What is Adverse Impact? [Equal Opportunity Employment Guide]

Adverse impact is when a certain protected class of people are discriminated against due to biased and unfair hiring practices. As someone who has been involved in the business of employing people for years, I’ve seen it happen firsthand. 

Understanding adverse impact can help you create equal opportunities for everyone while also ensuring you stay out of legal trouble. 

What is Adverse Impact? 

Adverse impact is the negative effect of biased hiring practices in the United States. As an HR manager or business owner, you have a legal obligation to hire the most qualified person for the job but this includes accepting applications and interviews from candidates regardless of the following factors: 

  • Race
  • Sex
  • Religion
  • Age
  • Disability status
  • Veteran status
  • Sexual orientation 

People who fit the description of the above would be considered a “protected class” and in many cases, you’re required to hire a certain percentage of people who fall into these categories. 

Even if you do not intend to discriminate against someone, many businesses can find themselves in legal turmoil through adverse impact and the 4/5 rule. 

Owners and HR managers must understand that while their business may appear to be an equal opportunity employer, there still could be issues with discrimination from within. Upon closer examination, you might realize that discriminatory practices are a regular occurance in your business and it’s up to you to do something about it before a small problem becomes a very large one. 

How to Calculate Adverse Impact: The Four Fifths Rule

The Four Fifths rule is a calculation used to determine whether or not an employer is actually providing “equal opportunity” to everyone. An interview or job screening is considered not equal if the selection rate for the protected classes is less than 80 percent. 

What does that mean exactly?

What it means is that employers are required to make up at least 80 percent of their workforce from the various people mentioned above. This can include women, people of color, those who follow a certain religion, and veterans. 

It does not mean that 80 percent of your workforce needs to be made up of those people. It simply means that if you’re interviewing four people who identify as being “muslim,” and one who doesn’t. If you do not hire at least one of the muslim people, it could raise a red flag. 

Examples of Adverse Impact 

Here is an adverse impact example. Let’s say you’re trying to fill 25 positions and you receive 1,500 applications. 

500 of these are men and 1,000 are women. You end up hiring 10 men and 15 women. That would mean that you selected 2.0 percent of the women and 1.5 percent of the men. Even though you hired more women, the actual percentage rate of hiring women to men is 75 percent since double the amount of women applied and were interviewed. 

Another example is setting rules and guidelines that isolate certain people. Here are some examples:

“Job applicants must have between 3-5 years of experience” – This likely restricts those who are older from applying because they could have 10-15 years of experience. 

“Job applicants must have hair that does not exceed 6 inches in length” – This clearly deters women from applying. 

“Background checks are subject to the individual” – This isolates certain social classes. You need to screen everyone equally. 

Why Worry About Adverse Impact?

This is a great question, why do we even have to think about this? Shouldn’t we simply hire the most qualified person for the job? Why do we have to worry about their religion or sex? 

The goal is to make the hiring process fair for everyone. Everyone deserves an equal shot at the American Dream. While we’re all prone to biases, it’s important that they’re left out of the workplace. Keep in mind how unfair hiring and even firing practices can even impact the employees you have currently. 

Final Thoughts

Adverse impact is something that happens in a lot of businesses but we need to continue to move forward with more effective and fair hiring practices. 

If you’re relocating employees or tasked with hiring new team members, it’s crucial that you understand the importance of equal opportunity employment and inclusion. Having a diverse workforce can even raise the morale of your current employees while improving the overall appearance of your business in the community. 

For help with relocating employees click here to schedule a free consultation with ARC Relocation today.