Understanding Adverse Impact

Take a deeper look at adverse impact.

In most countries, companies are obligated by law to make talent decisions in a fair and unbiased manner. This includes decisions you make using employment assessments. Assessments can increase fairness by providing objective data that can mitigate sources of subjective bias. However, assessment tools are not perfect and some have the potential to lead to score differences for people of different protected groups (e.g., gender, ethnicity, age). When scoring differences lead to a discriminatory effect, then adverse impact is occurring. 

This page provides a high-level explanation of adverse impact, the legal implications, and how companies like yours can work to reduce legal risk. For further information or an evaluation of your own talent decision-making approach, we strongly recommend meeting with your own employment attorney.

What are the Uniform Guidelines?

The Uniform Guidelines represent the federal position on preventing discrimination in the workplace; however, they are not legislation. Although they haven’t been updated since 1978, they remain the key reference and technical guidelines for many judicial decisions and litigation concerning employment issues in the U.S. The Uniform Guidelines set the standards for the appropriate use of employment testing including:

  • The definition of discrimination in testing.
  • Appropriate means for validating selection procedures, which may be discriminatory.
  • Methods for establishing or implementing cut-off scores.
  • Documentation guidelines.
  • The requirements necessary for employers to legally defend employment decisions based on selection procedures or the overall selection process.

The Uniform Guidelines define selection procedures to include any measure, combination of measures, or procedures used as a basis for any employment decision—this includes written exams, performance tests, interviews, training programs, work samples, physical requirements, etc.

It is crucial to call out one last important fact: the Uniform Guidelines do not lay out any standards or professional guidelines for test construction itself. Many people believe that tests themselves are “EEOC Compliant,” but the Uniform Guidelines are specific to your use of an assessment and the impact it has on your hiring decisions, not how the assessments are built or designed.

What is Adverse Impact?

The Uniform Guidelines are intended to stop disparate or adverse impact. Unlike disparate treatment, adverse impact does not have to be intentional. It occurs when an employment practice appears neutral on the surface but nevertheless leads to unjustified adverse impact on members of a protected demographic group. 

The Uniform Guidelines provide a rule of thumb known as the 4/5ths or 80 percent rule as a practical way to determine if a process is resulting in adverse impact. The 4/5ths rule involves comparing the selection rate (or passing rate) for the group with the highest selection rate (focal group) with the selection rates of the other groups (subgroups). A selection procedure violates the 4/5ths rule if the selection rate for the subgroup(s) is less than 4/5ths of the selection rate for the focal group. When it is less than 4/5ths, this is considered evidence of adverse impact. In court cases, however, more advanced statistical techniques are frequently used and indeed, requested, for evaluating the presence of adverse impact. 

To illustrate, imagine a company using a physical abilities test to make hiring decisions. At this company, 100 men apply, and 80 of them pass the physical abilities test and are hired. Their selection rate is 80%. 100 women candidates also take the assessment, but only 40 pass the test and get hired. The women’s selection rate is 40%. By dividing the 40% into the 80%, we arrive at the selection ratio: 50%. In other words, for every woman who passes the physical abilities test, two men pass. This violates the 4/5ths rule and indicates that the way this company uses the physical abilities test leads to adverse impact in their hiring decision.

If a hiring procedure results in adverse impact, you can eliminate the procedure, thus eliminating the adverse impact.It is important for your company to monitor the selection rates or pass rates of applicants across all steps of the employment process and over time.If adverse impact is occurring and the employer wishes to continue to use the procedure, you must demonstrate the “business necessity” of the selection procedure.In the example above, the company could continue using the physical abilities test if they could demonstrate that people who do not pass the test are not physically able to do the job. In other words, you must demonstrate a clear relationship between the selection procedure and performance on the job. This process is known as validation.

How do I determine if a skill or ability is job-critical?

Adverse impact is not, in and of itself, illegal. You can use a practice or policy that causes adverse impact if you can show that it has a demonstrable relationship to the requirements of the job. This is the “business necessity” defense. 

The Uniform Guidelines cite three types of validity that can be established for an assessment: content validity, criterion validity, and construct validity. They also document the technical standards for evaluating the strength of the validity.  

There are many other technical details covered in the Uniform Guidelines. To learn more, we recommend you read the Uniform Guidelines and speak to an employment attorney or other expert in this field.

Why use an assessment that leads to adverse impact?

Any hiring procedure can result in adverse impact–this includes resume screens, phone screens, and interviews. Remember, the key question is whether what you are measuring is job-related and a business necessity.

How can I protect my business?

A thoughtful implementation of selection assessments typically reduces legal risk because it puts more objectivity into the hiring system. At the same time, it is important to be aware of the potential risks associated with any selection tool. Here is some guidance to consider:

References

  • Equal Employment Opportunity Commission, U.S. (1978). Uniform guidelines on employment selection procedures (EEOC Publication No. 43 FR 38295, 38312, Aug. 25, 1978). Washington, DC: Government Publishing Office.
  • Griggs v. Duke Power, 401 U.S. 424 (1971).
  • Schmidt, F.L., Oh, I.S., & Shaffer, J.A. (2016). The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 100 years of research findings. Fox School of Business: Philadelphia, PA.
  • Williams, K.Z., Shaffer, M.M., Ellis, L.E. (2013). Legal risk in selection: An analysis of processes and tools. Journal of Business and Psychology, 28, 401-410.
Copy link