Adverse Impact

What is Adverse Impact?

Adverse impact is the result of an employer practise that appears to be neutral but has a negative impact on protected groups such as women, older employees, and minorities. Adverse effects can be seen at any stage of the employment process, including hiring, training, promotions, layoffs, and so on.

According to the Society for Human Resource Management (SHRM), "adverse impact refers to employment practises that appear neutral but have a discriminatory effect on a protected group." Hiring, promotion, training and development, transfer, layoff, and even performance appraisals may suffer negative consequences."


What is an example of Adverse Impact?

Assume your job description states that you are looking for candidates with 5-7 years of prior experience. By doing so, you are essentially saying that you do not want entry-level graduates or older employees with more experience and knowledge to bring to the table.

While this may not appear to be on purpose, older candidates with 5-7 years of experience do exist. However, in general, this is what it implies.


How to tackle Adverse Impact?

The EEOC employs what is known as the 4/5ths Rule, which states that a screening is disproportionate if the selection rate for any group is less than 4/5ths, or 80%, of the selection rate for the highest group.


What are the consequences of Adverse Impact?

According to the Society for Human Resource Management (SHRM), the potential costs of adverse impact are as follows: "Adverse impact lawsuits typically involve multiple employees and many years of organisational practise. As a result, the damages claims can be high, and the lawsuits can be expensive, making the cases appealing to attorneys who specialise in handling class actions on a contingency-fee basis." 

In addition to the potential legal consequences, policies with a negative impact may exclude people from consideration for hiring, advancement, or retention during a workforce reduction. Policies that have a negative impact result in the loss of potential talent for the organisation, as well as time spent using ineffective assessment tools.

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