(a) Employees may not engage in outside employment or any other outside activity that conflicts with their official duties. An activity conflicts with an employee's official duties:

(1) If it is prohibited by statute or by an agency supplemental regulation; or

(2) If, under the standards set forth in §§ 2635.402 and 2635.502, it would require the employee's recusal from matters so central or critical to the performance of their official duties that the employee's ability to perform the duties of the Government position would be materially impaired.

(b) Employees are cautioned that even though an outside activity may not be prohibited under this section, it may violate other principles or standards set forth in this part or require the employee to recuse from participating in certain particular matters under either subpart D or E of this part.

Example 1 to paragraph (b): A biochemist, who conducts research at the Environmental Protection Agency (EPA), has an outside consulting business providing technical guidance on the handling of hazardous materials. The biochemist would like to apply for a different EPA position, for which the principal duty would be writing regulations on the handling of hazardous materials. If the biochemist gets the position, the work would have a direct and predictable effect on the outside consulting business. Because the biochemist would be required to recuse from duties critical to the performance of official duties on a basis so frequent as to materially impair their ability to perform the duties of the position, they could not continue to operate the outside consulting business.

Example 2 to paragraph (b): An employee of the Internal Revenue Service (IRS) reviews applications for recognition of tax-exempt status. Several years ago, the employee became involved with a neighborhood group that transports stray animals to nearby adoption centers. As its activities expanded, the group created a formal organization, and submitted an application for recognition of tax-exempt status by the IRS. Under the circumstances, the employee should be recused from participating in any IRS determination regarding the tax-exempt status of this organization. However, the employee's involvement with the organization would not be prohibited by this section, because the outside activity would have a limited effect on official duties and would not require recusal from matters so central or critical to the performance of official duties that the ability to perform the duties of the position would be materially impaired.