Understanding and Avoiding Adverse Impact in Employment Practices

Diversity recruiting is top of mind for most organizations. Research has shown that a diverse workforce is more engaged, productive, and innovative. It's essential to measure and understand all the ways discrimination can occur and the possible impacts on your organization.

Everyone is familiar with intentional overt discrimination. It's based on ethnicity, gender, religious beliefs, and other protected classes. Discrimination of this kind is easy to spot. It's obvious. We know it's not acceptable, and we try to root it out of our organizations.

However, intentional discrimination is not the only bias that may exist. There is a less well-known form of discrimination called disparate impact or adverse impact.  You may be unfamiliar with it because it's harder to recognize than more glaring forms of discrimination. This also makes it tougher to spot in your organization.


What is Adverse Impact?


Adverse impact is a hiring practice that appears neutral and fair on the surface, but it's not. You probably don't even know it's there. You may know something seems wrong, but you can't put your finger on it. No matter how many diversity policies or recruiting strategies you put in place, you're never reaching your diversity goals. Does this sound familiar? Adverse impact occurs when you apply the same rules to all your employees, but the rules unintentionally disadvantage members of a protected group.

The U.S. Equal Employment Opportunity Commission (EEOC) defines adverse impact as follows:

  • A substantially different rate of selection in hiring which works to the disadvantage of members of a race, sex, or ethnic group.

What makes adverse impact so problematic is that it's unintentional discrimination. Although it's not purposeful, it's still discrimination, and it negatively impacts your organization. It hides, silently causing certain classes of employees to be treated differently. It might be hiding in the language you're using for a job posting. It may be a question on your job application or a "required skill" that is no longer necessary. Wherever it is, it's causing you to hire or promote fewer members from certain groups.

Thankfully, guidelines are in place, like the Four-Fifths Rule, that can help you determine if your organization's practices and policies unknowingly cause you to discriminate against protected groups.


The standard for Determining Adverse Impact – The Four-Fifths Rule


The primary standard for calculating adverse impact used by the EEOC is called the Four-Fifths Rule or 80% Rule. This rule applies to the selection rates in hiring, promotion, or other employment decisions concerning protected groups.

The Four-Fifths Rule states that organizations should hire protected groups at a rate that is at least 80% of the hiring rate for the majority race or gender group (i.e., the group with the highest "pass" rate). Here's an example:

An organization hired 50% of White applicants and 35% of Hispanic applicants in their last hiring cycle. The adverse impact ratio (used to evaluate compliance with the 4/5ths rule) is calculated as .35/.50 = .70. In other words, Hispanics were hired at a rate that’s only 70% of the hiring rate for Whites. Since Hispanic applicants are hired at a rate that’s less than .80, the organization is in violation of the 4/5ths rule.

The rule serves to call into question a company's hiring practices and may get the attention of enforcement agencies. Those found in violation are required to show that all aspects of their selection procedures have been fully validated, are consistent with business necessity, and that no alternative selection procedures with equal utility and less adverse impact exist.

Looking for more information about measuring adverse impact and how the 4/5ths rule is calculated? Check out the EEOC website's section on Adverse Impact, the Bottom Line and Affirmative Action.


Why You Need to Minimize Adverse Impact


It is best to avoid adverse impact whenever possible. First, it can interfere with your organization's diversity and inclusion goals. When adverse impact is present in your hiring process, your hiring and promotion practices are at risk for bias and unfairness. And it's not just your hiring practices that may be affected. Adverse impact can manifest throughout the employee lifecycle. It can influence your training and development, selections for transfers and layoffs, and even performance appraisal processes.

If left in place, not only will adverse impact hurt your diversity efforts, it also puts your organization in danger of costly lawsuits. It can bring scrutiny from the EEOC and damage your corporate brand. HR professionals must immediately find and correct adverse impact to ensure fair, unbiased hiring processes and avoid jeopardizing your organization's ability to attract top talent.


How to Find and Avoid Adverse Impact


First, make sure you and your staff understand the definition of adverse impact and which federal laws and regulations affect your organization. One of the most essential business resources is the website for the EEOC. The EEOC oversees adverse impact cases and is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant from a protected class.  The EEOC also administers the federal government's Equal Employment Opportunity program.

Your goal is to stay compliant with the Uniform Guidelines for Employee Selection Procedures. These guidelines were set in 1978 by the EEOC, U.S. Department of Labor, U.S. Department of Justice, and the former Civil Service Commission. (Read the complete set of federal regulations here.)

Once you understand what adverse impact is and how it may affect your organization, you can start measuring and testing your HR data. Hiring processes can get confusing quickly. By measuring often, you can identify adverse impact before it gets away from you.


Measuring Adverse Impact


How do you measure adverse impact within your hiring practices? It begins with collecting applicants' race and gender data during the application process. Once the data is collected, there are many methods to test for adverse impact and many metrics you can track. Evaluating for adverse impact is difficult. We recommend using expert help. This help can come from either inside your organization or from an outside service. Interpreting and addressing adverse impact within your organization takes experienced practitioners.

The Cadient Science Team consists of industrial-organizational psychologists with many years of experience. They have a thorough understanding of adverse impact issues and the legal ramifications for businesses of all sizes. Our Science Team can help design an adverse impact monitoring plan for your organization. They can conduct organizational analyses and deliver training specific to your needs.


Conclusion and Takeaways


Understanding, measuring, and removing adverse impact before it becomes a problem is critical. Using the EEOC's Four-Fifths Rule can help you spot trouble quickly and help your organization avoid unwittingly discriminating against protected groups.

Review local, state, and federal guidelines with your legal team to ensure your selection processes for each stage of the employee lifecycle are in compliance.

To learn more about how you can minimize adverse impact in your hiring process or to speak with our science team, please contact your Client Success Manager or Sales Manager or contact Client Success at Success@CadientTalent.com.


Looking for more information about adverse impact? Here's a list of helpful websites:

EEOC links:

OFCCP links:

Other Useful Links:

You may be interested in the following articles:

Are you focusing on diversity hiring efforts? Be sure to watch this short video on Cadient's Diversity Hiring Dashboard. The dashboard allows you to easily see and report your diversity hiring efforts.


Michael Baysinger

Assessment Practice Manager, Ph.D.