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Adverse impact in hiring: How to measure and minimize it

Karen Henke
Editor of the Shortlist
January 26, 2024

Adverse impact measures the effect of a discriminatory employment or hiring practice—whether it’s intentional or not.

The US Equal Employment Opportunity Commission (EEOC) defines adverse impact as a lower selection rate of one racial, sex, or ethnic group in various employment decisions, including hiring. The lower selection rate negatively impacts members of a specific group as they receive fewer career opportunities.

As such, measuring and minimizing adverse impact is important for your diversity, equity, inclusion, and belonging (DEIB) strategy. It will also help you comply with laws and avoid damage to your brand or reputation.

Why employers measure adverse impact

In the US, Title VII of the Civil Rights Act of 1964 protects employees from practices that discriminate on the basis of sex, race, color, religion, and national origin. If your hiring or employment practices have an adverse impact, you could be in violation of Title VII and have to pay a hefty fine. 

In a recent case against a Minnesota trucking company, the federal court found that it violated Title VII by requiring a strength aptitude test to screen applicants. The test wasn’t necessary for job performance and had a discriminatory effect on women.

The trucking company had to pay $500,000 to the women who were impacted by the strength test, in addition to making them job offers. It's also no longer allowed to use tests that measure physical ability without demonstrating why they’re needed for a job.

Note that adverse impact applies to terminations and layoffs, too. In 2020, an EEOC investigation found that layoffs at IBM disproportionately impacted older workers.

In addition to violating employment laws, adverse impact will cause companies to lose out on valuable employees. It could make the workforce less diverse, which has all sorts of ramifications. For one, diverse companies are more likely to see better financial performance compared to their competitors.

But minimizing adverse impact benefits more than just earnings reports. Diverse teams gain multiple perspectives, which supports creativity and decision-making in the workplace. The millennial and Gen Z cohort also avoids employers who don’t have a diverse workforce, making diversity a key aspect of attracting highly qualified talent. 

How to measure adverse impact

Adverse impact is measured using the four-fifths (4/5ths) rule. In simple terms, the 4/5ths rule states that adverse impact is present if one group has a selection rate of less than 80% (or 4/5ths) when compared to the group with the highest selection rate.

“The agencies have adopted a rule of thumb under which they will generally consider a selection rate for any race, sex, or ethnic group which is less than four-fifths (4/5ths) or eighty percent (80%) of the selection rate for the group with the highest selection rate as a substantially different rate of selection.” – US Equal Employment Opportunity Commission (EEOC)

Here’s an example of adverse impact using a trucking company that’s hiring 30 new drivers.

The company receives job applications from 300 men and 180 women. It hires 20 male and 10 female drivers, which means that it hired 6.6% of male and 5.5% of female applicants. In this case, male applicants have the highest selection rate.

To check for adverse impact, divide the selection rate for women by the rate for men and multiply by 100 to get a percentage:

5.5 / 6.6 = 0.833

0.833 x 100 = 83.3%

Compared to the group with the highest selection rate (men), women had a selection rate of 83.3%—more than 80% or 4/5ths. There’s no evidence of adverse impact.

Tips to prevent adverse impact

Preventing adverse impact requires a multi-pronged approach that addresses selection procedures and uses technology for advanced analytics.

Track your selection rate

Monitoring your selection rate will help you proactively address any issues that lead to certain groups being hired at a lower rate than others.

Note that the EEOC considers the "total selection process" when evaluating how selection procedures impact applicants. So, if your hiring process consists of an application, test, and interviews, their combined effect would be used to measure adverse impact.

However, it’s still helpful to understand how your candidates move through the individual stages. If you have many Hispanic applicants, but only a small percentage make it to the final interview, you should investigate.

A diversity recruiting tool helps you track this data at every stage of the funnel so you can easily spot where you lose underrepresented candidates.

Evaluate your pre-employment assessments

Any pre-employment assessments you use should be directly linked to the performance of the job you’re hiring for. 

“Employers have to demonstrate with valid evidence that the tests they use can actually predict the outcomes they are looking for.” – Gregory Gochanour, EEOC attorney

Additionally, you should use scientifically validated tests during the hiring process. Validated tests undergo a process where experts assess whether a test is accurate in skills analysis.

If you’re involved in a lawsuit, these tests are also more legally defensible since there is evidence to back up the validity of the test.

Go for structured interviews

In a structured interview process, every interview has a clear purpose, and each candidate gets asked the same questions. 

This limits unconscious bias and ensures the interviewer’s mood doesn’t affect the course of the interview. It also prevents the interviewer’s impression of the candidate’s qualities, such as level of confidence or charm, from impacting the questions they get asked. Structured interviews also avoid questions that interviewers aren’t allowed to ask, such as inquiring about a candidate’s national origin.

Using a structured interview will also help you make better hiring decisions. It ensures all interviewers get the information they need to hire the right candidate and eliminate gut feelings and personal preferences from the process.

Make sure to document the outcome of each interview (and every other selection procedure) in case of an investigation.

Use technology to reduce bias

There are various recruiting tools that can help you find more diverse candidates and limit bias at different stages of hiring. Some of these tools also use AI to improve productivity and simplify the analysis of large datasets.

For example, augmented writing tools help recruiters write inclusive job descriptions. They recommend removing certain words or phrases that could discourage some groups from applying. A phrase like “native English speaker” could alienate fluent speakers with a different native language.

AI talent acquisition platforms like Findem can also assist you in creating a balanced talent pool. . The platform achieves this by automatically prioritizing underrepresented candidates who fit your diversity criteria.

Additionally, it provides real-time diversity analytics to help you build a winning diversity strategy and set the right goals. Most importantly, it mitigates bias using a probabilistic model which measures the likelihood of diversity in the entire talent pool, instead of counting candidate profiles. 

Note that the EEOC has published new guidance for the use of AI in employment procedures. It specifically calls attention to software that uses “algorithmic decision-making,” such as resume scanners that prioritize certain applicants based on keywords. When AI is used responsibly, it doesn’t replace human decision-makers but assists them by automating various tasks.

Audit the job selection criteria

To avoid adverse impact, you should only require job-related skills, i.e., skills that are necessary to perform the job. For example, there’s no need to require a graduate degree from your applicants unless it’s essential to the role.

Although some job criteria could seem harmless, you could unintentionally discriminate against protected groups. For example, requiring 5-10 years of experience would exclude many older jobseekers.

If you struggle with setting the right requirements, you can use a talent insights solution. It provides an overview of the labor market, the geographical distribution of talent, and talent pool analytics. 

Real-time analytics support more productive intake meetings with hiring managers. They’ll be able to see how adding or removing a candidate attribute expands or narrows the talent pool, which will help them set realistic and fair job requirements.

Learn about DEIB from talent leaders

In Findem’s survey of talent leaders, roughly 6 out of 10 named diversity, equity, and inclusion as the top trend that will shape recruiting over the coming years.

Adverse impact analysis is an essential component of eliminating discriminatory practices and supporting DEIB. But it takes much more to make DEIB a part of your company culture.

Findem’s Diversity Recruiting solution helps you level up your diversity strategy in several ways, starting with real-time talent pool analytics. These insights enable you to adjust the job requirements and see how they affect the diversity of the talent pool, which allows you to mitigate adverse impact.

With talent funnel analytics, you’re able to track when underrepresented candidates drop out of the funnel. Then, the entire team can work to address any harmful hiring practices that could be driving away candidates.

Findem also automatically prioritizes qualified candidates who fit your diversity requirements when generating talent pools.

With the help of these features, you can effortlessly move the needle on your diversity goals and meaningfully incorporate DEIB into your hiring process.