Adverse Impact

Adverse Impact refers to a situation in which employment practices, policies, or selection procedures negatively affect a protected group, even if the discrimination is unintentional. It is a key concept in employment law and is often examined in relation to race, gender, age, disability, or other legally protected characteristics.

Adverse impact is different from disparate treatment, which is intentional discrimination. Employers must ensure that hiring, promotion, and other employment decisions do not create an unfair disadvantage for certain groups.

Key Facts

• Legal Basis:
  • Governed by U.S. laws such as the following:
    • Title VII of the Civil Rights Act of 1964 - Prohibits employment discrimination.‍
    • Age Discrimination Employment Act (ADEA) - Protects workers aged 40 and above from discrimination.‍
    • Americans with Disabilities Act (ADA) - Protects individuals with disabilities.
• How Adverse Impact is Identified:
  • Four-Fifths Rule (80% Rule): If a selection rate for a protected group is less than 80% of the rate for the highest-scoring group, adverse impact may be present.
  • Statistical Analysis: Employers may use standard deviation tests or regression analysis to check for discriminatory patterns.
• Examples of Adverse Impact:
  • A physical fitness test that disproportionately eliminates female applicants.
  • A degree requirement that is unrelated to job performance but disproportionately excludes minority candidates.
  • A criminal background check policy that disproportionately affects certain racial groups.
• Defenses Against Adverse Impact Claims:
  • Employers can justify an employment practice if they can prove it is a 'business necessity' and there are no less discriminatory alternatives.
    • For example, a police department may require officers to lift a certain amount of weight, provided it is directly related to job duties.
• How Employers Can Reduce Adverse Impact:
  • Conduct Regular Audits: Analyze hiring, promotion, and termination data.
  • Use Job-Related Criteria: Ensure assessments are directly linked to job performance.
  • Diversify Recruitment Strategies: Broaden outreach to underrepresented groups.
  • Provide Bias Training: Educate managers on unconscious bias in decision-making.

1. What is adverse impact in hiring?

Adverse impact in hiring refers to a situation where a hiring practice or policy disproportionately affects a particular group of people based on characteristics such as race, gender, age, disability, or ethnicity, even though the policy is neutral in its intent. This can lead to discrimination against individuals from certain groups, even if the hiring practices are not intentionally discriminatory.

Key Points about Adverse Impact in Hiring

• Definition: Adverse impact occurs when a seemingly neutral hiring practice, such as a selection test or an employment policy, disproportionately disadvantages a protected group (for example, women, minorities, older workers) compared to others. Even though the policy or practice itself isn't discriminatory, its effect can lead to unequal treatment in practice.

• Measurement: To determine whether adverse impact exists, employers can compare the selection rates of different groups. If one group is hired at a significantly lower rate than others, that may indicate adverse impact. A common tool used to assess adverse impact is the four-fifths rule (also known as the 80% rule), which states:
  • If the selection rate for one group is less than 80% of the selection rate for another group, then there is likely adverse impact.
  • For example, if 50% of male applicants are hired, but only 30% of female applicants are hired, the selection rate for women is 60% of that for men, which is below the 80% threshold and may suggest adverse impact.
• Examples:
  • Testing: If an employer uses a particular written test that is more difficult for one demographic group (such as minorities or non-native English speakers), and that group is hired less frequently, this could create adverse impact.
  • Height or Physical Requirements: Requiring applicants to meet certain height or physical strength standards can disproportionately impact women or certain racial or ethnic groups, who might not meet these criteria as frequently, leading to adverse impact.
  • Educational Requirements: If a job requires a degree that is not commonly earned by a particular group due to historical or systemic inequalities, this could result in adverse impact for that group.
• Legal Implications:
  • Adverse impact is a concept defined in discrimination law, particularly under Title VII of the Civil Rights Act of 1964 in the U.S., which prohibits employment discrimination based on race, color, religion, sex, or national origin. ‍
  • If adverse impact is found in hiring practices, the employer may be required to justify the practice by showing that it is a business necessity and that there are no less discriminatory alternatives to achieving the same outcome.
  • Employers can avoid liability for adverse impact if they can demonstrate that their hiring practices are valid (such as they are directly related to the job and necessary for the business), but if the practices cannot be justified, they may be considered discriminatory.
• Addressing Adverse Impact:
  • Employers can try to eliminate adverse impact by reviewing and revising hiring practices, ensuring they are inclusive and based on job-related criteria.
  • This might include altering tests, offering training, adjusting physical requirements, or expanding outreach efforts to ensure a more diverse pool of candidates.
  • Affirmative action policies may also be implemented to help reduce adverse impact and promote diversity in the workplace.

Overall, in hiring, adverse impact refers to an employment practice that unintentionally discriminates against a particular group, even if it appears neutral. It’s important for employers to assess their hiring practices for adverse impact to ensure they are fair, inclusive, and non-discriminatory. Legal protections and remedies exist to address adverse impact if it results in unfair treatment of employees or job applicants.

2. How is adverse impact measured?

Adverse impact is measured using a variety of statistical methods that compare the selection rates of different groups (for example gender, race, ethnicity) to determine if there a disproportionate effect on certain groups. The most widely recognized and used method for measuring adverse impact is the Four-Fifths Rule (also known as the 80% rule), though other techniques and analyses can also be used.

Key Methods to Measure Adverse Impact

1. Four-Fifths Rule (80% Rule)

The Four-Fifths Rule is the most commonly used tool to measure adverse impact. It is a statistical guideline used to assess whether the selection rates for one group are substantially lower than for another group, potentially indicating discrimination.

• How It Works:
  • Calculate the selection rate for each group involved in the hiring process. The selection rate is the percentage of individuals in a group who are hired, promoted, or selected for the job.
  • Compare the selection rates between the groups.
  • If the selection rate for one group is less than 80% (or four-fifths) of the selection rate for the highest-selected group, this suggests that there may be adverse impact.
• Example:
  • Suppose an employer hires 40% of male applicants and 25% of female applicants.
  • Male selection rate = 40% (0.40)
  • Female selection rate = 25% (0.25)
  • Compare the female selection rate to the male selection rate: 0.25 ÷ 0.40 = 0.625, or 62.5%.
  • Since 62.5% is less than 80% of 100%, this suggests that the employer may be experiencing adverse impact against female applicants.

2. Standard Deviation Rule

The Standard Deviation Rule is a statistical method used to determine whether the difference in selection rates between groups is statistically significant. This method is based on the idea that a large difference in selection rates is unlikely to happen by chance if there is no discrimination.

• How it works:
  • First, calculate the selection rate for each group.
  • Then, calculate the overall selection rate (combined selection rate for all groups).
  • The standard deviation is calculated for the selection rates of all groups.
  • If the difference between the selection rates for any group is greater than 2 standard deviations from the mean (overall rate), this could suggest adverse impact.
  • If the difference is more than 3 standard deviations, it strongly suggests that adverse impact is present.
• Example:
  • If the selection rate for women is 25% and the overall selection rate is 30%, the difference is 5%.
  • If the standard deviation of all the rates is calculated to be 2%, and the difference is more than 2 standard deviations (5% ÷ 2% = 2.5 standard deviations), this might suggest adverse impact.

3. Disparate Impact Analysis

Another way to measure adverse impact is through disparate impact analysis, which can involve more complex statistical methods, such as the Chi-Square Test or logistic regression. These tests evaluate the differences in hiring outcomes based on protected categories (such as race, gender, etc.).

• Chi-Square Test: This test assesses whether the observed differences in selection rates for different groups are due to chance or whether they reflect a real difference, potentially indicating discrimination.
• Logistic Regression: This more advanced method can be used to control for other variables (such as education or experience) to determine whether race, gender, or other factors are independently associated with the selection decision.

These methods allow a more detailed analysis, but they are more complex and require statistical expertise.

4. Comparison of Selection Rates

A simple but effective method to measure adverse impact is by directly comparing the selection rates between different groups:

• How it works:
  • Calculate the percentage of candidates hired from each group (e.g., gender, ethnicity).
  • Compare the hiring rates between groups.
    If one group has a significantly lower selection rate than another group, it suggests the possibility of adverse impact.
• Example:
  • If 100 male applicants apply, and 50 are hired, the selection rate for men is 50% (50/100).
  • If 100 female applicants apply, and 25 are hired, the selection rate for women is 25% (25/100).
  • The selection rate for women is 50% of the rate for men, which would raise concerns of potential adverse impact.

5. Workforce Utilization Analysis

Workforce utilization analysis involves comparing the demographic composition of an employer’s workforce with the available labor pool. This is typically part of affirmative action plans and helps identify whether certain groups are underrepresented in specific job categories.

• How it works:
  • Calculate the percentage of employees from different demographic groups within the company.
  • Compare these percentages to the availability of qualified workers in the relevant labor market.
  • If a group is underrepresented in the workforce compared to its availability in the labor market, it may suggest potential discrimination or adverse impact in the hiring process.

Summary of Methods to Measure Adverse Impact

Adverse impact can be measured using various methods, with the Four-Fifths Rule being the most commonly used and simplest approach. However, depending on the complexity of the situation, employers may also use more detailed statistical analyses like the Standard Deviation Rule or disparate impact analysis to ensure that their hiring practices are fair and do not disproportionately affect any protected group. If adverse impact is found, employers may need to justify their practices or take corrective actions to avoid discrimination.

3. What is the difference between adverse impact and disparate treatment?

The terms adverse impact and disparate treatment both refer to types of employment discrimination, but they describe different situations and concepts. Adverse impact occurs when a seemingly neutral employment policy or practice disproportionately affects members of a protected group, even if there is no intentional discrimination. On the other hand, disparate treatment involves intentional discrimination where an individual or group is treated differently based on a protected characteristic, such as race, gender, or age.

Both concepts are critical in understanding and addressing employment discrimination, as they highlight different ways in which unfair treatment can manifest in the workplace. Important difference to take into consideration include:

• Definition
  • Adverse Impact: This occurs when a neutral employment practice or policy, which appears fair on its face, has a disproportionately negative effect on a protected group (for example, based on race, gender, age, and more), even though there may not be any intent to discriminate. It typically results from practices such as hiring tests, physical requirements, or job qualifications that, while not discriminatory in nature, end up disproportionately affecting one group over others.
  • Disparate Treatment: This refers to intentional discrimination where an individual or group is treated differently based on their membership in a protected category (such as race, gender, age, religion, and more). It involves treating someone less favorably or differently because of their protected characteristic. Disparate treatment is a direct form of discrimination and involves actions or decisions that are explicitly based on someone's protected status.
• Intent
  • Adverse Impact: There is no intent to discriminate in adverse impact cases. The employer’s practices or policies are neutral in their application but result in a disproportionate effect on certain groups. The discrimination is unintentional.
  • Disparate Treatment: This involves intentional discrimination. The employer or decision-maker treats someone less favorably because of their protected characteristic, such as their race or gender. The employer's actions are driven by bias or intent to discriminate.
• Examples
  • Adverse Impact: A company requires a physical fitness test for all applicants, and the test has a much higher passing rate for men than for women, even though both men and women perform equally well in the actual job tasks. Another example includes, a hiring test that uses language proficiency as a criterion may inadvertently disadvantage non-native English speakers, even though the test is not intended to discriminate.
  • Disparate Treatment: A female candidate is denied a job because the hiring manager believes women aren’t suited for the role, even though she meets all qualifications. Another example includes a person is not promoted because of their race or gender, even though they are equally or more qualified than other candidates who are promoted.
• Legal Standards
  • Adverse Impact: Adverse impact is typically analyzed using statistical tools to assess whether an employment practice or policy disproportionately affects a particular group. In the U.S., the Four-Fifths Rule (80% rule) is commonly used to assess adverse impact in hiring practices. If adverse impact is found, the employer must show that the practice causing the impact is necessary for the business (a business necessity) and is not discriminatory in effect.
  • Disparate Treatment: In cases of disparate treatment, the plaintiff must show that they were treated differently from others and that the difference in treatment was based on their protected characteristic (race, gender, or other). The employer may try to justify their actions by providing a non-discriminatory reason for the different treatment. However, the burden of proof is on the complainant to prove that the employer's actions were intentionally discriminatory.
• Burden of Proof
  • Adverse Impact: In adverse impact cases, the burden of proof is on the plaintiff (the person who believes they were discriminated against) to show that the employer’s policy or practice has a disproportionate negative impact on a protected group. Once the plaintiff establishes adverse impact, the employer may need to prove that the practice is job-related and necessary.
  • Disparate Treatment: In disparate treatment cases, the burden of proof is initially on the plaintiff to show that they were treated differently because of their protected characteristic. After this is established, the employer must provide a legitimate, non-discriminatory reason for their actions. If the employer fails to do so, the plaintiff may win the case.
• Focus
  • Adverse Impact: The focus is on the effect of the employment practice, not the employer's intent. Even if the employer does not intend to discriminate, the effect of their practices on certain groups may be considered discriminatory if the impact is disproportionately harmful.
  • Disparate Treatment: The focus is on the intent of the employer’s actions. In disparate treatment, there is intentional discrimination where the employer purposefully treats someone differently based on their race, gender, or other protected characteristic.
• Remedies
  • Adverse Impact: If adverse impact is found, employers may need to modify or adjust their practices to eliminate or reduce the impact on the affected group, unless they can demonstrate that the practice is a business necessity. Employers may also need to provide alternative practices that have less adverse impact while still achieving the same business goals.
  • Disparate Treatment: If disparate treatment is proven, the employer may be ordered to compensate the affected individual, and the employer may also face penalties such as punitive damages or be required to make changes to their policies to prevent future discriminatory treatment. The affected individual may also be entitled to remedies such as back pay, reinstatement, or compensatory damages for emotional distress.

Ultimately, adverse impact involves unintentional discrimination where neutral practices have a disproportionate effect on certain groups, while disparate treatment involves intentional discrimination where individuals are treated differently based on a protected characteristic. Both are important concepts in employment law and both require employers to ensure that their hiring, promotion, and other employment practices are fair, non-discriminatory, and compliant with anti-discrimination laws.

4. Can an employer justify an employment practice that causes adverse impact?

Yes, an employer can justify an employment practice that causes adverse impact, but only under certain conditions. The employer must demonstrate that the practice is necessary for the business and is related to the job's essential requirements. This is often referred to as a business necessity defense. Here is how an employer could justify an employment practice:

• Business Necessity Defense
  • Under U.S. law (particularly Title VII of the Civil Rights Act of 1964), if an employment practice has adverse impact on a protected group, the employer may still be able to justify the practice if it meets the following criteria:
    • Job-Related: The practice must be shown to be directly related to the specific requirements of the job. This means the practice must measure skills or qualifications that are necessary to perform the job successfully.
    • Consistent with Business Needs: The practice must be consistent with the business's needs and goals. The employer needs to demonstrate that the practice serves a legitimate business purpose and is essential for the job or the operation of the business.
• Examples of Justifiable Practices
  • Physical Tests: An employer might require a physical fitness test for jobs like a police officer or firefighter. Although such tests may cause adverse impact on women or older individuals, the employer may justify the test if it’s necessary to perform essential job functions, such as the physical demands of the job.
  • Education or Experience Requirements: If a company requires a certain level of education or work experience for a job, and it causes adverse impact (e.g., disadvantaging minority groups), the employer could justify it by proving that the qualifications are essential to successfully performing the job.
  • Aptitude or Skill Tests: For jobs requiring specific skills (e.g., a job requiring advanced technical expertise), an employer could justify a skills assessment if it demonstrates that those skills are critical to performing the job effectively.
• Steps an Employer Must Take to Justify Adverse Impact
  • If an employer’s hiring practice causes adverse impact, they must show that:
    • Validation of the Practice: The employer must demonstrate that the practice is valid and measures what it is intended to measure (i.e., it accurately predicts job performance). This could involve conducting validation studies to prove that the selection method is related to job success.
    • No Alternative Practices: The employer must show that there is no less discriminatory alternative that could achieve the same goal. This means that if there are other ways to evaluate candidates that would cause less adverse impact but still meet the job’s requirements, the employer must consider using those alternatives. If the employer fails to explore alternative practices that could reduce the impact, the practice may not be justified.
• Alternative Employment Practices
  • Even if an employer can demonstrate that a practice is a business necessity, they should also explore whether there are alternative methods of achieving the same goals with less adverse impact.
    • For instance, if a physical test disproportionately affects women, the employer might consider alternative ways to assess candidates' physical abilities that are equally valid but less discriminatory, such as using a different type of test or adjusting the standards.
• How Employers Should Proceed When Adverse Impact is Identified
  • If adverse impact is identified, the employer should take the following steps:
    • Assess the Impact: Review the specific practice causing the adverse impact and analyze the selection rates of different groups.
    • Justify the Practice: If the employer believes the practice is essential for the job, they must be prepared to demonstrate its business necessity and its direct link to job performance.
    • Consider Alternatives: Explore if there are any alternative practices that would cause less adverse impact while still effectively assessing candidates for the job.
    • Review and Adjust: If alternatives are available, the employer may need to adjust their practices to ensure fairer outcomes while maintaining the job’s integrity.

Altogether, an employer can justify an employment practice that causes adverse impact, but only if they can demonstrate that the practice is job-related and consistent with the business necessity. The employer must be able to show that the practice is directly linked to the successful performance of the job and that there are no less discriminatory alternatives that would achieve the same result. If they cannot make this justification, the practice could be considered discriminatory under the law.

5. What should employers do if adverse impact is found?

If an employer finds that adverse impact is occurring in their hiring, promotion, or other employment practices, they must take steps to address the issue. The employer needs to ensure that their practices are fair and compliant with anti-discrimination laws. A possible structure to follow if adverse impact is found in your company include:

1. Assess the Cause of the Adverse Impact

• Identify the Specific Practice: Employers should first identify which specific employment practice is causing the adverse impact. This might be a hiring test, qualification requirement, interview procedure, physical fitness test, or other policies that disproportionately affect a protected group (such as race, gender, age).
• Evaluate the Data: Employers should collect and analyze statistical data on the selection rates of different demographic groups. This analysis can help pinpoint the exact nature of the adverse impact and which groups are most affected. Tools like the Four-Fifths Rule (80% rule) or standard deviation analysis can help identify if there is significant adverse impact on certain groups.

2. Evaluate the Business Necessity of the Practice

• Determine if the Practice is Job-Related: The employer must assess whether the practice causing adverse impact is necessary for the effective performance of the job. For instance, a physical fitness test for a job like a firefighter may be justified because it is related to the physical demands of the job.
• Conduct a Job Analysis: Employers should conduct a job analysis to determine whether the practice aligns with the essential duties and requirements of the position. A practice is only justified if it accurately measures qualities or skills directly related to the job’s core responsibilities.
• Validate the Practice: The employer should validate the practice to ensure that it accurately predicts job performance. This might involve conducting studies to show that the practice is linked to success in the job and that it’s a legitimate requirement for the position.

3. Consider Less Discriminatory Alternatives

• Explore Alternatives: Employers should consider if there are other selection practices or criteria that achieve the same goal but with less adverse impact on protected groups. This might involve adjusting the requirements of a test or changing how qualifications are measured.
• For example:
  • If a physical test disproportionately affects women, the employer might consider lowering the intensity of the physical test or offering alternative assessments that still evaluate the necessary skills.
  • If a written exam disproportionately impacts certain racial or ethnic groups, the employer might explore alternative assessments, such as job simulations or interviews that better capture relevant skills.
• Ensure Validity of Alternatives: Any alternative method must still be valid, meaning it must accurately predict the ability to perform the job effectively. Employers cannot just choose alternatives that are less discriminatory without ensuring they are also job-related and effective.

4. Review and Modify Hiring or Promotion Practices

• Revise Practices: If an employment practice is found to cause adverse impact and cannot be justified by business necessity, the employer may need to revise the practice. This could involve:
  • Changing qualification requirements (for example, reducing educational requirements if they are not essential to the job).
  • Adjusting test content or procedures to ensure they do not disproportionately affect certain groups.
  • Implementing alternative selection methods that are just as effective but have less impact on protected groups.
• Monitor Practices Regularly: Employers should periodically review their hiring, promotion, and other employment practices to ensure that no new adverse impact is occurring. Regular monitoring allows employers to make adjustments quickly if needed.

5. Document the Reason for the Practice

• Employers should carefully document the reasoning behind their employment practices, especially if they are relying on the business necessity defense. This documentation should explain why the practice is essential to the job and how it relates to job performance.
• Documentation will also help the employer justify the practice if a discrimination claim is filed or if the employer is audited by regulatory agencies.

6. Ensure Equal Opportunity for All Applicants

• Employers should take steps to ensure that all applicants and employees are provided with equal opportunities. This could involve:
  • Training recruiters and hiring managers to recognize and eliminate bias.
  • Ensuring that the hiring process is fair and transparent for all candidates.
  • Promoting diversity and inclusion within the workplace to ensure that individuals from protected groups are given fair opportunities.
• Employers can also implement affirmative action programs (in the case of certain federal contractors or under certain legal requirements) to promote diversity and equal opportunity.

7. Consult Legal and HR Experts

• If adverse impact is found and there is uncertainty about the next steps, employers should consult legal experts or human resources consultants to ensure that their actions comply with applicable discrimination laws.
• Employers should work with professionals who can help them navigate legal compliance, conduct validation studies, and ensure that any changes to practices do not violate anti-discrimination laws.

8. Communicate with Affected Groups

• If adverse impact is identified, employers should consider ways to communicate with affected groups to better understand their experiences and how the process might be more equitable.
• Transparent communication about the changes being made can help build trust within the organization and with external stakeholders.

9. Train Employees and Management

• Employers should provide training on diversity, equity, and inclusion to help hiring managers and employees recognize and avoid discriminatory practices in the recruitment and selection process.
• Training should also address how to eliminate bias from hiring decisions and foster a more inclusive and fair workplace.

10. Report and Document Adjustments

• If the employer has made adjustments to their practices to reduce adverse impact, they should document and report the changes, especially if they are subject to EEOC or other regulatory oversight.
• Keeping clear records of the adjustments made and the outcomes of those changes can help demonstrate the employer’s commitment to non-discriminatory practices.

By taking these steps, an employer can address adverse impact and ensure that their hiring and employment practices are fair, non-discriminatory, and compliant with anti-discrimination laws.