How to Avoid Adverse Impact In Your Organization: A Comprehensive Guide for HR Leaders

Imagine John, an employee who recently joined a reputable firm with high hopes for career growth. Eventually, John noticed that despite his consistent hard work, he wasn’t receiving the same training opportunities as his peers. 

With some investigating, HR discovered that their seemingly neutral training allocation policy wasn’t quite so neutral. It inadvertently favored employees from certain educational backgrounds, sidelining others like John. 

This is one way that adverse impact can manifest in well-meaning organizations. 

Unfortunately, it’s all too common. Did you know that one-third of workers feel discriminated against at work, according to the State of Work-Life Wellness 2024 report from Wellhub? Despite good intentions, many companies unknowingly implement policies that harm their employees.

That’s why HR leaders are trying to better understand adverse impact — where seemingly neutral practices negatively affect certain groups. It helps them build an equitable and wellness-focused work environment for all. 

At the core of it, adverse impact can damage both employers and employees since it undermines organizational trust and success. Mitigating adverse impact in your HR processes is one way that your organization can prioritize diversity and inclusion and boost productivity.

What is Adverse Impact?

Adverse impact refers to the employment practices that appear neutral but have a discriminatory effect on a protected group. It occurs when a seemingly fair policy impacts members of a group of employees based on their:.:

• Race
• Color
• Gender
• Age
• Religion
• Disability
• Sexual orientation
• Other protected attributes

This unintentional discrimination can appear in many HR processes, including recruitment and performance evaluations, which also affect promotions and leadership opportunities. Over time, adverse impact reduces the representation of underrepresented groups and damages employee trust. 

Beyond affecting work culture, adverse impact has legal consequences. Anti-discrimination laws and regulations are meant to prevent these issues. Failing to address adverse impact can result in lawsuits, fines — and even long-term damage to your professional reputation. HR leaders can better comply with these legal standards by proactively correcting unintentional discrimination in employment practices.

Adverse Impact vs. Disparate Treatment

The key difference between adverse impact and disparate treatment is intentionality. 

Adverse Impact:

• Refers to unintentional negative effects of systemic employment practices.
• Neutral policies may inadvertently prevent fair hiring or promotion practices.
• Identified through statistical imbalances in employment outcomes.

Imagine that a company sets a height requirement for a job role without a valid business necessity. If this disproportionately excludes women, who are shorter than men on average,  this may qualify as an adverse impact.

In this case, the organization isn’t trying to discriminate against anybody — their intentions are likely harmless. However, that doesn’t mean they aren’t negatively affecting certain groups and preventing qualified people from getting hired.

Disparate Treatment:

• Involves intentional and overt discrimination against individuals.
• Occurs when an employer treats individuals differently based on protected attributes.

Take a manager who consistently promotes employees of a specific gender while overlooking equally or more qualified individuals of another gender. This could be intentional bias. That bias is evident in the decision-making process — and allows leaders to abuse their authority.

For adverse impact, organizations like the Equal Employment Opportunity Commission (EEOC) focus on proving unequal effects on protected groups rather than intentional discrimination. Companies can be held liable if they fail to show that their practices are job-related and necessary for business.

For disparate treatment, the burden of proof lies with the individual claiming discrimination, who must demonstrate that the employer treated them less favorably due to their protected characteristics. Legal consequences for disparate treatment can include compensatory or punitive damages.

What Determines Disproportionate Exclusion in an Adverse Impact?

Adverse impact is measured and assessed using several standards and guidelines. HR professionals often use selection ratios, which compare the proportion of individuals selected for an employment practice across different demographics.  To calculate this, HR divides the number of individuals selected from a certain demographic group by the total number of applicants from that group. 

For example, take a company that is hiring for a new position. There are 100 applicants, 60 of whom are men and 40 are women. If 30 men and 10 women are selected for the role, the selection ratios would be:

• Men's selection ratio: 30 selected / 60 applicants = 0.50 (50%)
• Women's selection ratio: 10 selected / 40 applicants = 0.25 (25%)

In this example, the selection ratio for women (25%) is significantly lower than that for men (50%), which could indicate adverse impact. By comparing these ratios across different groups, HR can identify potential disparities in hiring these practices.

There are also methods like standard deviation analysis, which is a statistical way to determine if the difference in selection rates between groups is not just by chance. 

Say a company notices that out of 200 applicants, 80 men and 60 women were selected. To determine if this difference is statistically significant, they conduct a standard deviation analysis. If the analysis reveals a high standard deviation, it indicates that the difference in selection rates is not due to random chance but could be due to an underlying bias.

Aside from statistical methods like these, the EEOC uses what they call the 4/5ths Rule. According to this guideline, if the selection rate for any group is less than 80% (4/5ths) of the rate for the group with the highest selection rate, it may qualify as adverse impact.

Using the selection ratio example from above, if the selection rate for men is 50%, the selection rate for women should be at least 40% (80% of 50%) using the 4/5ths rule. Since the women's selection rate is 25%, which is less than 40%, this suggests a potential adverse impact.

What Are Some Adverse Impact Examples?

Example One:

Take a manufacturing company that implements a physical strength test as part of its hiring process. While the intention is to ensure employees can handle the job's physical demands, the test disproportionately screens out capable women or individuals with disabilities who may excel in other job-related skills. 

Example Two:

Now, imagine a retail store that conducts thorough background checks only for applicants from Group A, believing there is a valid reason for this selective scrutiny. Applicants from Group B, who are exempt from these checks, face a disparity in the evaluation process. Despite the employer's rationale, this practice creates an unequal playing field and reinforces systemic biases in hiring.

Is Adverse Impact Illegal?

Adverse impact itself is not inherently illegal, but it can mean you are breaking anti-discrimination laws. When adverse impact is clearly affecting employment practices, it can lead to legal consequences.

Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex, or national origin. Adverse impact that unfairly affects individuals based on these characteristics may be considered a violation of this legislation. 

Similarly, the Americans with Disabilities Act (ADA) prohibits discrimination against qualified individuals with disabilities. This means that employers who don’t provide reasonable accommodations to qualified job applicants may face legal scrutiny.

What Are the Consequences of Adverse Impact?

Adverse impact can tarnish an organization's reputation, especially in the age of social media and heightened awareness of diversity and inclusion issues. This can deter both potential employees and the customers or clients you want to attract. Not to mention, discrimination lawsuits can result in significant financial penalties that tank your organization.

Aside from the legal implications and reputational risks of your company, adverse impact can seriously affect the wellbeing of your workforce. When employees perceive bias or discrimination in employment practices, it weakens trust in your organization. Adverse impact eats away at morale, too — especially if employees believe that their work isn’t valued when advancement and opportunities are not based on merit.

This lack of acceptance can lead to employees pulling away and disengaging with their work or team. Given that 98% of people say their belonging at work is important to their overall wellbeing according to Wellhub’s State of Work-Life Wellness 2024 report, it’s no wonder adverse impact can lead to lower satisfaction and productivity.

Low engagement and productivity also mean high turnover rates and difficulty attracting talent. A lack of diversity and equal opportunities may prompt talented individuals to seek more inclusive employers. The absence of both talent and diversity in the workplace harms the organization, too — a lack of diverse experiences and insights can undercut creative problem-solving and new ideas.

How Can Employers Avoid Adverse Impact?

Recognizing adverse impact is the first step to eliminating any form of discrimination or bias, intentional or not. Implementing these ideas can help you to proactively prevent adverse impact within their organization.

Inclusive Job Descriptions

Before writing a job description, you can conduct thorough job analyses to identify the job requirements that are actually essential. Focus on skills and qualifications directly related to job performance rather than unnecessary criteria that may exclude certain groups.

Using inclusive language can go a long way in this effort. This often looks like avoiding gender-biased terms and phrases and using gender-neutral titles and pronouns. For example, instead of "he/she" or "salesman," consider using "they" or "salesperson."

Structured Interviews

Consider implementing structured interview processes with standardized questions, which helps with consistency and fairness. Training interviewers to avoid biases and rely on job-related criteria can help minimize adverse impact, too.

Valid and Defensible Assessments

Consider using valid and defensible assessments, such as skills tests and personality assessments, which directly measure job-related attributes. It’s also wise to regularly review and update assessments to align with the evolving needs of the organization.

Promotion Policies

Your promotion policies can have clear and objective criteria for advancement. Avoid subjective or ambiguous criteria that may introduce bias. For example, measurable qualifications like years of experience or certain training certifications are clear and accessible to all.

Continuous Monitoring

When in doubt, gather data. You can monitor and analyze data at various stages of the employee lifecycle to identify patterns of adverse impact. Establishing a feedback loop for continuous improvement allows organizations to address issues promptly, too.

Layoff Considerations

During layoffs, prioritize objective criteria such as performance metrics and business needs. Implement fair and transparent communication throughout the process so that everyone has access to clear explanations and support services.

Discover how to Boost Engagement, Equality, and Wellness in Your Organization

When organizations actively weed out unintentional discrimination, it creates a sense of equality and psychological safety. This boosts job satisfaction, which lends to higher employee engagement. It also supports better mental and emotional wellbeing of the workforce. 

A workplace that champions diversity and inclusion naturally fosters a culture of employee wellness, too. HR departments like yours can help your practices improve employee satisfaction and inclusivity at work with a simple but impactful solution: wellness programs.

The numbers agree — Wellhub’s Return on Wellbeing 2024 report found that 100% of HR leaders say wellness programs are important to employee satisfaction.  Wellhub is a great program option, which offers diverse holistic solutions so that every person in your organization has access to wellness resources. 

Speak with a Wellbeing Specialist to discover how Wellhub can support every member of your workforce! 

You May Also Like: 

• Staying Conscious of Unconscious Bias in the Workplace
• How to Avoid Affinity Bias in the Workplace
• Disparate Treatment vs. Disparate Impact: HR Strategies for Inclusivity

Resources:

• Wellhub. (2023, May 18). Return on Wellbeing Report 2023. https://gympass.com/en-us/resources/research/return-on-wellbeing-study-2023