Wednesday, October 30, 2013

NYC Conflicts of Interest Law Impedes Growth of Teacher-Led Education Startups

New York City's Ethics Law, Chapter 68 is also referred to as the Conflicts of Interest Law.  It applies to all city employees and contains rules regarding gifts, part-time jobs in other sectors, volunteer activities, post-City employment, use of confidential information and ownership interests in company that do business with the City.  In particular, the Law does not allow public employees to incur financial gain derived from the operation of their own business separate from their public job if it involves selling products or services to the City.

This Law also applies to all NYC public school teachers and prohibits them from selling to schools or entering into any Department of Education-sponsored challenges, such as the Gap App Challenge while they are employed by the City as teachers and for a full year thereafter.

Although the Law makes sense, it is now viewed by some as an impediment to innovation in education, as it makes it difficult for teachers to form education startups if such startups aim to sell their products or services to the DOE.  The Law therefore gives non-teacher founders an advantage as they can freely sell products to NYC district schools and get vendor contracts with the DOE.

The consequences for violating the Conflicts of Interest Law may be severe.  According to the NYC Conflicts of Interest Board (the "Board"), the punishment can include any of the following:
  • You may be suspended for some period or fired; 
  • You may be fined by the Board up to $25,000 per violation; 
  • The Board can recommend to your agency that you be suspended or fired;
  • The Board can also disgorge any money you gained by violating the law; 
  • It is also a misdemeanor that the District Attorney's office may prosecute; 
  • Upon conviction, you may be fined and sent to jail and lose your City job; 
  • The Board may also void any contract or transaction that violates the Conflicts of Interest Law.
Mary Jo Madda recently wrote at length about the Conflicts of Interest Law and how to deal with potential conflict of interest situations in case of educational startups in her article "Arrested Development for Teacher-Led Startups" that you can find here.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

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