Definition of Adverse Impact

Adverse impact occurs when employment decisions disadvantage workers of a specific race, ethnicity, gender, religious affiliation, or another similar group.

What is adverse impact?

The Equal Employment Opportunity Commission (EEOC) defines adverse impact as “a substantiality different rate of selection” regarding employment practices. This highlights that adverse impact is often a systemic, process-oriented problem that disproportionately affects one group.

That said, adverse impact is considered unintentional, often due to unconscious bias. If prejudice or discrimination is committed on purpose, it is called disparate treatment or disparate impact.

Some examples of adverse impact include:

• Asking questions based on candidate ethnicity, gender, or another identifier
• Not hiring an employee because of their credit score
• Strict uniforms that fail to consider religious or ethnic considerations
• Using gender-specific pronouns in advertisements

Typical employment practices that are at risk of adverse impact are:

• Hiring
• Job performance reviews
• Professional development
• Promotions
• Terminations
• Training
• Transfers

Why is adverse impact important to your business?

For HR leaders and management, adverse impact poses a host of problems. Some of the negative effects include:

• High turnover
• Lack of diverse thought
• Lawsuits
• Poor talent recruitment
• Toxic attitudes or work environments

Even though adverse action is often unintentional, it can cause friction in the workplace. Employees and candidates experiencing these behaviors may feel discriminated against. Meanwhile, other workers may feel more open to using microaggressions and further alienating their coworkers.

Furthermore, as an organization experiences high turnover among its diverse workforce, it runs the risk of creating a communal group-think environment. This inhibits innovation and collaboration and can further foster a toxic work environment.

Lawsuits can further cause problems for a company, tarnishing its reputation and costing thousands in legal fees.

There are steps you can take to reduce the likelihood of adverse impact:

• Analyze job descriptions and remove biased language
• Avoid strict dress codes
• Document everything
• Record employee interviews
• Regularly ask for employee feedback (and act on it)
• Standardize HR processes
• Use a diverse group of interviewers on interview panels
• Use job-specific interview questions

Affirmative Action

Another way organizations attempt to improve their selection rate for various identity groups is to actively pursue affirmative action policies. Affirmative action means that an organization is intentionally working to reverse its unconscious bias and hire candidates from different backgrounds. This employment practice is often part of a diversity initiative and differs from one company to the next.

Some examples of promoting diversity include:

• Developing hiring and promotion goals to include more job applicants from specific backgrounds
• Identity-specific mentorship programs
• Inclusive benefits, such as maternity and paternity leave or remote work
• Using inclusive language across company materials

Affirmative action intends to correct the negative impact of unconscious bias and historical inequality. When making an employment decision, it’s essential to review your current adverse impact analyses and ensure that your new selection procedure will be inclusive of all minority applicants.

What is the history of adverse impact?

The history of adverse impact begins with the passing of the U.S. Civil Rights Act, Title VII, in 1964. At this point, employment discrimination is illegal. However, the first mention of the term doesn’t arrive until 1966, with the EEOC’s Guidelines on Employment Testing Procedures.

In 1976, the Department of Justice (DOJ) added adverse impact to employee selection procedures. Two years later, multiple federal offices defined adverse impact in their hiring guidelines.

The term was expanded when the EEOC guidelines were revised in 1970 and further developed by the Department of Labor’s (DOL) 1971 Employee Testing and Other Selection Procedures.

In 1976, the Department of Justice (DOJ) added adverse impact to employee selection procedures. Two years later, multiple federal offices defined adverse impact in their hiring guidelines.

At this point, we see widespread use of the four-fifths rule, a type of adverse impact analysis. So, when is there no case for adverse impact? If the acceptance rate of a particular group is greater than or equal to 80%, or 4/5s, of the acceptance rate of another group.

Furthermore, the difference in acceptances must be statistically at the .05 level or more. Both adverse impact analyses should show discrepancies in your employee selection procedure to demonstrate adverse impact.

Other terms similar to adverse impact that can help you

• Discrimination
• DEI (Diversity, Equity, and Inclusion)
• Disparate impact
• EEOC (Equal Employment Opportunity Commission)
• Unconscious bias

Summary of the definition of adverse impact

In short, adverse impact translates into unintended discrimination in employment decisions. Human resources and small business owners can identify and reduce adverse impact in their organizations by carefully evaluating and standardizing policies with an inclusive mindset.

Company management and HR can foster a healthier, happier, and more productive workforce by limiting adverse impact discriminatory effects.

Similar glossary definitions you must know

• Department of Labor (DOL) – The DOL, and the EEOC, create and oversee critical employment practices. There are also many other compliance considerations beyond adverse impact. Keeping up-to-date with current regulations can help businesses avoid common pitfalls.
• Boomerang Employees – A boomerang employee leaves a company and returns — sometimes multiple times. Adverse impact may increase the number of boomerang employees, either because quality candidates avoid the organization or because a member of an affected group may try multiple times to “make it work” before burning out.
• California Labor Laws – California was one of the first states to include local adverse impact laws. The state has an extensive history of specific labor laws. If your business operates in California, it’s essential to ensure that you remain compliant with local regulations.

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