Glossary of Human Resources Management and Employee Benefit Terms
A disparate effect is the result of an employment policy or practice that has an adverse impact; this result is often exclusionary or discriminatory. When a legal review of contested employment practices finds a disparate effect on hiring, advancement, termination, or compensation, the employer may be held liable and face fines or other penalties.
Among the many provisions of the Civil Rights Act of 1964, Title VII prohibits employers from using purportedly neutral tests or selection procedures that have the effect of disproportionately excluding persons based on race, color, religion, sex (including sexual orientation and gender identity), or national origin if the tests or selection procedures are not "job-related for the position in question and consistent with business necessity."
In 1971, the U.S. Supreme Court heard the case Griggs v. Duke Power Co., 401 U.S. 424, 431-2 (1971). Prior to the Civil Rights Act, Duke Power Company had restricted African-Americans to the lowest-paying labor jobs based on their race. When race-based discrimination was forbidden, the company implemented a policy that applicants for all but the lowest-paying jobs needed to present a high-school diploma or pass an IQ test at a minimum level.
The decision in Griggs v. Duke Power Co. found that under Title VII, if tests disparately affect ethnic minority groups, employers must demonstrate that such tests are "reasonably related" to the job for which the tests are required. The case classified such a practice as a disparate effect.
The U.S. Equal Employment Opportunity Commission (EEOC) applies what they term the 4/5ths Rule—a screening leads to a disparate effect if the selection rate for any group is less than 4/5ths or 80 percent of the selection rate for the highest group.
Disparate effects are not always intentional, but they have an impact on the diversity and vibrancy of an organization as they exclude viable candidates. When found in a ruling that cites an adverse impact, they can also lead to large fines; in one high-profile example, Target Corporation paid out 2.8 million dollars in fines when the EEOC found that their pre-employment assessments had a disparate effect based on race, sex, and disability.