Adverse impact, also referred to as disparate impact, is unintentional discrimination against a protected class that occurs when policies, practices, and rules that are intended to be impartial aren’t. This impact can occur when identical standards are applied across an entire group without adjustment for considerations that could lead to a substantial difference in hiring, promotions, or other employee life cycle activities. Avoiding a disproportionate impact on a protected group helps ensure your hiring practices are neutral and fair, and best practices in this area play an important role in your overall Human Capital Management System.
The Four-Fifths Rule (sometimes called the 80% rule) offers guidelines you can use to ascertain if evidence of adverse impact exists in your current hiring practices. Here’s how it’s done:
Determine which protected class statistic you would like to examine: race, sex, or ethnic group.
Determine the selection rate of each group by dividing the number of applicants by the number of people hired for that group.
Once you have identified the group with the highest selection rate, divide the other group’s hire rate into it to come up with an overall adverse impact percentage. If the resulting percentage is less than 80%, there may have been an adverse impact.
The tables below are examples of possible calculations, one indicating potential adverse impact and one not.
In the first example, the non-minority hire rate (9.7%) is higher than the minority hire rate (4.8%). Thus, you would divide the minority hire rate (4.8%) into the non-minority rate (9.7%) which is 49.5%. Since 49.5% is below 80%, there is potential adverse impact..
The second table shows calculations where adverse impact probably did not occur.
While this is not a definitive test, it can be a red flag telling you to examine hiring processes for neutrality. As is always the case with any legal questions, it is best to consult with your district’s legal expert.
The American Bar Association also recommends these tests for adverse impact:
Ensure all job requirements, policies, and selections processes relate specifically to operational goals
Recruit from a diverse set of sources and open promotional opportunities to a wide variety of applicants
Utilize quantifiable hiring and promotional tools such as scorecards and competency-based hiring
Observe your demographics for a lack of diversity, then examine what might be causing an imbalance
Learn more from these sources: Disparate Impact and Unintentional Discrimination. and Adverse Impact Analysis: 4/5th Rule