Adverse Impact

What is an adverse impact?

Adverse impact, also known as disparate impact, refers to employment practices that appear neutral but have a discriminatory effect on a protected group. It occurs when an employer’s policies or procedures, despite seeming fair, disproportionately exclude or negatively affect members of a particular race, color, religion, sex, or national origin.

However, unlike intentional discrimination (disparate treatment), adverse impact discrimination can occur unintentionally. It focuses on the consequences of employment practices rather than the motivation behind them.

Employers may be held liable even if they had no discriminatory intent, if their practices result in a significantly different rate of selection that disadvantages members of a protected group.

The most common causes of adverse impact include:

• Use of non-job-related selection criteria
• Overly restrictive job requirements
• Biased or poorly designed pre-employment tests
• Word-of-mouth recruitment practices
• Inconsistent application of policies

How to Avoid Adverse Impact in HR Practices?

To minimize the adverse impact discrimination in hiring and promotion, consider these strategies.

 

1- Assess a full range of KSAOs

Assessing a full range of KSAOs (Knowledge, Skills, Abilities, and Other characteristics) involves using multiple types of assessments to evaluate candidates comprehensively. Using multiple assessments gives a complete picture of each candidate’s abilities and prevents over-reliance on tests that might unfairly exclude some applicants.

For example, when hiring a customer service representative, you might use a combination of a short written test, a role-playing exercise, and a brief interview. The written test checks basic communication skills, the role-play assesses how they handle customer interactions, and the interview evaluates their attitude and motivation.

2- Use specific measures of ability

Using specific measures of ability means focusing on skills directly related to job performance rather than testing general intelligence. Focusing on job-specific skills helps ensure fair evaluation and can minimize performance gaps between different groups of candidates.

When hiring a data entry clerk, use a timed typing test and an accuracy assessment with realistic data sets. For a graphic designer role, use a portfolio review and a small design challenge. These methods directly test the skills needed for the job.

3- Weight criteria appropriately

Weighing criteria appropriately involves adjusting the importance of different selection factors based on their relevance to job performance. Properly weighting different selection criteria can lead to fairer outcomes and adverse impact discrimination in hiring decisions.

In a sales position, for example, you might give equal weight to scores from a customer service skills assessment and a sales aptitude test instead of relying primarily on cognitive measures. This balanced approach recognizes the importance of both interpersonal and analytical skills in sales success.

4- Modify test formats

Modifying test formats means adapting assessments to be more inclusive and reducing reliance on reading or language skills when they’re not critical to job performance. This can help level the playing field for candidates from diverse backgrounds.

For a warehouse worker position, instead of a written safety test, use a practical demonstration where candidates identify hazards in a mock warehouse setting. This format reduces the impact of reading skills on test performance.

5- Enhance applicant perceptions

Enhancing applicant perceptions involves improving how candidates view their selection process. Clear communication about the hiring process can help all candidates perform their best and reduce unfair advantages.

For a marketing position, you might explain the assessment process like this: “We’ll ask you to create a sample campaign. This helps us see your creativity and communication skills in action. We’re not looking for perfection but for your approach to solving marketing challenges.”

6- Provide test orientation

Providing test orientation means offering all candidates the opportunity to familiarize themselves with the testing process before the actual assessment. This can reduce anxiety and ensure that differences in test performance reflect actual ability rather than familiarity with the test format.

Before a technical assessment for a software developer role, provide all candidates with a short video tutorial. This video could show the coding environment they’ll use, explain the types of problems they’ll face, and offer a simple practice question. This ensures everyone starts with the same level of familiarity with the test format.

7- Use targeted recruiting

Targeted recruiting involves expanding your candidate pool by actively seeking out diverse applicants. Broadening your recruitment efforts can attract a wider range of qualified candidates, improving workforce diversity while maintaining high standards.

If you’re hiring for accounting positions, you might attend job fairs at historically black colleges and universities, or partner with professional organizations for Latino accountants. This can help you reach talented candidates who might not typically apply to your company.

8- Consider score banding

Score banding involves grouping candidates with similar scores instead of ranking them individually. Instead of ranking candidates by exact test scores, group them into performance tiers. This prevents over-reliance on minor numerical differences and encourages a more holistic evaluation.

For a management trainee program, you might use:

• Tier 1: 90-100%
• Tier 2: 80-89%
• Tier 3: 70-79%

This recognizes that small score differences (e.g., 92% vs. 95%) rarely indicate significant skill gaps. Within each tier, focus on qualitative factors that tests can’t easily measure. For instance, a Tier 2 candidate with extensive project management experience might be a better fit than a Tier 1 candidate without such background.

What are Examples of Adverse Impact?

While these strategies can help prevent adverse impact in the workplace, it’s equally important to recognize how they can manifest. Let’s look at some common examples of adverse impact in various HR processes.

1- Biased job advertising

Organizations may inadvertently limit their candidate pool by using gender-specific job titles or pronouns in job postings. For instance, using terms like “salesman” or “waitress” can discourage applicants of other genders. Similarly, phrases like “youthful team” might deter older candidates from applying.

Consider these five strategies to create more inclusive job advertisements.

• Use gender-neutral job titles and pronouns in job postings
• Focus on required skills and qualifications instead of personal characteristics
• Avoid age-related terms like “youthful” or “mature”
• Use diverse job boards and platforms to reach a wider audience
• Have multiple people review job postings to catch potential biases

2- Discriminatory interview practices

Interview processes can sometimes reflect unconscious biases. This may include asking minority applicants more challenging questions or showing preference based on physical appearance or ethnicity. Such practices can lead to unfair evaluations and hiring decisions.

To ensure fair and unbiased interviews, implement these measures:

• Develop a structured interview process with standardized questions for all candidates
• Train interviewers on unconscious bias and fair evaluation techniques
• Use diverse interview panels to reduce individual biases
• Focus on job-related competencies rather than personal characteristics
• Regularly audit and review interview outcomes for potential disparities

3- Restrictive dress codes and grooming policies

Overly specific dress codes can disproportionately affect certain groups. For example, policies that prohibit head coverings might discriminate against individuals who wear them for religious reasons. Similarly, grooming policies requiring clean-shaven faces could adversely impact men from certain cultural backgrounds.

Follow these five guidelines to create a more inclusive dress code and grooming policies.

• Create flexible policies that accommodate religious and cultural practices
• Focus on professionalism and safety and not on specific appearance requirements
• Avoid gender-specific dress codes
• Regularly review and update policies to ensure they remain inclusive
• Consult with diverse employee groups when developing or revising policies

4- Over-reliance on employee referrals

While employee referrals can be valuable, excessive dependence on this method may lead to a homogeneous workforce. Employees often refer candidates from similar backgrounds, potentially limiting diversity in the applicant pool.

Here are five ways to maintain diversity when using employee referrals.

• Balance referral programs with other recruitment methods
• Set diversity goals for your referral program
• Encourage employees to refer candidates from diverse backgrounds
• Implement blind resume screening to reduce bias in initial candidate selection
• Regularly analyze the diversity of your referral hires compared to other sources

5- Biased pre-employment testing

Using assessment tools that favor certain groups can result in adverse impact in the workplace. For instance, a test heavily reliant on language skills might disadvantage non-native speakers, even if language proficiency isn’t crucial for the job.

To ensure fair and effective pre-employment testing, adopt these practices:

• Ensure tests are job-related and consistent with business necessity
• Validate assessments to ensure they don’t disproportionately impact protected groups
• Offer test accommodations for candidates with disabilities
• Use a variety of assessment methods to evaluate candidates
• Regularly review and update testing procedures to ensure fairness and relevance

How to calculate adverse impact?

To calculate adverse impact, HR professionals typically use the “Four-Fifths Rule” or “80% Rule” as established by the Uniform Guidelines on Employee Selection Procedures. Here’s how to calculate adverse impact:

Step 1: Calculate the selection rate for each group:

Selection rate = Number of individuals selected / Number of applicants

Step 2: Identify the group with the highest selection rate.

Step 3: Calculate the impact ratio:

Impact ratio = Selection rate of the group in question / Selection rate of the highest group

Step 4: Evaluate the result: If the impact ratio is less than 0.80 (or 80%), adverse impact is generally considered to exist.

Here are two practical examples.

Adverse Impact Example 1: Hiring

Let’s say a company is hiring for a software developer position:

 

Male applicants: 100
Female applicants: 50

 

After the selection process:

 

Males hired: 40
Females hired: 10

 

Here’s how to calculate adverse impact:

 

• Calculate the selection rate for each group: Male selection rate: 40/100 = 0.40 or 40% Female selection rate: 10/50 = 0.20 or 20%
• Identify the group with the highest selection rate: Males have the highest at 40%
• Calculate the impact ratio: Impact ratio = Female selection rate / Male selection rate = 20% / 40% = 0.50 or 50%
• Evaluate the result: The impact ratio (50%) is less than 80%, indicating an adverse impact on female candidates.

 

This clearly shows a significant disparity in hiring rates between male and female candidates. It indicates the need for further investigation into the hiring process to identify and address potential biases.

Adverse Impact Example 2: Layoff

Let’s consider a company that needs to reduce its workforce:

 

Total employees: 500
Hispanic employees: 100
Non-Hispanic employees: 400

 

After the layoff process:

 

Hispanic employees laid off: 30
Non-Hispanic employees laid off: 70

 

Here’s how to calculate adverse impact:

 

• Calculate the layoff rate for each group: Hispanic layoff rate: 30/100 = 0.30 or 30% Non-Hispanic layoff rate: 70/400 = 0.175 or 17.5%
• Identify the group with the highest layoff rate: The Hispanic group has the highest at 30%
• Calculate the impact ratio: Impact ratio = Non-Hispanic layoff rate / Hispanic layoff rate = 17.5% / 30% = 0.583 or 58.3%
• Evaluate the result: The impact ratio (58.3%) is less than 80%, indicating an adverse impact on Hispanic employees in the layoff process.

 

This indicates potential discrimination in the layoff decision-making process. It suggests that Hispanic employees were disproportionately affected by the workforce reduction, which could lead to legal issues and damage to the company’s reputation.

Adverse Impact Analysis

While these calculations provide a quantitative measure of adverse impact, a more comprehensive approach is needed to fully understand and address potential issues. This is where adverse impact analysis comes into play.

You should conduct an adverse impact analysis

• Before implementing new HR policies or practices
• Annually, as part of your organization’s diversity and inclusion efforts
• When considering changes to existing selection procedures
• After receiving complaints about unfair treatment
• Prior to major organizational changes like mergers or restructuring

Analyze the impact on protected groups based on the following factors:

• Race and ethnicity
• Gender
• Age (40 and above)
• Disability status
• Religion
• National origin
• Veteran status
• Sexual orientation (in some jurisdictions)

Apply Adverse Impact Analysis to various employment decisions and processes, including:

• Recruitment and hiring
• Promotions and transfers
• Training and development opportunities
• Performance evaluations
• Compensation and benefits allocation
• Disciplinary actions
• Layoffs and terminations
• Job assignments and work schedules

Use cases of Adverse Impact Analysis

There are four primary use cases of adverse impact analysis, each addressing crucial aspects of employment practices. Let’s understand these in detail.

1- Compensation analysis

Examine pay differences across protected groups to identify potential disparities. Compare average salaries, bonuses, and other compensation elements. This helps ensure equitable pay practices and compliance with equal pay laws.

2- Promotion analysis

Evaluate promotion rates among different demographic groups. Compare the proportion of employees promoted from each group to identify any significant discrepancies. This can reveal potential biases in career advancement opportunities.

3- Involuntary termination analysis

Assess the rates of involuntary terminations across protected groups. Compare the percentage of employees terminated from each group to the overall workforce composition. This helps detect potential discrimination in layoff or firing decisions.

4- Interpreting results

To determine if an adverse impact exists, use two primary methods:

1. 80% Rule (4/5ths Rule): Calculate the selection rate for each group and compare it to the group with the highest rate. If any group’s rate is less than 80% of the highest rate, it indicates a potential adverse impact.
2. Statistical Significance Test: Conduct tests like chi-square or Fisher’s exact test to determine if the differences between groups are statistically significant. This approach provides a more rigorous analysis, especially for smaller sample sizes.

For a comprehensive assessment, it’s recommended to use both the 80% rule and statistical significance tests. This dual approach provides a more robust evaluation of potential adverse impact on employment practices.

Adverse impact vs Disparate treatment

Now that we understand what adverse impact is, it’s important to distinguish it from a related concept: disparate treatment.

Adverse impact refers to policies or practices that appear neutral but result in a disproportionately negative effect on a particular group. Disparate treatment, on the other hand, involves intentional discrimination where individuals from a protected class are treated differently based on their membership in that class.

Here’s a table to help you better understand adverse impact vs disparate impact.

Aspect	Adverse Impact	Disparate Treatment
Intent	Unintentional	Intentional
Nature	Neutral policies with discriminatory effects	Deliberate discrimination
Identification	Statistical analysis, 4/5ths rule	Direct evidence or inference
Example	A hiring test that disproportionately excludes certain ethnic groups	Deliberately rejecting candidates based on race or gender
Legal standard	Requires showing that the policy is a business necessity and job-related	Requires proof of discriminatory motive
Defenses	Job-relatedness and business necessity	Legitimate, non-discriminatory reason
Prevention	Regular analysis of policies and practices	Clear anti-discrimination policies and training

Wrapping Up

Adverse impact occurs when employment practices disproportionately affect protected groups, even if those practices appear neutral. It requires employers to examine the outcomes of their hiring, promotion, and termination decisions. To prevent adverse impact, companies must analyze their practices regularly, diversify recruitment, use job-related assessment tools, and apply the 4/5ths rule and statistical tests to identify problems.

Remember that regular adverse impact analysis, coupled with proactive measures to prevent discrimination, is essential for maintaining fair and inclusive HR practices.