Can a North Carolina state agency hire a private executive search firm to find candidates for hard-to-fill positions, and pay the firm a fee?

Plain-English summary

In 1988 the State Personnel Director asked the AG whether N.C.G.S. § 126-18 (which makes it a misdemeanor to receive compensation for obtaining state employment for another person, with a narrow exception for licensed employment agencies) prevented state agencies from paying private executive search firms to find candidates for hard-to-recruit positions. The classic example was a highly specialized state job (a medical director, a research scientist, an information-systems professional) where standard postings had failed to produce a qualified applicant pool.

Assistant Attorney General Norma S. Harrell answered no, with a careful distinction.

The statute prohibits payments tied to finding employment for a person, not payments tied to finding a person for a job. Read in context, § 126-18 was aimed at the jobseeker side of the transaction: it forbids the receipt of compensation by anyone (with the licensed-agency exception) for "obtaining on behalf of any other person, or aiding or assisting any other person in obtaining employment with the State." That language tracks the language of the exception, which speaks of monthly reports listing "the person for whom a job was found." The statute is regulating fees for placing a candidate, not fees for sourcing a candidate.

The AG then distinguished two business models:

Employment agencies (the kind § 126-18 was written for) sign up jobseekers locally, then circulate the jobseekers' names to potential employers. The agency typically gets paid by the employer (or by the jobseeker, depending on terms) once a placement is made. The agency's product is the jobseeker. State agencies cannot pay these agencies for help finding a candidate; that would be paying the agency for "obtaining employment with the State" for the candidate the agency had previously taken on.

Executive search firms (or "search firms") work on a different model. They are typically retained by the employer to find candidates for a specific, hard-to-fill position. They operate nationally, recruit candidates who may not be looking for work, do not sign up jobseekers, and do not charge jobseekers. The employer pays for the firm's time and effort (whether successful or not) plus a placement-success fee tied to the hired candidate's salary. The product is the search itself, not the candidate.

The AG concluded that § 126-18 does not prohibit a state agency from retaining a true executive search firm under the latter model. The fee the agency pays is for services rendered to the agency, not for finding employment for any particular jobseeker. The line is what the firm is selling: if it is selling jobseekers' access to state jobs, § 126-18 applies; if it is selling search effort to the employer, § 126-18 does not.

The opinion adds a sharp warning to prevent gaming. A state agency "could not simply ask an employment agency for help in finding a candidate for a job, hire someone listed with the employment agency, and then pay the agency's fee, no matter how much difficulty the State had experienced in recruiting for the position in question." Paying the agency's fee in that scenario would violate § 126-18 because the substance of the transaction was the agency placing one of its jobseekers, not a search firm performing a custom search.

The second statute the AG addressed is § 126-7.1, the State Personnel Act's promotional-priority and posting framework. § 126-7.1 requires that any open recruitment be posted within the agency's personnel office and within the work unit holding the vacancy, and if applicants are accepted from outside the agency, the vacancy must also be listed with the Office of State Personnel so other state employees can see it. The Office of State Personnel will not approve a hire that did not follow the posting rules.

§ 126-7.1(c) goes further: if a current state employee applies for a posted position and has "substantially equal" qualifications to those of the non-state-employee applicant, the state employee gets priority. The promotional priority is not a tiebreaker for identical qualifications; it kicks in when the state employee is in the ballpark.

The AG applied that to search firms: if a state agency hires a search firm, the agency still has to post the vacancy under § 126-7.1, list it with OSP if outside applicants are sought, and give priority to a current state employee with substantially equal qualifications. The search firm cannot deliver a non-state candidate to a state agency and have that candidate hired over a substantially equally qualified state employee. The promotional-priority rule operates on the eventual hire, not on the recruitment method.

In sum: the State Personnel Act allows the State to retain a search firm to source candidates for difficult positions, and the State can pay the firm's fee, as long as the fee is for services delivered to the State (not for placement of jobseekers signed up with the firm), the vacancy is posted, OSP is notified, and a substantially-equally-qualified state employee gets priority over any outside candidate the search firm delivers.

Currency note

This opinion was issued in 1988. 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. Chapter 126 (the State Personnel Act, now styled the State Human Resources Act) has been substantially restructured since 1988, including changes in 2013 that converted the Office of State Personnel into the Office of State Human Resources and modified the career-state-employee priority rules. § 126-7.1 has been amended; its specific text and the "substantially equal qualifications" standard may differ from the 1988 version. Any current state agency considering an executive-search engagement should check current OSHR policy on contracting and posting in addition to the current statutory text. The fundamental distinction the AG drew between an employment-agency model and an executive-search model still tracks the way the modern recruiting market works.

Background and statutory framework

N.C.G.S. § 126-18 was enacted in 1977 (1977 c. 397, s. 1) at a time when private employment agencies were a significant part of the labor market and concerns about agency middlemen extracting fees from jobseekers were front-of-mind. The statute reads as a consumer-protection law on the jobseeker side: it prevents any person, firm, or corporation from collecting, accepting, or receiving compensation for obtaining state employment "on behalf of any other person." The exception for licensed private employment agencies is narrow: such agencies can collect "regular and customary fees for services rendered pursuant to a written contract when such fees are paid to someone other than the State of North Carolina." The exception requires monthly reports to the Department of Labor listing "the person for whom a job was found."

The AG's opinion reads § 126-18 in light of its purpose. The statute was protecting jobseekers from agency middlemen. It was not designed to ban state agencies from sourcing executives. The exception, by listing monthly reports including "the person for whom a job was found," confirms that the regulated transaction is finding a job for a jobseeker. A search firm finding a candidate for a hard-to-fill state job is not "finding a job for" anyone in the statutory sense; the candidate may not have been looking for a job at all.

§ 126-7.1 sits at a different level of the State Personnel Act. It is structural rather than transactional: it builds in a promotional-priority preference for current state employees and forces all state recruitments through the posting / OSP-listing system. The promotional priority makes the State Personnel Act act like a one-employer-with-many-departments labor market: a state employee moving from one agency to another for a promotion is preferred over an equally qualified outside hire.

The interaction the AG identified is important: § 126-18 governs what the state can pay; § 126-7.1 governs who the state can hire. A search firm can be retained under § 126-18, but the search firm cannot deliver its candidate around § 126-7.1's promotional-priority rule. The search firm operates within the State's hiring framework, not outside it.

The "search firm" model the AG describes is the now-conventional executive-search engagement: the firm is paid a retainer plus a contingent placement fee tied to the candidate's salary, with the cost borne by the employer, not the candidate. That model has only become more common since 1988, and the AG's analysis remains the standard read for state agencies considering executive-search arrangements.

Common questions

What if the search firm's contract calls the engagement an "employment agency" arrangement?

Form does not control substance. The AG's reasoning depends on the actual structure of the relationship: who pays, what is paid for, and what the firm is selling. A contract that styles a search firm as an "employment agency" but has the firm sourcing candidates the firm has not signed up, charging the State a search retainer plus a placement-success fee, would still satisfy § 126-18. Conversely, a contract that calls a firm a "search firm" but has the firm taking jobseeker applications and pushing those jobseekers to the State would still violate § 126-18.

Can the state agency reimburse a search firm for advertising expenses?

The AG opinion does not address advertising expenses specifically. Reimbursing actual out-of-pocket advertising costs to source candidates would seem to fall within the same logic: the firm is providing search services to the State, and advertising is part of that service. As long as the structure makes clear the State is paying for services to the State (not for placing jobseekers), § 126-18 should not bar the reimbursement.

What is "substantially equal qualifications" under § 126-7.1?

The opinion does not define the term. In practice the Office of State Personnel issued policies interpreting "substantially equal" to mean qualifications that are sufficiently comparable that a reasonable HR review would consider the candidates roughly interchangeable for the position. It is not a same-qualifications test (the priority would rarely apply); it is also not a met-the-minimum-qualifications test (the priority would always apply). The "substantially equal" line gives the hiring authority some discretion while still protecting state-employee promotion opportunities.

Can the State hire someone who applied through a search firm if a state employee with substantially equal qualifications also applied?

No, not under § 126-7.1. The promotional-priority rule means the state employee gets the job in that scenario. The search firm's involvement doesn't change the result; it just means the State paid the search firm's fee and ended up not using the search firm's candidate. This is a real risk the State has to live with when retaining a search firm.

Does this opinion apply to local government too?

No. § 126-18 is in the State Personnel Act and governs state agencies and state employment. Local-government employment is governed separately. A county or city using a search firm to fill a position would look to its own personnel rules, not § 126-18 or § 126-7.1.

Source

• Landing page: https://ncdoj.gov/opinions/agency-finding-employees-to-fill-specific-positions/

Citations

• N.C.G.S. § 126-18 (unlawful to receive compensation for obtaining state employment for another person, with licensed-employment-agency exception)
• N.C.G.S. § 126-7.1 (promotional priority for state employees; posting and OSP listing requirements)

Original opinion text

Requested by: Richard V. Lee State Personnel Director

Question: (1)

• Does G.S. 126-18 prohibit the State or one of its agencies from utilizing the services of a personnelagency or search firm to find candidates for a difficult to recruit position after otherefforts to fill the position have failed?
• (2)
• Does the statutorily mandated promotional priority for state employees under G.S. 126-7.1 restrict or limit the ability of state agencies to act in this situation?

Conclusion: (1)

• No.
• (2)
• Yes.

Under the State Personnel Act, individuals, corporations and other entities are prohibited from receiving or accepting any compensation or anything of value for obtaining employment with the State for any person, or assisting any other person in obtaining employment with the State, except under specified circumstances. The prohibition is found in G.S. 126-18, which reads as follows:

It shall be unlawful for any person, firm or corporation to collect, accept or receive any compensation, consideration or thing of value for obtaining on behalf of any other person, or aiding or assisting any other person in obtaining employment with the State of North Carolina; provided, however, any person, firm or corporation that is duly licensed and supervised by the North Carolina Department of Labor as a private employment service acting in the normal course of business, may collect such regular and customary fees for services rendered pursuant to a written contract when such fees are paid to someone other than the State of North Carolina; however, any person, firm or corporation collecting fees for this service must have been licensed by the North Carolina Department of Labor for a period of not less than one year.

Any person, firm or corporation collecting fees for this service must make a monthly report to the Department of Labor listing the name of the person, firm or corporation collecting fees and the person for whom a job was found, the nature and purpose of the job obtained, and the fee collected by the person, firm or corporation collecting the fee. Violation of this section shall constitute a misdemeanor punishable by fine or imprisonment, or both, in the discretion of the court. (1977, c. 397, s. 1)

The restrictions or limitations of G.S. 126-18, by the language of that section, are aimed at controlling the receipt of compensation or anything of value for finding or arranging employment on behalf of a person seeking employment, or the receipting of compensation or anything of value for helping someone who is seeking to, and does, obtain employment with the State. The exception is for a private employment service making monthly reports to the Department of Labor. Among the items which it must list is "the person for whom a job was found…" The listing of the item reflects the concern of the statute with inappropriate payments for finding employment with the State for a person seeking employment, not with the State finding a person to fill a particular job. The prohibition on the State's paying the employment agency's fee must be read in context to apply to the kind of fee for the kind of services which the statute seeks to regulate, fees for obtaining employment for jobhunters, not fees for finding candidates or employees for agencies with vacant positions.

In some instances, state agencies are faced with the need to fill positions for which it is difficult to recruit persons with appropriate credentials. The question has thus arisen whether a state agency is prohibited by

G.S. 126-18 from utilizing the services of a "search firm" to help find candidates for a position which is difficult to recruit and then from employing an individual located by the search firm. The question assumes that it is the State which initiates this process because it cannot fill a position and that the State is not paying a fee to the search firm for any services to the person who is eventually hired. Instead, it is paying a fee solely for the services provided to the State or state agency in helping to identify candidates or fill a position. A search firm would normally be retained only after exhaustion of other methods of locating a person for a specialized, highly responsible position. Search firms usually operate on a national basis, not locally, and seek persons who may not even be looking for new employment. Search firms do not normally have jobhunters signed up with them for the purpose of finding new jobs, in contrast to employment agencies. They do not undertake to find positions for individual jobhunters, and they do not charge fees to persons hired as a result of their search efforts. Instead, they recruit candidates under an arrangement by which the employer pays for their time and efforts in making the search, even if unsuccessful, plus an additional fee, based on the salary of the person employed, if they locate a candidate hired by the employer. Under these circumstances, G.S. 126-18 does not prohibit the State from utilizing such a firm. Nor does G.S. 126-18 prevent the State from paying fees for the services provided to the State in locating candidates or employees to fill such positions, provided that the fee is for services rendered by a search firm under the type of arrangement discussed above. A state agency could not simply ask an employment agency for help in finding a candidate for a job, hire someone listed with the employment agency, and then pay the agency's fee, no matter how much difficulty the State had experienced in recruiting for the position in question. Payment of the employment agency's fee would violate G.S. 126-18 regardless of how valuable the State considers the employment agency's services in referring the candidate eventually hired.

The question has further arisen whether the language of G. S. 126-7.1, mandating a promotional priority for state employees, restricts or limits the ability of state agencies to employ firms, corporations, or other entities to find candidates to fill positions which are difficult to recruit. This question assumes that the position is subject to G.S. 126-7.1. Under 126-7.1, any vacancy for which a state agency, department or institution openly recruits must be posted in the personnel office and in the particular work unit which has the vacancy in a place readily accessible and available to the employees. If applicants are to be received from outside the recruiting agency, department of institution, that agency must list the vacancy with the Office of State Personnel so that state employees will be informed of the vacancy. Employment of any individual to fill such a position cannot be approved by the Office of State Personnel unless the agency has complied with the posting requirements. In addition, under G.S. 126-7.1 (c), if a current state employee applies for a position and has qualifications substantially equal to those of a non-state employee applicant, the state employee is entitled to priority consideration over applicants who are not state employees. The Office of State Personnel has adopted policies to implement these provisions.

The effect of G.S. 126-7.1 is to prohibit a state agency, department or institution from recruiting unless it complies with the posting requirements within the agency and also notifies the Office of State Personnel of the vacancy in order to inform current state employees in other agencies of the vacancy. In addition, the agency seeking to fill the position cannot hire an outside candidate, whether identified by a personnel agency or search firm or located otherwise, if a current state employee with substantially equal qualifications, within the meaning of G.S. 126-7.1, also applies. If the state agency does comply with the posting requirement of G.S.126-7.1 and if no state employee with substantially equal qualifications is a candidate, then the agency may hire an outside candidate, whether located by personnel agency or search firm or otherwise.

In sum, a state agency which openly recruits for a position must post the position as required by G.S. 1267.1, both in the personnel office of the agency and in the work area of the unit which has the vacancy. In addition, if the agency recruits candidates from outside the agency, the vacancy must be listed with the Office of State Personnel. If a position is particularly difficult to fill, G.S. 126-18 does not prohibit the agency from employing a search firm to help locate candidates for the position. The State may pay the search firm's fees for locating candidates as the result of a search for candidates, not based on persons signed up with the search firm for help in finding employment. The giving to or receipt of compensation by anyone, except for receipt by legitimate employment agencies, for assisting in obtaining employment with the State is prohibited. The State, however, may not make payments to these employment agencies for that assistance. In addition, if a current state employee with substantially equal qualifications applies, the agency is required to give priority consideration to tl1e current employee under G.S. 126-7.1.

Lacy H. Thornburg Attorney General

Norma S. Harrell Assistant Attorney General