Are executive management search consultants regulated by Texas even though they don't need a certificate of authority?

Texas AG Opinion DM-0036: Management Search Consultants Are Exempt From Registration, Not From the Rest of the Act

Plain-English summary

The Commissioner of the Texas Department of Licensing and Regulation asked how far the agency's authority reached over management search consultants under the Personnel Employment Services Act (V.T.C.S. article 5221a-7). These consultants are exempt from the act's registration and bonding requirements, so the question was whether they escaped regulation entirely.

The Attorney General concluded that they did not. The act defines "personnel service" broadly, and a management search consultant is one type of personnel service. Section 2(b) provides only that section 7 of the act does not apply to a management search consultant. Section 7 is the provision requiring the owner of a personnel service to hold a certificate of authority from the commissioner. So management search consultants are exempt from the certificate-of-authority requirement but remain subject to all other provisions of the act. That includes section 3(a)(1), which bars a personnel service from charging an applicant a fee until the applicant has accepted a job offer resulting from a referral, a provision the 1987 legislature backed with the commissioner's penalty authority in sections 6A and 6B.

The opinion noted a built-in tension. A management search consultant, by definition, is paid only by the employer and collects no fee from applicants. So a firm that charged an applicant a fee would step outside the definition of management search consultant, and at the same time would subject itself to the department's enforcement authority for violating section 3(a)(1).

Currency note

This opinion was issued in 1991. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The regulation of personnel employment services in Texas has been amended and reorganized since, and some occupational programs have been deregulated. Verify current law before relying on any specific rule or citation mentioned here.

Common questions

Are management search consultants regulated in Texas at all?
Under this opinion, yes, except for the registration step. They are a type of personnel service exempt only from the section 7 certificate-of-authority requirement, and they remain subject to the act's other provisions.

What rule did the department enforce against them?
Section 3(a)(1), which prohibits charging an applicant a fee before the applicant accepts a job offer that resulted from a referral. The 1987 legislature gave the commissioner penalty authority over violations of that subsection.

What makes a firm a management search consultant in the first place?
The act defines it as a personnel service retained by, acting solely for, and compensated only by an employer, that collects no fee from applicants. A firm that took a fee from an applicant would no longer fit that definition.

Background and statutory framework

Article 5221a-7, V.T.C.S., regulates personnel employment services. Section 1(5) defines "personnel service" broadly, and section 1(11) defines a "management search consultant" as a personnel service retained by, acting solely on behalf of, and compensated only by an employer, that collects no fee directly or indirectly from an applicant. Section 3 sets out prohibitions for anyone acting as a personnel service, including section 3(a)(1), which bars charging an applicant a fee until the applicant accepts an offer resulting from a referral. Section 7 requires the owner of a personnel service to hold a certificate of authority from the commissioner of licensing and regulation, and section 2(b) provides that section 7 does not apply to a management search consultant. As originally adopted in 1979 (Acts 1979, 66th Leg., ch. 263), the act gave the commissioner affirmative duties only as to the certificate-of-authority requirement; civil and criminal penalties existed but the commissioner had no enforcement role. In 1987 the legislature added sections 6A and 6B, giving the commissioner authority to impose penalties for violations of section 3(a)(1) (Acts 1987, 70th Leg., ch. 839). A 1989 amendment changed references from the commissioner of labor and standards to the commissioner of licensing and regulation to reflect the agency's renaming (Acts 1989, 71st Leg., ch. 1039).

Citations

Statutory provisions:

• V.T.C.S. article 5221a-7 (Personnel Employment Services Act), §§ 1(5), 1(11), 2(b), 3, 3(a)(1), 5, 6, 6A, 6B, 7
• Acts 1979, 66th Leg., ch. 263 (original act); Acts 1987, 70th Leg., ch. 839 (commissioner penalty authority); Acts 1989, 71st Leg., ch. 1039 (agency renaming)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0036
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1991/dm0036.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

September 6, 1991

Mr. Larry E. Kosta
Commissioner
Texas Department of Licensing and Regulation
P.O. Box 12157
Austin, Texas 78711

Opinion No. DM-36

Re: Whether management search consultants are subject to regulation by the Texas Department of Licensing and Regulation given that such consultants are exempt from registration and bonding requirements of the Personnel Employment Services Act (RQ-62)

Dear Commissioner Kosta:

You ask about the authority of the commissioner of licensing and regulation under article 5221a-7, V.T.C.S., which regulates personnel employment services. Specifically, you ask about the commissioner's authority in regard to management search consultants.

Section 3 of article 5221a-7 sets out a number of prohibitions applicable to a "person who acts as a personnel service in the capacity of an owner, operator of the service, counselor, or agent or employee." The statute defines "personnel service" broadly. V.T.C.S. art. 5221a-7, § 1(5). A management search consultant, as defined in the act, is a type of personnel service. Id. § 1(11). Section 2(b) provides, "Section 7 of this Act does not apply to a management search consultant." Under section 7 the owner of a personnel service operating in Texas must have a certificate of authority from the commissioner of licensing and regulation. Thus, management search consultants are exempt from the certificate of authority requirement but are subject to all other provisions of the act.

When article 5221a-7 was first adopted, it gave the commissioner of licensing and regulation[1] affirmative duties only in regard to the certificate of authority requirement of section 7,[2] which is inapplicable to management search consultants. Acts 1979, 66th Leg., ch. 263, at 570. In 1987, the legislature amended article 5221a-7 to add sections 6A and 6B, which gave the commissioner of licensing and regulation authority to impose penalties for violations of section 3(a)(1) of the act. Acts 1987, 70th Leg., ch. 839, § 5, at 2896. In essence, your question is whether the commissioner's enforcement authority in regard to section 3(a)(1) extends to management search consultants.

Section 3(a)(1) provides that a person who acts as a personnel service in various capacities may not "impose any fee on an applicant for employment until the applicant has accepted an offer of employment resulting from an employment referral made by the personnel service." The act defines "management search consultant" as "a personnel service that is retained by, acts solely on behalf of, and is compensated only by an employer and that does not collect directly or indirectly any fee from an applicant on account of any service performed by the personnel service." V.T.C.S. art. 5221a-7, § 1(11). Thus, a personnel service that accepted a fee from an applicant for employment in contravention of section 3(a)(1) would remove itself from the act's definition of "management search consultant" since management search consultants, as defined, do not accept fees from applicants for employment. At the same time, if it did engage in the conduct described in section 3(a)(1), it would subject itself to the department's enforcement authority.

SUMMARY

Article 5221a-7, V.T.C.S., which regulates personnel services, exempts "management search consultants" from its registration and bonding requirements. "Management search consultants" are not exempted from other requirements of the act.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General

[1] As originally adopted, article 5221a-7 referred to the commissioner of labor and standards. Those references were changed in 1989 to reflect a change in the name of the agency. Acts 1989, 71st Leg., ch. 1039, § 2.01, at 4179.

[2] Although the act provided for civil remedies and criminal penalties for violations of the act, Acts 1979, 66th Leg., ch. 263, §§ 5, 6 (codified as V.T.C.S. art. 5221a-7, §§ 5, 6), it did not give the commissioner authority to take action in regard to violations of the act.