By: Pranav Ramesh

Keep Your Hiring Fair and Legal

Even with all the help from virtual job boards, recruiters, and social media, there’s still a lot of factors that make hiring a delicate art in 2022. Not only do companies have to spend significant resources to recruit and retain diverse talent, but they also have to make sure that their hiring processes are fair and legal.  

That’s where adverse impact comes in. Is your company where it needs to be regarding this complicated legal issue? Read on for a better understanding of adverse impact, how it negatively affects your company’s workforce, and ways you can avoid adverse impact with the help of the latest recruiting technology.    

What is adverse impact?

Among all the hiring practices Human Resource professionals must make sure they follow; adverse impact is a critical one. Adverse impact is defined as the negative effect an unfair and biased selection procedure has on a protected class. It occurs most often when a protected group of applicants is discriminated against during the hiring process, but can also occur during promotion decisions, training and development, transfers, layoffs, and even during performance appraisals.  

Adverse impact deals with people in protected employment classes. In the U.S., these include race, sex, age (40 and over), religion, disability status, and veteran status. Adverse impact is also known as “disparate impact,” a legal term conceived in an important U.S. Supreme Court ruling about the issue. See Griggs v. Duke Power Co., 401 U.S. 424, 431-2 (1971). 


How do you avoid adverse impact?

A good place to start is the Employment Tests and Selection Procedures which are outlined by the U.S. Equal Employment Opportunity Commission. One of the simplest methods developed to assess disparate impact is to use the four-fifths rule. This rule states that if the hiring rate for a certain group of applicants is less than 80 percent of that of the group with the highest hiring rate, then there is adverse impact on that particular group. 


A simple example of adverse impact against a protected class could look something like this:  

A global e-commerce company is hiring for 25 open positions in its warehouse. 

500 men and 1000 women apply 

Of those applicants, 10 men and 15 women are hired 

In this example, the hiring rate for men was 2% (10 hires divided by 500 applicants), while the hiring rate for women was 1.5%  (15 hires divided by 1000 applicants).  

Dividing 1.5 by 2 [dividing the lowest selection rate (1.5) by the higher (2)] results in a 75% result: below the 80% cutoff required by the four-fifths rule. 

Despite the fact that more women were hired overall, they were adversely impacted. 


Can adverse impact affect your hiring?

 Keep in mind that, when hiring, adverse impact can be measured across the entire hiring process (percent of applicants who are hired) or individually by each step that screens out candidates (resume screen, pre-hire assessment, interview).  

This is why it’s critical that both recruiters and HR staff understand when adverse impact is happening and how to correct it before a lawsuit is brought. Updating and correcting old and outdated HR policies, looking specifically for some of these issues, can help correct the problem of adverse impact before it further affects hiring.  


Legal considerations

While any hiring practices that are intentionally discriminatory are clearly illegal, adverse impact that is unintentional may not be considered illegal. An employer has the right to attempt to prove that while the selection process may have unintentionally caused disparate impact against a protected group, the practice is “job-related for the position.” To be allowed to continue that particular practice, the company must demonstrate a strong relationship between that practice and the job duties. 

More rigorous methods of determining adverse impact exist for companies to utilize, such as the z-test and Fisher’s Exact test, which help to better measure whether the impact seen is statistically significant. Again, companies should use these tests as part of their yearly evaluation of their hiring procedures to catch whether adverse hiring may be present in HR hiring policies. 

Employers should be highly encouraged to take every measure to ensure the hiring process is fair and legal. Most employment attorneys will strongly encourage their clients to avoid any processes that could potentially harbor adverse impact. 


Challenges with diversity in hiring

A second negative consequence associated with adverse impact is that these types of HR practices make diversity in a company’s workforce much more difficult to achieve.  

Evidence has repeatedly shown that teams with diverse representation across all protected statuses lean heavier on empirical data, create more in revenues, are more innovative, and have higher performance overall. And it is obvious that making hiring more fair is also the right thing for a company to do. 


How technology helps companies avoid adverse impact


  • Utilize the Technical Advisory Committee Report on Best Practices in Adverse Impact Analyses published by the Center for Corporate Equality. This report has long been used as a field manual for HR professionals to help conduct adverse impact analyses. 
  • Implement a recruitment management software platform for talent acquisition. Software like Gabi has AI powered talent ranking, so recruiters and hiring managers alike are looking at top candidates because of their resume score- not because of their name, gender, or any other demographic trait.  
  • Gabi also makes it possible for recruiters to schedule and review technical assessments within its platform and share those results within Gabi. This means applicants aren’t forced to show up to an in-person skills assessment and is again likely to widen the hiring pool, irrespective of someone’s mobility capabilities or physical location.  



Understanding adverse impact and the intricacies involved with protected classes of applicants will help your HR staff keep your hiring processes fair- and legal.  

Realizing the potential for legal issues, and what a lack of diverse talent can cost a company, employers are wise to start ensuring that hiring policies that enable adverse impact have no place in their businesses.  

Implementing a powerful, AI based recruitment software like Gabi will help naturally avoid adverse impact while simultaneously helping to increase diversity in hiring.