Revolving doors rules might not affect MPs in executive roles

As the government moves to update its Public Administration Act, it is seeking to prevent high-ranking employees inside regulatory authorities from taking jobs with companies with which they would have had dealings in the former five years. A penalty of three years’ pay could be imposed for breaching this condition.  

While such restrictions are not yet regulated by Maltese law, certain employees’ contracts are already featuring “restraint of trade” clauses, industrial relations expert and lawyer Ian Spiteri Bailey told MaltaToday. 

“Restraint of trade clauses, which have a similar effect to revolving doors rules, are not regulated by our laws, so that does not make them illegal in themselves. However, due to other considerations such as the right to work and the freedom to improve one’s working conditions, we are opining that such clauses were un-enforceable,” Spiteri Bailey says. 

In 2015, a Court of Appeal ruled on whether a former company employee could seek a job with the Maltese financial regulator within two years of the termination of her job. The first court had decided that the restraint of trade clause was against public policy and had no validity at law. But the appeals court overturned the decision, arguing that this was not a restraint of trade clause, but a reasonable condition that had been set for a limited time-period and accepted voluntarily by the employee. 

The court argued that such clauses prevented former employees from joining competitors soon after leaving work, especially when they could be able to pass on sensitive information. This did not make it a total restriction of the employee’s freedom to work, but was limited in terms of principal clients. 

“The courts have adopted, on a case by case basis, the test of reasonableness, for the time-limits as well as compensation,” Spiteri Bailey told MaltaToday. “The test of the clause being “fair and reasonable’ is a predominant issue in today’s approach by our courts. Whether they adopt a similar approach to revolving door clauses, is, I suppose, anyone’s guess.” 

Under the proposal Bill, employers could consider a penalty, rather than a preventive clause for employees hopping into the private sector. “The three-year salary penalty is, to my view, not low at all. It would probably make an interesting test case to see whether a Court, faced with this test, say of a fixed-term employment for three years and the undertaking signed, will deem the refund back of all wages received by way of penalty to be reasonable...” 

But while high-ranking civil servants can be expected to abide by rules which are meant to also prevent ambitious leaps into the private sector, it is also a fact that even Maltese MPs and ministers fall foul of the unwritten ‘revolving door’ principle: when the curtain falls on their political life, MPs often dive headlong into company directorships and consultancies frequently related to their own portfolios. 

For Spiteri Bailey such a question makes for interesting debate given the way Labour backbenchers are today appointed on boards and very often are also chairing those boards and heading government agencies. “A ‘public employee’ is defined in the Bill as including public officers and employees of government agencies and government entities. To my knowledge... MPs cannot be deemed to be public officers. So, I believe the revolving doors clause will be inapplicable to the MPs who take up positions within government agencies and bodies but who do not fall within the definition of ‘public employee’. 

“This said, your question should certainly raise much more discussion and questions and answers, and maybe further clarifications as to an MP’s role within such agency or entity.” 

This revolving door process has worked well for many politicians and high-ranking government officials in Malta and abroad. One recent example was former EU commission president Jose Manuel Barroso, who joined US bank Goldman Sachs in early July to advise the bank to mitigate the effects of Brexit: prompting an anonymous group of EU employees to launch a petition in which they described the move as “irresponsible”, “damaging” and “morally reprehensible.”

Barroso’s move was particularly controversial because Goldman Sachs was the same financial institution that confirmed Greece’s readiness to join the Eurozone, despite massive evidence of accountancy fraud.

After stepping down as Commissioner for Fisheries and Maritime Affairs, Joe Borg attracted similar controversy by taking up a position with Fipra: a public relations consultancy firm that lobbies the Commission on maritime issues.

Even closer to home, former minister Tonio Fenech and former FIAU chief Manfred Galdes took up lucrative jobs in the private sector. Fenech, in particular, drifted straight into the world of private investment funds, joining former Bank of Valletta executives, within months of losing his hat as finance minister in 2013.