Adverse Impact

Understanding Adverse Impact: Unseen Consequences in Employment Practices

An adverse impact represents a concealed yet detrimental outcome arising from an employment policy or practice. Typically, adverse impact is prevalent in policies and practices guiding assessments of candidates or employees. These encompass various aspects, including:

• Job requirements stipulated in a job description
• Questions posed during hiring interviews
• Performance assessments influencing advancement or termination decisions

Title VII and Adverse Impact: Legal Considerations

Title VII of the Civil Rights Act of 1964 establishes guidelines that prohibit employers from utilizing seemingly neutral tests or selection procedures leading to the disproportionate exclusion of individuals based on race, color, religion, sex (including sexual orientation and gender identity), or national origin. This prohibition applies unless the tests or selection procedures are “job-related for the position in question and consistent with business necessity.”

Addressing Systemic Discrimination: The Role of the U.S. Equal Employment Opportunity Commission (EEOC)

In the effort to combat systemic discrimination, the U.S. Equal Employment Opportunity Commission (EEOC) collaborates with advocacy groups, state and federal agencies, employer associations, the plaintiffs’ bar, and other organizations. This collaborative approach aims to identify and rectify discriminatory practices, specifically those inadvertently leading to adverse impact in the workplace.

Decoding Adverse Impact and Its Distinction from Disparate Impact

Adverse impact and disparate impact, also known as disparate effect, share a relationship but are not synonymous concepts.

Understanding Disparate Impact: Policies Affecting Civil Groups

Disparate impact pertains to employment policies and practices that negatively (and potentially negatively) affect legally protected civil groups. On the other hand, adverse impact serves as the measurement of the negative consequences resulting from disparate impact.

Establishing Standards for Disproportionate Exclusion in Adverse Impact

The Equal Employment Opportunity Commission (EEOC) employs the 4/5ths Rule to determine disproportionate exclusion—a screening is considered disproportionate if the selection rate for any group is less than 4/5ths or 80% of the selection rate for the highest group.

Spotting Adverse Impact: Examples and Legality

Examples of adverse impact include listing specific experience ranges that implicitly exclude older applicants and implementing physical tests that disproportionately screen out capable women or disabled persons. Requiring background checks from select groups may also contribute to adverse impact.

Adverse impact may be deemed illegal, triggering an employer investigation, if a group’s selection rate falls short of the EEOC 4/5ths or 80% rule.

Scrutinizing Hiring Practices for Adverse Impact

Employers can evaluate their hiring practices for adverse impact through a four-step process:

1. Calculate the rate of selection for each group (e.g., gender or race).
2. Identify the group with the highest rate of selection.
3. Compare the selection rates for each group with the highest group.
4. Note if the selection rate for any group is less than 4/5ths or 80% of the highest group’s rate.

The 4/5ths test is the initial stage for identifying adverse impact. If no adverse impact is evident at this global level, further investigation may not be necessary. However, if closer examination is warranted, the EEOC will scrutinize individual selection procedures.

Consequences of Adverse Impact: Legal, Financial, and Talent Implications

Adverse impact carries potential legal and financial consequences. The Society for Human Resource Management (SHRM) underscores the high costs of adverse impact lawsuits, involving multiple employees and years of organizational practice. Alongside legal penalties, policies with adverse impact may exclude individuals from hiring considerations, advancement opportunities, or retention during workforce reductions. These policies result in a loss of potential talent and wastage of time using ineffective assessment tools.

Guidelines for Employers: Avoiding Adverse Impact

Employers can avoid adverse impact by adhering to the EEO’s 4/5ths or 80% guidelines in their hiring processes. Additional strategies include being educated on illegal job criteria, updating hiring policies based on evolving EEO compliance standards, training managers on legitimate hiring practices, and maintaining diligence in upholding legal hiring policies.