An adverse impact occurs when employment practices or policies appear neutral but have a disproportionately negative effect on a group that shares a protected characteristic. Protected characteristics include:
- sex—including gender identity
- sexual orientation
- national origin
- genetic information
Adverse impact—also referred to as disparate impact—can be caused by employee selection policies and procedures involved in hiring, training and development, promotions, terminations, transfer, and performance appraisals. It may be present within an overall process, such as hiring, or one part of it, such as pre-employment assessments.
The Equal Employment Opportunity Commission (EEOC) is the organization responsible for applying federal anti-discrimination employment laws in the US. According to the EEOC, an adverse impact is defined as “a substantially different rate of selection in hiring, promotion or other employment decision which works to the disadvantage of members of a race, sex, or ethnic group”.
Why is it Important to Understand Adverse Impact?
Given the level of awareness around diversity, equality, and inclusion (DEI) in the workplace, most organizations can easily spot a directly discriminatory HR process or policy. Adverse impact, however, is usually unintentional and requires a more nuanced understanding. To identify an adverse impact, we need to look at the effect of a policy or process, rather than the intent behind it.
The presence of adverse impact makes your organization vulnerable to legal claims of discrimination, which can be extremely time-consuming and costly to defend or resolve. But beyond these potential legal consequences, awareness of adverse impact ensures your HR processes are fair and equal and will assist you in building a diverse and inclusive workforce.
If you find evidence of any adverse impacts within your organization, you can remove or redesign the relevant process or policy to ensure a protected group isn’t unfairly disadvantaged.
Adverse Impact and the Law
The concept of adverse impact is especially relevant to employers in the US, where it is prohibited by law.
At the federal level, Title VII of the Civil Rights Act of 1964 prohibits direct discrimination as well as neutral employee selection policies or practices that indirectly discriminate against certain group/s. There are similar provisions in the Age Discrimination in Employment Act.
Private employers with 15 or more employees—or 20 or more in the case of age discrimination—are required by law to ensure their employment practices comply with these acts.
An organization may be able to justify a selection procedure with an adverse impact in certain circumstances.
- Where the selection procedure directly relates to the job and is consistent with business necessity—i.e. necessary for the safe and efficient performance of the job
- Where there isn’t a less discriminatory alternative procedure available.
The Uniform Guidelines on Employee Selection Procedures set out how employers can validate a selection process with an adverse impact. However, the exception applies to a very limited number of situations and is difficult to justify. It’s worth seeking legal advice specific to your situation if you have any concerns regarding your processes or are thinking about validating a selection process with an adverse impact.
While adverse impact is often discussed in the US context, you should confirm whether there is any relevant legislation in the country where your organization is based.
Regardless of whether your organization is legally required to ensure your HR processes don’t cause an adverse impact, you should do so in the interests of fair and equal employment practices.
How to Measure Adverse Impact
There are several ways to find out whether your employment practices and policies have an adverse impact. The most commonly used approach is the 4/5ths or 80% rule.
4/5ths or 80% rule
Under the Uniform Guidelines on Employee Selection Procedures, the EEOC and other US federal agencies use the 4/5ths or 80% approach as a rule of thumb when identifying adverse impact.
This rule says that adverse impact exists where the selection rate for a certain group is less than 80% of the group with the highest selection rate. For example, if the impact ratio for the selection rate of females versus males in a recruitment process is 55%, this indicates an adverse impact.
You first determine the selection rate of each group by dividing the number of applicants selected from the group by the total number of applicants in the group.
Let’s say an organization receives 120 applications from male candidates and 82 applications from female candidates in response to a job advertisement. The number of male and female candidates selected to progress to the first round of interviews is 21 and 7 respectively. The selection rate for male candidates is 21 / 120 = 0.175 or 17.5%. The selection rate for female candidates is 7 / 82 = 0.085 or 8.5%.
The impact ratio is then calculated by dividing the selection rate for a certain group by the selection rate for the highest group.
Continuing with the same example from above, the impact ratio is 8.5 / 17.5 = 0.485 or 48.5%.
As this is less than 80%, it suggests the selection process for the first round of interviews has an adverse impact on female candidates.
When reviewing selection procedures for adverse impact, the EEOC first calculates the impact ratio for the overall process. If there is evidence of adverse impact, the EEOC then examines each specific step of the process.
The 80% rule does not always take into account sampling error—especially in smaller sample sizes. Other methods that examine the statistical significance of adverse impact include the Z-test and Fisher’s Exact test.
Examples of Adverse Impact
Your job postings should only include the necessary, minimal requirements for a job. For example, you shouldn’t include physical requirements in a job posting for an administrative role. Such a requirement may adversely impact certain protected groups of individuals. A physical requirement is not related to the job nor is it consistent with business necessity. In contrast, a physical requirement in a job posting for a firefighter is likely essential to the duties of the role.
It’s especially important to review any technology you use when initially screening resumes. For example, a piece of resume software may not have been programmed to recognize overseas universities and could mistakenly exclude foreign-educated applicants.
Many organizations use pre-employment testing as part of their recruitment process. It’s essential to review these to ensure they don’t have an adverse impact.
In Griggs v. Duke Power Co., 401 U.S. 424 (1971)—the landmark adverse impact case in the US—the Supreme Court examined the requirement for a specific IQ test for positions outside of the organization’s labor department. It found this requirement had a disproportionately negative impact on African-American applicants and was not shown to be reasonably related to the job.
Another example would be a general intelligence test that includes culturally specific questions which have an adverse impact on foreign-born applicants.
If you use similar testing when considering performance reviews and potential promotions, it’s important to examine these processes for any adverse impact.
While your employment policies and procedures may appear neutral, you should examine them more closely for any potential adverse impact. Although often unintentional, an adverse impact can have a disproportionately negative effect on individuals with protected characteristics such as race, sex, or gender.
By using the 80% rule to assess your employee selection procedures, you can identify whether any adverse impact exists and address any areas of concern. As well as protecting your organization from potential legal claims, an understanding of adverse impact also ensures you’re building and supporting a diverse, equal, and inclusive workforce.