No we're not talking about Hoss' hat from Bonanza.  Ethical SEM companies only use White hat SEO tactics; techniques to optimize both organic and PPC search results that are not based on deception or chicanery, but on industry acceptable standards. Black hat SEO refers to unethical techniques, and you can guess what Grey hat SEO means.

When selecting an SEO firm, ask them if they have ever participated in using black-hat techniques.  Ask them to define black-hat techniques and ask them what makes them a white-hat SEO vendor.