Similar to unconscious bias, adverse impact can result in fewer qualified minorities being hired for discriminatory reasons.

The difference is that adverse impact is a legal requirement for US employers with 15 or more employees (20 employees for age discrimination cases) to remain compliant with their recruiting.

Here’s everything you need to know to avoid adverse impact during your recruiting.

A Guide To Adverse Impact: Everything Recruiters Need to Know 

Disclaimer: This guide does not replace legal advice nor your own due diligence.

A Guide To Adverse Impact: Everything Recruiters Need to Know – Table of Contents

    • Section 1: What is adverse impact?
    • Section 2: An overview of the U.S. Equal Employment Opportunity Commission (EEOC)
    • Section 3: An overview of the U.S. Office of Federal Contract Compliance Programs (OFCCP)
    • Section 4: An overview of the Canadian Human Rights Commission (CHRC)
    • Section 5: How to avoid adverse impact – Using technology
    • Section 6: How to avoid adverse impact – By company size
      • 1 to 14 employees
      • 15 to 19 employees
      • 20 to 49 employees
      • 50 or more employees
    • Section 7: How to avoid adverse impact – Important links
      • EEOC links
      • OFCCP links
      • CHRC links

Section 1: What is adverse impact?

The U.S. Equal Employment Opportunity Commission defines adverse impact in hiring as:

  • a substantially different rate of selection in hiring which works to the disadvantage of members of a race, sex or ethnic group

You may have heard about the 4/5th rule. The EEOC Guidelines state that adverse impact is calculated by applying the 4/5th or 80% rule:

  • the selection rate for any group is substantially less (i.e., usually less than 4/5ths or 80%) than the selection rate for the highest group

An example of adverse impact are background checks for a certain group of candidates, but not another. An employer may have what they believe is a logical reason for checking the backgrounds of applicants from Group A and not Group B.

However, this action can result in adverse impact if more qualified candidates of group A are eliminated due to this background check, and more candidates from group B are hired.

So how can you avoid adverse impact in your recruiting? The first step is to understand which federal laws and regulations affect you.

Section 2: An overview of the U.S. Equal Employment Opportunity Commission (EEOC)

One of the most important organizations for U.S. employers is the Equal Employment Opportunity Commission (EEOC). The EEOC oversees adverse impact cases as well as the federal government’s equal employment opportunity program.

The U.S. Equal Employment Opportunity Commission (EEOC) is “responsible for enforcing federal laws that make it illegal to discriminate against a job applicant” because of:

  • race
  • color
  • religion
  • sex (including pregnancy, gender identity, and sexual orientation)
  • national origin
  • age (40 or older)
  • disability
  • genetic information
  • Most employers with at least 15 employees fall under the jurisdiction of the EEOC. For age discrimination cases, the company must have at least 20 employees.

Employers with 100 or more employees, and federal contractors or subcontractors with 50 or more employees and a contract of at least $50,000, need to submit an annual Employer Information Report EEO-1: a survey of employee data by race/ethnicity, gender, and job category.

Section 3: An overview of the U.S. Office of Federal Contract Compliance Programs (OFCCP)

As part of the Department of Labor, the goal of the Office of Federal Contract Compliance Programs (OFCCP), is to “protect workers, promote diversity, and enforce the law” among companies that do business with the federal government.

The OFCCP enforces compliance with the legal requirement to take affirmative action and recruit:

  • minorities
  • women
  • persons with disabilities
  • covered veterans  

The general goal of affirmative action is that an employer’s workforce will reflect the gender, racial, and ethnic profile of the labor pools from which the employer recruits and hires.

The OFCCP also forbids hiring discrimination on the basis of:

  • race
  • color
  • sex
  • sexual orientation
  • gender identity
  • religion
  • national origin
  • disability
  • status as a protected veteran  

Employers that fall under the OFCCP include:

  • employers with federal contracts and subcontracts in excess of $10,000
  • non-construction employers with 50 or more employees and contracts of $50,000 or more must develop and maintain a written Affirmative Action Program

Section 4: An overview of the Canadian Human Rights Commission (CHRC)

If you’re in Canada and operate a company in an industry that’s regulated by the federal government, you need to understand the Canadian Human Rights Commission (CHRC).

In Canada, adverse impact would fall under hiring discrimination. The CHRC defines discrimination as “an action or a decision that results in the unfair or negative treatment of a person or group, for reasons such as their race, age or disability.”

Under the Canadian Human Rights Act, employer cannot discriminate based on:

  • race
  • national or ethnic origin
  • colour
  • religion
  • age
  • sex
  • sexual orientation
  • gender identity or expression
  • marital status
  • family status
  • genetic characteristics
  • disability
  • a conviction for which a pardon has been granted or a record suspended

Employers that fall under the domain of the CHRC for discrimination are:

  • federal employers and service providers
  • employers and service providers of private companies that are regulated by the federal government

Similar to affirmative action, the CHRC also enforces employment equity which is a program that “requires employers take actions to ensure the full representation of members of the four designated groups within their organizations” and ensures no person in the four designated groups “shall be denied employment opportunities or benefits for reasons unrelated to ability.”

The four designated groups are:

  • women
  • aboriginal peoples
  • persons with disabilities
  • members of visible minorities

Employment equity practices include:

  • identifying and eliminating employment barriers against persons in designated groups that result from the employer’s employment systems, policies and practices that are not authorized by law
  • making reasonable accommodations to ensure that persons in designated groups achieve a degree of representation in each occupational group in the employer’s workforce that reflects their representation in the Canadian workforce

Employers that fall under employment equity requirements include:

  • portions of the federal public administration
  • portions of the public sector employing 100 or more employees
  • private sector employers who employ 100 or more employees on or in connection with federal work

Similar to the EEO-1, reporting requirements states every private sector employer that falls under employment equity needs to file an annual report on their employees including data on:

  • the industrial sector in which its employees are employed
  • the location of the employer and its employees
  • the number of its employees
  • number of those employees who are members of designated groups
  • the occupational groups in which its employees are employed
  • the degree of representation of persons who are members of designated groups in each occupational group
  • the salary ranges of its employees
  • the degree of representation of persons who are members of designated groups in each range and in each prescribed subdivision of the range
  • the number of its employees hired, promoted and terminated
  • the degree of representation in those numbers of persons who are members of designated groups

Section 5: How to avoid adverse impact – Using technology

For private employers with 100 or more employees

If your organization collects demographic data on the race, sex, and ethnic group of your applicants, technology like Ideal can ignore these demographics during its sourcing and resume screening and then test for adverse impact based on the 4/5th rule.

For federal contractors and subcontractors that fall under affirmative action requirements

Your organization is required to collect demographic data on the race, gender, disability status, and veteran status of your applicants. Ideal can analyze the sourcing and screening rates for these groups and remove any identified bias to remain OFCCP-compliant.

For employers that fall under Canada’s employment equity requirements

If your organization collects demographic data on the four designated groups of women, aboriginal peoples, persons with disabilities, and members of visible minorities, Ideal can assess the sourcing and screening rates for these groups and remove any identified bias.

Section 6: How to avoid adverse impact – By company size

In many cases, avoiding adverse impact will require understanding the laws and regulations based on your company’s size.

Note: The regulations listed below pertain only to recruiting and hiring and does not cover all laws and regulations for employees.

1 to 14 employees

Fair Labor Standards Act (FLSA)

The FLSA is a federal law which establishes minimum wage and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.

Exemptions from minimum wage exist for employees employed as bona fide executive, administrative, professional, computer and outside sales employees.

Immigration Reform & Control Act

This law requires you to only hire people who are legally eligible to work in the U.S. and mandates the use of Form I-9 for verifying the employment eligibility of your hires.

Equal Pay Act (EPA)

The EPA prevents pay discrimination by requiring equal pay for men and women for equal work in jobs which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except when pay is based on:

  • a seniority system
  • a merit system
  • a system which measures earnings by quantity or quality of production
  • a differential based on any other factor other than sex  

Uniformed Services Employment & Reemployment Rights Act (USERRA)

The USERRA mandates returning service-members are reemployed in the job that they would have attained had they not been absent for military service, with the same seniority, status, pay, rights and benefits.

It also requires that reasonable efforts (such as training or retraining) be made to enable returning service members to refresh or upgrade their skills to help them qualify for reemployment.

Employee Polygraph Protection Act (EPPA)

The EPPA prohibits most private employers from using lie detector tests (e.g., a polygraph) during pre-employment screening.

15 to 19 employees

15 employees is when the EEOC starts to regulate whether adverse impact is occurring at your company.

Title VII of the Civil Rights Act of 1964

The EEOC enforces Title VII, which makes it illegal to fail or refuse to hire any individual because of his or her race, color, religion, sex, or national origin.

American with Disabilities Act (ADA)

The ADA prohibits discrimination against people with disabilities during recruiting and hiring and covers employers’ obligation to provide reasonable accommodations to qualified job applicants with disabilities (e.g., making materials available in Braille or large print, providing screen reader software).

Genetic Information Nondiscrimination Act (GINA)

The EEOC enforces Title II of GINA, which makes it unlawful to discriminate against applicants because of genetic information (e.g., an individual’s genetic tests, family medical history).

The EEOC states, “An employer may never use genetic information to make an employment decision because genetic information is not relevant to an individual’s current ability to work.”

20 to 49 employees

Age Discrimination in Employment Act (ADEA)

The ADEA forbids an employer from failing or refusing to hire a person or otherwise discriminating against people aged 40 and older during hiring.

50 or more employees

Affirmative Action Program

For federal contractors and subcontractors, employers must follow an affirmative action program to recruit:

  • minorities
  • women
  • persons with disabilities
  • covered veterans  

According to the DOL, “employers with a written affirmative action program must implement them, keep them on file, and update them annually.”

EEO-1 Survey

The annual EEO-1 report is a survey of employee data by race/ethnicity, gender, and job category for:

  • federal contractors or subcontractors with 50 or more employees and a contract amounting to at least $50,000 (enforced by the OFCCP)
  • private employers with 100 or more employees (excluding state and local governments, primary and secondary school systems, institutions of higher education, Indian tribes and tax-exempt private membership clubs other than labor organizations) (enforced by the EEOC)

Section 7: How to avoid adverse impact – Important links

EEOC links

OFCCP links

CHRC links

A Guide To Adverse Impact: Everything Recruiters Need to Know 

Be sure to bookmark this page as a resource on how to avoid adverse impact during recruiting!

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