An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

Adverse Impact

What Is an Adverse Impact?

An adverse impact is an often unseen yet negative consequence of an employment policy or practice. Most often, adverse impact is found in policies and practices that inform candidate or employee assessments, such as:

Title VII of the Civil Rights Act of 1964 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."

To fight systemic discrimination, the U.S. Equal Employment Opportunity Commission (EEOC) identifies and addresses discriminatory practices in partnership with advocacy groups, state and federal agencies, employer groups, the plaintiffs' bar and other organizations. This includes practices that have an unintentional adverse impact.

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What Standards Determines Disproportionate Exclusion in an Adverse Impact?

The EEOC applies what they term the 4/5ths Rule—a screening is disproportionate if the selection rate for any group is less than 4/5ths or 80 percent of the selection rate for the highest group.

What Are Some Examples of Adverse Impact?

What Are the Consequences of Adverse Impact?

The Society for Human Resource Management (SHRM) highlighted the potential costs of adverse impact: “Adverse impact lawsuits generally involve multiple employees and many years of organizational practice. So the damages claims can be high and the lawsuits costly, and the cases are attractive to attorneys who specialize in handling class actions on a contingent-fee basis.” The article cites a settlement from Target Corporation for 2.8 million dollars as an example.

Along with the potential legal penalties, policies with adverse impact may exclude people from consideration for hiring, advancement opportunities, or retention during a workforce reduction. Policies with adverse impact lead to a loss of potential talent for the organization, as well as the time wasted using ineffective assessment tools.