3 Things Employers Should Know About Disparate Impact

Disparate Impact

Corporate America is facing a reckoning over its employment practices. The impact of years of systemic discrimination is now being questioned as customers demand organizations hold themselves to a higher standard. With that, HR departments and leaders need to familiarize themselves with where disparate impact may exist and how it plays out in their organizations.

Equality and hiring

In the United States, equality in employment and hiring practices is protected under Title VII of the 1964 Civil Rights Act. This prohibits discrimination of individuals in employment practices based on race, color, religion, sex, or national origin. It is applicable to companies that have 15 employees or more for each working day of 20 or more calendar weeks in a year.

Legal rulings and precedence can make it difficult to discern whether an organization’s HR practices are in fact discriminatory. This article will discuss some of the less obvious areas where discrimination surfaces. However, all content in the article is for discussion purposes only. Organizations are should seek professional advice from employment lawyers.

What is disparate impact?

Disparate impact occurs when an organization’s employment practices result in members of a protected class being treated less favorably, even if the intention was not discriminatory. This means that certain rules, processes, or practices seem neutral on the surface, however they disproportionately impact protected individuals.

For example, using a credit score check for hiring can disproportionately impact minorities of a certain color or race. Due to socioeconomic issues, minorities tend to have lower credit score ratings. By imposing a check for credit score, the organization is unintentionally discriminating against these groups as they are less likely than other groups to have a good credit score.

Members of protected class typically include race, color, religion, national origin, and sex. In some legislation, disability is also part of the protected class.

What is disparate treatment?

Disparate treatment is the intentional discrimination of a protected group. For example, an organization may apply a test that only a certain group of applicants can pass. Or, in a more intentional manner, test individuals from a protected group and not others (e.g. asking women to take an IQ test while men do not).

Disparate impact and disparate treatment are interchangeably with adverse impact and adverse treatment.

Brief history of disparate impact in the United States

The term disparate impact first appeared in the U.S. Supreme Court case of Griggs vs. Duke Power Co., 401 U.S. 424, 431-2 (1971). In this case, black employees argued that Duke Power Co.’s promotion practices were discriminatory against black employees.

Duke Power Co.’s labor department employed both black and white employees. The highest paying position in the labor department was still less than the lowest paying position in other departments. Employees who wanted to earn more had to transfer to other departments. Switching out of the labor department was considered a promotion.

Duke Power Co.’s promotion policy that required a high school diploma for any position out of the Labor department. Additionally, after the Civil Rights Act of 1964 took effect, the company adopted two more tests, a mechanical aptitude test and an IQ test.

These policies that Duke Power put in place disproportionately affected black employees. Due to socioeconomic factors, black employees were less likely to hold a high school diploma. As a result, they were likely to pass the aptitude and IQ test. This prevented them from being able to switch to another department.

The Supreme Court ruled that such tests and practices that do not provide any reasonable measure of job performance as discriminatory and are prohibited.

Why should organizations care about disparate impact?

Managers and employers should familiarize themselves with the concept of disparate impact for many reasons. First, understanding disparate impact will help organizations make decisions to mitigate against a lawsuit. HR departments can set up programs to analyze and evaluate the fairness of the company’s overall employment procedures. And managers can take steps to build fairness into their selection during hiring, promotions, and reviews.

Next, having managers understand the disparate impact theory can make them more empathetic leaders. This can enable them to connect better with their team members and ultimately foster a more productive work culture.

What do HR and Managers need to know about disparate impact?

While understanding disparate impact is helpful in mitigating liability and cultivating a better working environment, there are a few key things that every employer should know.

1. Ensure any tests or criteria for hiring actually relate to the job role

While seemingly obvious, this is a step that many HR individuals and Managers may not apply enough rigor to. HR team members should regularly vet whether tests or criteria used for hiring, promoting, and evaluating are in fact related to the job role.

2. Do not “hire by numbers”

One way that organizations may try to mitigate liability is by hiring to fulfill some metric or standard. For example, in the US, there is an old 80% rule, which was codified into the Uniform Guidelines on Employee Selection Procedures, which organizations used to try to hire by. The 80% was established loosely as a measure for whether adverse impact was present. As a result, companies would try to hire so that the rate of hiring protected groups met the 80% mark.

Unfortunately, this can become problematic and create unintended behaviors. This is what happened with Ricci v. DeStefano. The New Haven Fire Department decided against promoting the nine firefighters who had qualified for a promotion because in doing so would have impacted the promotion rates of the ethnic make up. Out of fear of discrimination case from minorities, the organization decided to hire no one.

3. Unintentionality is not a defense

With disparate impact, unintentionality is not a defense. The only available defense is business necessity and the onus is on the organization to demonstrate this. Therefore, HR teams and Managers need to take an active role in ensuring that the organizations’ practices are not adversely impacting a protected group. Managers should familiarize themselves with proper practice and go as far as to learn and understand the causes of systemic discrimination that may impact potential and current employees.

Key takeaways

  • Disparate impact occurs when an organization’s HR processes and procedures seem neutral but unintentionally discriminate against protected groups.
  • Ensure that any tests that potential or current employees take for hiring or promoting are relevant to job role and performance.
  • Understanding what systemic discrimination is and how disparate impact may surface in organization is the best way for HR and leaders to proactively mitigate lawsuits while creating an inclusive environment.

Related Readings

Professional Leadership Institute (PLI) is an educational website providing professionals from all types of businesses with practical education in human resources and leadership. To keep evolving your leadership toolkit, additional PLI resources below will be useful:


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