Adverse Impact: The Employment Discrimination Every Employer Should Know About
November 03, 2015
By Yessenia Moreno, C’16
The Ban the Box Campaign, geared toward eradicating employment discrimination of individuals with conviction histories, was founded in 2004. The campaign advises employers from the public and private sectors to make hiring decisions based on job qualifications and experience rather than past convictions—an often disqualifying factor for employment. Though this nationwide campaign is relatively new, employment discrimination law is not.
Title VII of the Civil Rights Act of 1964 prohibits employment discrimination on the basis of race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. Employment discrimination under this statute generally manifests itself in one of two ways: disparate treatment or adverse impact. Disparate treatment can be as obvious as an employer refusing to hire African Americans or people with disabilities. However, because the discrimination occurs as a result of policies or practices, adverse impact is thus not as easily detectable. According to theUniform Guidelines for Employment Selection Procedures (UGESP), “adverse impact is a substantially different rate of selection in hiring, promotion, or other employment decision which works to the disadvantage of members of a race, sex, or ethnic group.” Examples of policies that may cause adverse impact are cognitive ability tests or criminal background checks. Of course, not all such tests produce adverse impact results; but when they do, they can be disastrous.
Griggs et al. v. Duke Power Co. is a landmark Supreme Court case that set the legal precedent for adverse impact cases in violation of Title VII. The case involved a class action suit brought by African American employees of the power company Duke Power Co. alleging their employer violated the Civil Rights Act of 1964 by requiring a high school diploma and a satisfactory rating on an intelligence test for certain jobs that had historically been reserved for Whites. The Court ruled in favor of the employees on the basis that policies, practices, or tests are prohibited as a condition of employment if they (I) are not significantly related to successful job performance, (II) if they disproportionately disqualify a protected class (in this case, African Americans) at a significantly higher rate than White applicants, and (III) if the job has a history of discrimination. Justice Burger affirmed that “under the Act, practices, procedures, or tests neutral on their face, and even neutral in terms or intent, cannot be maintained if they operate to ‘freeze’ the status quo of prior discriminatory employment practices.”
Today, the United States continues to face challenges to remedy systemic employment discrimination. However, the barriers to equal employment opportunity, particularly for racial and ethnic minorities, take form in more covert ways.
The first employment practice causing concern among equal employment advocacy groups such as the National Employment Law Project and the Ban the Box Campaign is the criminal background check. The gravity of using criminal background checks in employment decisions is best understood with context. The U.S. holds the highest incarceration rate in the world: nearly one in three American adults has a criminal record. The rates for African Americans and Hispanics are even higher. In fact, African Americans alone are incarcerated at nearlysix times the rate of Whites. These statistics become a serious issue when as a result, African Americans and Hispanics actively seeking employment in the labor market may not be receiving job offers or promotions at as high a rate as their White counterparts.
Similarly, the use of credit history checks during employment selection disproportionately affects racial and ethnic minorities. According to the Society for Human Resource Management (SHRM), at least 40 percent of employers use credit information in their hiring processes, a number, that as of the last decade, is decreasing as more states enact legislation limiting employers’ use of credit information in employment decisions. The reason? Employee advocates claim that credit checks often disproportionately disadvantage minority, low-income job seekers and employees because they are more likely to have low credit scores. The Federal Reserve has stated that African Americans and Latinos, on average, “have lower credit scores than non-Hispanic whites and Asians.”
It is important to note, however, that criminal background and credit checks are illegal only if they produce adverse impact for a protected class not in and of themselves. As a rule of thumb, employers should be aware that adverse impact may be present as a result of their policies if “a selection rate for any race, sex, or ethnic group is less than four-fifths (⅘) (or eighty percent) of the rate for the group with the highest rate.” A joint publication by the Equal Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) provides employers using or considering using background information (e.g. criminal or credit) with guidelines on how to comply with both federal nondiscrimination laws and the Federal Credit Reporting Act (FCRA).
With computerized cognitive ability and jobs performance measures of all sorts becoming more a part of employment decisions, it is crucial that employers rigorously ensure that their policies are consistent with employment discrimination law. Policies that employers deem neutral and fair may, in practice, disadvantage the very groups they intend to protect.
 Griggs et al. v. Duke Power Co., 401 U.S. 424 (1971)
 Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit. Washington, D.C.: Board of Governors of the Federal Reserve System, 2007.
 Outtz, James. Adverse Impact: Implications for Organizational Staffing and High Stakes Selection. New York: Psychology, 2010, 6.
 FCRA, passed in 1970, is “the act that regulates the collection of credit information and access to your credit report. It requires that any person or entity requesting your report must demonstrate a permissible purpose for the information before it is released.”
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