Definition of Business Necessity
Business necessity is a legal concept that can justify an employment decision that disproportionately impacts a particular group but is based on business needs.
What is Business Necessity?
Business necessity is a legal concept. It can justify an employer’s decision to use employment criteria that disproportionately affect a particular group because the requirements are based on legitimate business needs.
The Equal Employment Opportunity Commission (EEOC) generally prohibits employment criteria that cause disproportional impact. These decisions can be permitted when proven to be consistent with business necessity.
Ultimately, business necessity is meant to protect organizations from being liable for discrimination in employment decisions based on valid business requirements.
Examples of business necessity
For an employment decision to qualify for a business necessity defense, it must be proven that it was based on a valid business need and not on bias or discrimination.
Below are a few examples of when a business necessity might be applicable:
- Education or licensure: An employer might require a certain level of education or certification for a specific position. If the certification or license is absolutely necessary for the job, such as for an electrician, then the employer may be able to justify the decision as a business necessity.
- Experience: If a job requires a certain level of hands-on experience or expertise, an employer may argue a business necessity for requiring that level of experience when recruiting or promoting.
- Physical ability: In specific industries, such as construction, shipping/package deliveries, or athletics, legitimate physical abilities may be necessary for the job.
- Language and culture: In some cases, an employer may require that employees who are fluent in a specific language or have knowledge of a particular culture fill particular positions. Language or cultural knowledge deemed to be essential for business success permits business necessity to come into play.
Why is business necessity important to HR leaders?
Business necessity is a critical consideration in HR management. It ensures HR professionals consider legitimate business needs when making employment decisions.
Let’s look at some critical HR decisions where business necessity often comes into play:
- Recruitment and selection: Establishing a recruitment process that is based on fair hiring criteria and legally valid business needs will help to ensure the company’s success over the long term.
- Performance management: Some performance expectations can be so high that certain groups of employees cannot meet them. HR leaders must establish reasonable and achievable standards that reflect legitimate business needs.
- Compensation plans: HR managers may need to vary compensation levels depending on experience, skill level, or other legitimate factors related to each employee’s abilities.
- Training and development: While prioritizing some employees over others in learning and development programs is not always ideal, it is sometimes necessary to ensure business success.
- Retrenchment: Financial necessity may lead to downsizing or restructuring a workforce. Decisions can be justified as a business necessity, provided the process is fair and equitable.
How can business necessity help HR leaders remain compliant?
All employers must comply with relevant laws and regulations when it comes to personnel decisions. It is discriminatory and unlawful for companies to make employment decisions based on age, sex, race, or disability. Doing so would mean relying on assumptions and stereotypes based on unalterable characteristics.
Employers who make decisions based on invalid or unverifiable business needs are likely to be guilty of discrimination.
The concept of business necessity is a “thin-line” exemption for employment selections. Employers who make decisions based on invalid or unverifiable business needs are likely to be guilty of discrimination.
So, as an HR leader, you must be able to provide evidence that an employment decision with disparate impact has a legitimate business need. Otherwise, you could face legal action for discriminating against a particular group.
Below are 4 notable factors to consider when assessing your decisions for compliance based on business necessity:
- Relationship to business success: Business necessity will prevail if a solid, factual relationship exists between your decision and your organization’s success.
- Alternatives: The decision must not have a viable alternative that could be less disproportionate.
- Industry standards: Your decision must align with accepted industry practices. For instance, your minimum age requirement for a position must reflect the accepted industry standard.
- Neutrality: A neutral party must be able to deduce that the employment decision is critical to business success
By understanding the concept of business necessity, you can make decisions that best support your business while remaining compliant with anti-discrimination laws and regulations.
What is the history of business necessity?
The concept of business necessity has been around for centuries. Still, it was officially recognized in U.S. labor law in the Civil Rights Act of 1964.
Title VII of the Civil Rights Act prohibited employers from discriminating against individuals because of race, color, religion, sex, or national origin when making employment decisions. The act also included a provision that allowed employers to justify their decisions if they could show a “business necessity” was involved in the decision-making process.
Later court cases further clarified the business necessity concept. Most significant was the 1971 case of Robinson v. Lorillard Corporation, where a collective bargaining agreement was alleged to create a discriminatory barrier to the career advancement of minority employees.
After the court determined that the policy indeed had a disparate impact on minority employees, it devised a 3-part test. Lorillard’s case was assessed against the test to decide whether they could use business necessity as a valid defense.
This test demanded that:
- The business need behind a decision must be sufficiently compelling to override any disparate impact.
- The decision must effectively fulfill the intended business need.
- No acceptable alternative must exist that could fulfill the tabled business need in equal or better measure with a less disparate impact.
Applying this test rendered Lorillard’s policy as violative of Title VII. The court also noted that for an employer to successfully claim business necessity, their burden of proof must be significant.
The Robinson v. Lorillard Corporation case set an important precedent as the 3-part test became the standard for demonstrating business necessity in U.S. labor law. This test has been applied to assess various issues, ranging from job qualifications to pension plans.
Other terms similar to business necessity that can assist you
Summary of business necessity
Business necessity is a legal concept that requires employers to demonstrate a legitimate business need when making decisions that may negatively impact individuals within certain demographic groups. This concept has roots in U.S. labor law. It was first recognized in the Civil Rights Act of 1964.
Business necessity is a critical consideration in HR because it ensures HR leaders consider legitimate business needs when making employment decisions, particularly those disparate impacts. By understanding and abiding by business necessity, employers can make fair and equitable choices that best support and protect their businesses.
Go through the Zenefits HR glossary for more definitions of the most common terms in the HR world
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