12 min read

What Adverse Impact Is and How To Avoid It at Your Organization

If you were to ask a room full of hiring managers and business leaders if their hiring process is fair to all types of candidates, their answers would be a unanimous, “Yes”.

However, while many organizations claim to have equitable employee selection procedures, the reality is often far from the truth.

Many factors can make hiring processes unfair. One significant factor is known as “adverse impact”.

Adverse impact not only leads to inequitable outcomes for candidates at the other end of your hiring practice but also negatively affects hiring outcomes for organizations.

If you’re unfamiliar with this term, you’re certainly not alone. Many organizations aren’t aware of what it means or how to address it, let alone whether they’re contributing to it. However, that’s not a viable excuse for ignoring this significant hiring issue. 

It’s critical that all organizations — including yours — measure adverse impact, and take steps to prevent and minimize it.

If you’re unsure of where to start, this complete guide to adverse impact is a must-read. By the end, you will develop an understanding of what adverse impact is, why it’s essential to prevent, and how to find and avoid it. 

What is adverse impact? A definition

First up, let’s take a look at an adverse impact definition. What is adverse impact?

The Code of Federal Regulations defines adverse impact 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”.

The legal term can be used interchangeably with “disparate impact”, a term coined by the U.S. Supreme Court ruling and recognized by federal laws.

Simply put, adverse impact leads to inequality when it comes to employment practices. That means that some individuals will have a better chance of landing the role than other minority applicants, regardless of how well they fit the position. 

Often enough, adverse impact is not a conscious decision by the hiring manager. It can happen for a number of reasons.

One adverse impact example might be that the job description asks for a candidate with between five and seven years of experience. Nobody with more than seven years of experience will be considered for the role and no entry-level candidates can apply. 

Adverse impact exists in this scenario. There’s a level of age discrimination here, too. Chances are, someone with more than seven years of experience will be over 35 years old.

That means that the job description itself is adversely impacting older workers. Since there may be many professionals over that age bracket with the precise skills you’re looking for, it is prudent not to overlook them and partake in discriminatory practices.

Why it’s essential to prevent adverse impacts

Now that you’re familiar with the adverse impact discrimination definition, you may be wondering why it is essential to minimize adverse impact at your organization. 

The short answer is that adverse impact is a net negative and can harm your organization’s ability to ensure fair hiring. On a base level, this issue could prevent you from hiring the right talent for your business.

If you’re unconsciously discriminating against certain individuals, you’re likely to miss out on top talent. 

However, there are countless other reasons that you should recognize adverse impact in your hiring process. Let’s take a look at three key ones that you need to consider. 

Ensuring fair hiring practices

Your recruitment practices should be as fair as possible. All qualified candidates deserve an equal opportunity when it comes to landing their dream job.

For that reason, you need to do all you can to ensure that your hiring process is fair, safe, and accommodating for all types of candidates. 

In other words, you need to proactively avoid any discrimination in your hiring process on the basis of race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age (40 or older), disability status, or genetic information.

In any case, U.S. Equal Employment Opportunity Commission laws make it illegal to discriminate on any of these grounds.

So taking the necessary steps to ensure your recruitment practices and selection process are as equitable as possible will not only benefit candidates from protected groups but also prevent your organization from claims of discrimination and costly lawsuits.

Improving diversity in the workplace

A diverse workplace is a strong workplace. Research suggests that more diversity in the workplace can offer a wide range of benefits.

For example, having a diverse range of employees may mean that your staff has a wider skill set and performs better overall.

So, it’s well worth working towards a more diverse workforce in your organizational practice when hiring new staff.

Of course, diversity in leadership positions matters too.

A Boston Consulting Group (BCG) survey showed that companies with above average diversity in their management teams had a 19% higher innovation revenue than those with below-average diversity

In the simplest of terms, taking the time to improve diversity in the workplace could have a significant impact on your business

Supporting legal defensibility of your recruitment process

It’s clear that the way you hire needs to be fair. But it doesn’t end there.

As we touched on earlier, you also need to make sure that your hiring practices are legally compliant. It’s therefore worth engaging a legal team and familiarizing yourself with the local laws regarding hiring and adverse impact. Doing so could save you a wealth of problems down the line. 

The key is to prevent adverse impact from occurring in the first place. If you fail to address this problem early on in your hiring practices, it can lead to systemic discrimination and adverse impact lawsuits down the line. 

System discrimination is taken very seriously by the Equal Employment Opportunity Commission (EEOC), so learning how to avoid disparate impact is critical for any modern-day business. 

How to find and avoid adverse impact at your organization

Ready to revamp your hiring practice? There are plenty of ways that you can avoid adverse impact discrimination in your workplace. 

Whether you’re a hiring manager or HR professional, working with your department to overcome this problem is vital. Fortunately, there are many approaches you can take that will help support you along the way. 

How to avoid adverse impact at your organization
Tips to avoid adverse impact at your organization

Understand the four fifths rule

Have you heard of the adverse impact 4/5 rule? To understand this it, you can refer to the Uniform Guidelines on Employee Selection Procedure. According to this, the rule is:

“A selection rate for any race, sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact.”  

That means that the selection rate of protected groups should be 80% while the rate of unprotected groups should be 20%. 

Conduct an objective job analysis

With the adverse impact 4/5 rule in mind, the next step is to conduct an adverse impact analysis. This involves looking at your current job vacancies and ensuring that the skills you’re asking for are essential to the role.

The selection criteria you decide on should always be 100% applicable to the job. 

Selecting candidates based on anything other than job performance could lead to adverse impact. Always consider how certain criteria could negatively impact a protected group.

If there is no need to include a specific job requirement, it may pay to leave it out.

Write inclusive job descriptions

Once you’ve finished your objective job analysis, it’s time to write an inclusive job description. 

As we’ve already covered, the skills and competencies you highlight need to be directly applicable to the position that you’re looking to fill. 

The language you use here is also important. Keep in mind that it needs to be inclusive and that certain words and phrases appeal more to one group than to all diverse groups. For example, the word ‘multitask’ may appeal more strongly to women than men.

You may wish to use tools, like Textio, to ensure that the job description uses inclusive language and is working to create an inclusive workforce. 

Use structured employment interviews

Structured interviews are ones that include a predetermined flow and set of questions for a job applicant. These types of job interviews are more inclusive than the free-flow style. The reason is simple: Every candidate gets asked the same questions and follows the same process created using uniform guidelines. 

While you may prefer to ask candidates in for an ‘informal chat’, there’s a lot of room for variety here. You may end up favoring one candidate based on mutual interests, their charisma, or simply because you were in a better mood on the day of the interview. 

Track your applications and pass rates

Keeping track of your applications and pass rates is essential. You need to know what demographic your promotion practices are attracting and whether it’s disproportionate. Using this information will help you when you’re calculating adverse impact in your business. 

Once you’ve calculated your diversity statistics, check how they measure up to the four fifths rule. If you’re falling short of that 80% mark, you may need to change your employment practices. 

Inspect your pre-employment assessments

Some pre-employment assessments can be biased. For instance, men may typically score higher on math-based questions, while women may score higher on logic-based questions. 

Take the time to look at your testing processes and make them as fair as possible. 

Additionally, ensure that you’re using diversity recruiting, sourcing, and hiring tools when hiring team members.

Examples of such tools you can look further into include Entelo Diversity, AbilityLinks, Vervoe, Jumpstart, Culture Amp, and Bonus.ly.  

Train your team on best practices

It’s unlikely that one person is responsible for hiring new candidates. In most businesses, this task falls upon an extended team of HR professionals. For that reason, it’s important to ensure that the entire department understands how to avoid adverse impact. 

Train them on everything from age discrimination to gender and race discrimination. If you or your organization do not possess the skills to do so effectively yourselves, consider bringing in an expert or multiple employees to provide quality training on the matter.

Document your hiring processes

When trying to avoid adverse impact in the workplace, documentation is everything. In order to analyze your employee selection procedures, you need to have a solid grasp of them. If you don’t already keep proper track of this funnel, it could be time to up your game. 

Work with your HR team to evaluate your current talent acquisition practices. Whether you work in customer service, sales, or another industry entirely, it’s important to have a solid, static hiring system in place. 

Monitor your current workforce

How diverse is your current workforce? If you’ve never looked at this metric, it’s time to finally start assessing whether your organization has fostered above average diversity or not.

You can use analysis tools to check whether you’re meeting the four fifths rule. If you find that you’re not meeting that criteria when compared to other diverse companies, it’s a sign that you may need to change your talent acquisition practices. 

Avoid adverse impact layoffs

This issue can arise at any point in the employee lifecycle. “Adverse impact may occur in hiring, promotion, training and development, transfer, layoff, and even performance appraisals,” SHRM explains. “It may be found in an overall procedure or in any step in the overall procedure.” Be sure to evaluate each aspect of your hiring practices. 

Measuring adverse impact

Learning how to measure diversity and inclusion could make a huge difference to your business. You can use this method to check whether your company is experiencing adverse impact.

The four fifths rule is a good place to start. When you’re analyzing your existing staff, check whether the demographic makeup is adhering to these guidelines. If it doesn’t, you will need to make adjustments to your hiring practices to get back on track.

Monitoring the adverse impact in your business needs to be an ongoing process. The more time and energy you dedicate to this, the better it will be for your company overall.

For that reason, you should constantly assess your processes and uniform guidelines to see whether they are enforcing federal laws and reducing any discriminatory effect. If there are any holes in your hiring system, you can plug them, minimize adverse impact, and work towards a more inclusive system. 

Final thoughts

Addressing and measuring adverse impact should be an objective that organizations of all shapes and sizes strive toward. In order to minimize adverse impact, you will need to do more than simply recognize that adverse impact exist it has. You will need to make a concerted, ongoing effort to identify it and confront it. 

Fortunately, there are many strategies at your disposal, such as conducting an objective job analysis, using structured employment interviews, and inspecting your pre-employment

assessments. Once you start incorporating these strategies into your hiring process, you’ll soon find that they simply become another means of hiring more qualified candidates, and reducing employee engagement, and unintentional and intentional discrimination.

Monica Mizzi

Monica Mizzi

Monica Mizzi is a digital marketer and freelance writer who works with businesses to boost their online visibility and craft compelling content. She's worked with the likes of Google and Vimeo, and her portfolio includes pieces published in The Guardian, Huffpost, and inflight magazines.

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