Adverse Impact

What is an Adverse Impact?

An adverse impact refers to an action or policy that has unintended consequences. It occurs when an employer’s actions disproportionately affect certain groups of individuals within the workforce. In other words, the employer is unintentionally discriminating against these individuals.

Most adverse impacts are found in policies or employee assessments such as:

• Competencies listed in the job description are the prerequisites for the position.
• Inquiries made during job interviews.
• Performance evaluations for employment or termination.

Racial segregation and discrimination were eliminated in public places and in private businesses after the Civil Rights Act of 1964 was passed. Employment discrimination based on race, age, gender, religion, or nationality is prohibited under Title VII.

Neither public nor private employers are exempt from this law. The Equal Employment Opportunity Commission (EEOC) can investigate complaints of discrimination based on racial, ethnic, religious, or national origin differences.

How Should an Adverse Impact Be Defined as Significant Exclusion?

EEOC (Equal Employment Opportunity Commission) has come out with new standards on hiring practices for gender diversity. The commission suggests that companies should ensure their workforce is at least 80% diverse. 

In many cases, companies use the 4/5th or 80 percent guideline to monitor actual discrimination in hiring, promotion, and other hiring decisions. They do not intend for the guideline to serve as a legal imperative, but rather a way to help monitor actual discrimination.

What Are Some Instances of Adverse Impact?

• When a job description specifies a range of experience (such as 4–7 years), it indirectly disqualifies older candidates with more years of experience.
• Screening out a disproportionate number of women and disabled people because of physical strength or agility tests.
• Screening more applicants from those who completed background checks by requiring background checks from select groups.

What are the Outcomes of Adverse Impact?

Employers often don’t realize they are at risk of adverse impact discrimination until an employee files a claim or brings a lawsuit against them. It is possible for employers to face large financial losses when this occurs. This can cause significant damage to their reputation and brand.

Adverse impact policies can cause significant financial losses for organizations. In addition to the direct costs associated with implementing and maintaining these policies, they also create additional administrative burdens and increase the risk of litigation. A policy's benefits should be taken into account before adoption.

Why is it Important to Avoid Adverse Impact?

Adverse impact is a serious problem that results in discrimination lawsuits. Many larger organizations have been the recipients of adverse impact discrimination lawsuits over the years, but individuals may also find themselves at the center of these claims if they aren’t careful. 

There are three keys to preventing adverse impacts:

• Ensuring fair hiring practices: As an employer, you must follow federal, state, and local laws that make sure that your hiring practices are fair. That is to say, you can't discriminate against qualified candidates in any part of the hiring process (for example, by refusing to hire older candidates).
• Improving diversity in the workplace: As companies expand and become more established, they need to think about how they can move forward with a more diverse workforce. This can be particularly important in senior leadership positions.
• Supporting legal defensibility of your recruitment process: There are many legal implications to take into account when establishing your hiring practices. This is mainly due to the fact that the more you rely upon pre-employment assessments and interviews, the more people can find themselves discriminated against. As such, it’s very important for you to consider how you are going to protect yourself if things go wrong and someone ends up bringing an EEOC complaint against your company.

Preventing adverse impacts is essential for any organization interested in being fair to candidates. Not only will it help you hire the right people, but it can also protect your business from major lawsuits, legal fees, and other complications that arise from systemic discrimination.