weeks and months, there will likely be hundreds of thousands of current and former federal employees looking for jobs in the private sector.
Second, it is now clear that the executive branch will cut back on contract and grant spending, particularly in areas such as diversity, equity and inclusion (DEI); climate change; and consultants, and may also look to further consolidate acquisition functions. This cost-efficiency initiative, mandated by EO 14222 and already being implemented across the government, will almost certainly increase the level of competition for scarcer federal dollars, causing contractors and grant recipients to look to sharpen their business capture plans in the coming months.
For contractors and grant recipients looking to gain an edge over their competition, hiring former government employees presents an opportunity to onboard people with valuable connections, insight into agency operations, and an understanding of which goods and services are least likely to be impacted by the Trump reforms.
When considering interviewing and onboarding former government employees, private entities must keep in mind ethics restrictions applicable to both those employees and private entities, as well as potential competitive consequences of such hires. And for government employees, even though some guidance from the Office of Personnel Management (OPM) has suggested that current government employees can “absolutely” get a second job during the deferred resignation period, as explained below, the reality is a bit more complicated.
Recusal May be Required Before Interviewing Current Government Employees
When seeking non-federal employment, in accordance with the regulations implementing the conflict of interest provision at 18 U.S.C. §208(a), current government employees must generally seek recusal from matters if the financial interests of the entities with which they hope to work “would be directly and predictably affected by particular matters in which the employees participate personally and substantially.” If a government employee has any questions about whether recusal is required, he or she should seek guidance from the relevant designated agency ethics official (DAEO), with the understanding that such guidance may take time given both the volume of federal employees seeking private sector employment and the fact that several government lawyers responding to such requests may themselves have left government service.
For private companies looking to hire current government employees, ensure intake procedures solicit the information needed to confirm compliance and, if there are any questions, request a copy of guidance the government employee received from his or her DAEO.
Post Employment Restrictions
As tens or hundreds of thousands of government employees seek opportunities in the private sector, they, along with companies that might consider hiring them, must keep in mind the restrictions imposed by 18 U.S.C. §207, willful violations of which are punishable by up to five years in prison. That statute and its implementing regulations in some cases impose a lifetime ban from participating in particular matters and require a “cooling off period” for certain government employees during which they are prohibited from representing another party in front of their former agency.
In addition, government contractors are prohibited from compensating certain Department of Defense (DoD) employees for a year after they separated from government employment.
These three main types of restrictions are discussed below.
The Lifetime Ban
18 U.S.C. §207 is primarily concerned with government employees who leave the employ of the United States to work on the other side of a particular matter. In some cases, working for the federal government can result in a permanent restriction on a former employee’s representation back to the United States.
Specifically, the implementing regulations at 5 C.F.R. §2641.201 prohibit a former government employee from “knowingly, with the intent to influence, mak[ing] any communication to or appearance before an employee of the United States on behalf of any person in connection with a particular matter involving a specific party or parties, in which he participated personally and substantially as an employee, and in which the United States is a party or has a direct and substantial interest.”
While there are several elements that must be satisfied for this restriction to apply, it is commonly understood to, for example, prohibit a former government contracting officer from representing a company back to her agency regarding a contract that she administered. That said, some “back office” work by that same employee on that contract may be permitted.
Cooling-Off Period
In addition to the permanent ban, there are cooling-off periods of various lengths applicable to matters over which government employees had official responsibility. The general restriction at 5 C.F.R. §2641.202, which applies to all executive branch government employees irrespective of seniority, restricts government employees for a period of two years from making any “communication to or appearance before” a federal court or agency, “with the intent to influence,” relating to a matter over which that employee “knows or reasonably should know as actually pending under his official responsibility within the one-year period prior to the termination of his Government service.”
Based on the assumption that “senior” and “very senior” executive branch employees have general responsibility for their agency’s actions, those former employees face additional restrictions. “Senior employees,” defined as employees paid on the Executive Schedule, certain White House staff, and officers above the 0-7 grade, may not knowingly “make any communication to or appearance before an employee of an agency in which he served in any capacity . . . if that communication or appearance is made on behalf of any other person in connection with any matter on which the former senior employee seeks official action” for one year. “Very senior” employees—those persons who are paid at Level II of the Executive Schedule, agency heads, and other senior White House staff—may not do so for two years.
Payment Prohibition in Defense Federal Acquisition Regulation Supplement (DFARS) §252.203-7000
In addition to the generally applicable regulations imposing cooling-off periods and permanent bans, some individual agencies have their own restrictions. For example, DFARS §252.203-7000 prohibits contractors from knowingly compensating certain former DoD officials.
Specifically, the DFARS provision prohibits contractors from paying former DoD officials for two years after they leave DoD service, “without first determining that the official has sought and received, or has not received after 30 days of seeking, a written opinion from the appropriate DoD ethics counselor regarding the applicability of post-employment restrictions to the activities that the official is expected to undertake on behalf of the Contractor.”
The DFARS provision applies to those DoD officials who have “[p]articipated personally and substantially in an acquisition . . . with a value in excess of $10 million” and served in an Executive Schedule position, a “position in the Senior Executive Service,” or “in a general or flag officer position compensated at a rate of pay of grade O-7 or above.” Noncompliance could result in the contractor being disbarred or suspended, or the recission of a contract in which the DFARS provision is incorporated.
Unlike the representation bans discussed above, this compensation ban prohibits contractors from compensating covered DoD officials irrespective of what type of work they are doing.
Protest Risk – Unfair Competitive Advantage
Finally, hiring former government employees has the potential to cause protest risk even if the ethics rules are followed. Under the federal procurement regulations, actual conflicts of interest and even the appearance of impropriety can disqualify an offeror. FAR 3.101-1. An unfair advantage based on the hiring of a former agency official who previously had access to certain non-public and competitively useful information, could sink a bid. See NKF Engineering, Inc. v. United States, 805 F.2d 372 (Fed. Cir. 1986). The Government Accountability Office (GAO) has interpreted FAR 9.505 broadly to find “[t]he unfair competitive advantage analysis stemming from a firm’s use of a former government employee is virtually indistinguishable from the concerns and considerations that arise in protests where there is an allegation that a firm has gained an unfair competitive advantage arising from its unequal access to information as a result of an organizational conflict of interest.” See Health Net Federal Services, LLC, B-401652.3, B-401652.5, 2009 CPD ¶ 213.
This theory has been increasingly used by unsuccessful bidders to great effect. See Serco, Inc., B-419617.2, B-419617.3, 2021 CPD ¶ 382. Contractors considering hiring former officials, especially those from the same agency they frequently contract with, should ensure they thoroughly understand the prospective employee’s role at their former agency and firewall the employee, when necessary, once employed.
Going Forward
For private entities considering hiring current or former federal government employees, we strongly recommend that human resources functions closely coordinate with legal and compliance functions to ensure there is a proper review of applicable legal restrictions. It is also almost always advisable, and in some cases required, to request a copy of the ethics opinion regarding the applicability of post-employment restrictions before hiring a former government employee. But even after receipt of such opinions, contractors are advised to do their own analysis of the post-employment restrictions, particularly with regard to whether the potential employee will be able to fill the role for which he is being hired and whether hiring the former government employee could negatively impact the company’s prospects for specific awards.
While it is true that most of the restrictions impose penalties, including possible jail time of up to five years for willful violations, on former government employees, not private entities, companies that get caught up in violations of these restrictions could be suspended or debarred and may find themselves excluded from competitions for related contracts or grants. And for entities that compete for state and local opportunities, keep in mind that many states and municipalities have similar post-employment restrictions.
For more information about post-employment restrictions on former government employees, please contact the author of this post.