Avoiding Disparate Impact & Treatment: The Definitive Guide

In 2021, the U.S. Equal Employment Opportunity Commission (EEOC) filed more than 61,000 discrimination cases, securing nearly $350 million in payouts to victims. Based on these numbers, workplace discrimination (including both disparate impact and disparate treatment) is not something to disregard or take lightly.

Even in workplaces where people are actively working to avoid discrimination and bias, these issues can crop up surprisingly often. One example: using AI in your recruitment efforts might seem like a move that would make the process more equitable. But according to the EEOC, these tools themselves are often biased. The main reason? They work from data which is also inherently biased.

The Commission itself realizes the potential pitfalls of AI, and has already taken significant steps to address the issue–their new Artificial Intelligence and Algorithmic Fairness Initiative aims to “guide employers, employees, job applicants, and vendors to ensure that these technologies are used fairly and consistently with federal equal employment opportunity laws.”

Discrimination is often explained as being based on sex, gender, religion, etc. This may be true. But when a potential discrimination case is reported according to this framing, you only have the ability to capture the most obvious and explicit types. You don’t get the nuanced insights that could help you understand how seemingly well-meaning employment practices can be discriminatory too.

That’s why this guide is going to dive into the two real types of discrimination:

• Disparate impact (unintentional and indirect)
• Disparate treatment (intentional and direct)

What is Disparate Impact?

Disparate impact is a form of indirect, unintentional discrimination in which certain hiring, promotion or employment decisions disproportionately affect members of a protected group under Title VII.

Disparate impact is also sometimes referred to as “adverse impact.”

What’s an Example of Disparate Impact?

Disparate impact is often the result of using a facially neutral employment practice – one that appears to be fair and equal at face value, but is in fact discriminatory in its application or outcome (the AI systems mentioned above, for example). If a practice appears fair but disproportionately impacts certain groups of people, it is causing disparate impact.

Disparate impact may occur during the hiring process itself. Basic, familiar screening methods like background and credit checks, past work experience, testing and educational requirements all leave room for unintentional bias.

A routine credit check may unintentionally screen out minority applicants. Because systemic racism can make it difficult for minorities to find and hold higher-paying positions, applicants of color might have lower credit scores compared to white applicants.

The main issue to keep in mind with disparate impact is that many employers believe they’re being fair by applying consistent standards for all. But these practices may actually be advantageous for certain groups while disadvantaging others. The key is to make your protocols equitable, not equal.

How Big of a Problem is Disparate Impact?

Employers can no longer afford to ignore this phenomenon. Even testing as thorough and standardized as the general practitioner (GP) clinical examination in medicine causes an adverse impact. In fact, evidence has shown that ethnic minority doctors are four times more likely to fail the examination than their white counterparts.

The disparity begins in medical school, when minority students receive “less supportive social and less positive learning environments [and are] subject to discrimination and racial harassment,” according to one review.

Disparate impact is a theory of liability under Title VII, meaning it’s prohibited (except in a few important situations which we cover in more detail below). An affected employee would have to provide proof that certain groups are disproportionately harmed for the practice to be illegal.

If, in addition to disproportionate impact, there is also proof of intent or motive, this may qualify as the other form of discrimination: disparate treatment.

What is Disparate Treatment?

Disparate treatment is an intentional form of discrimination. Often, decision-making processes (i.e., the systems in place for hiring, compensating or terminating employees) purposely treat members of a protected class differently from other employees. For example, the use of different pay scales for men and women is one familiar form of disparate treatment.

Unlike disparate impact, for disparate treatment an affected individual must prove that an employer intentionally treated them differently due to their membership in a protected group.

Examples of Disparate Treatment

In a real-life example from early 2023, the EEOC sued a healthcare network for allegedly paying newly-hired male employees more than female employees who had more tenure and work experience. Further, the employer refused to adjust female workers’ pay.

Here’s a fictional example: Betty is a white, female bank teller. An African American man comes into the bank and asks Betty to waive a late fee on his credit card. He is adamant, but Betty refuses.

Later that day, a white man walks in. He describes a similar situation and asks Betty to waive his late fee. This time, she does. If Betty intentionally treated the customers differently based on their race, this may be considered disparate treatment.

What is Disparate Impact vs. Disparate Treatment?

Dealing with Disparate Impact Discrimination

If your company is accused of disparate impact, these are the next steps in the process:

1. The affected employee(s) must prove that a specific practice is causing an adverse impact on a group of protected individuals.
2. The employer must demonstrate that the practice is a “business necessity” or job-related.
3. If the employer fails to justify their behavior, the employee wins. If the employer succeeds, it becomes the claimant’s responsibility to either identify a practice that would’ve met the business need without causing as much harm, or to accept a loss.

Step 1: Identify Adverse Impact

Almost every methodology will produce some amount of disparate impact, so it’s more important to gauge the significance of any disparity. This can prove difficult, as there’s no single, consistent threshold to meet.

Instead, disparate impact is measured using a mix of anecdotal evidence and statistical analysis. Many experts use the “80% Rule” (also called the “4/5th’s Rule” or, formally, the “Pareto Principle”) to determine whether or not an employer’s practices have an adverse impact on a minority group.

How is the “80% Rule” Applied?

Mathematically, the rule works like this:

Imagine there are 100 white candidates applying for job openings at your organization and 100 candidates of color. 90 of the white candidates are hired, making their hiring rate 90%. But only 60 of the minority applicants are hired, which amounts to a 60% selection rate.

To determine if there’s disparate impact happening, divide the non-minority group’s selection rate (90%) by the minority group’s rate (60%). The minority group’s selection rate is about 67% of the rate for white applicants. This falls below the acceptable 80% threshold.

Example

In 2022, a staffing company paid $550,000 to settle a discriminatory hiring and placement lawsuit.

According to the suit, the company outright rejected employees who were Black, pregnant, over age 50 and/or physically disabled or injured, or placed them in their lowest-paying roles. They also “complied with clients’ race and sex preferences” and “placed employees in positions based on race and sex.”

If we could look at the company’s hiring numbers, the number of minority hires would surely not meet or exceed 80% of non-minorities placed by the company.

Other Methods of Proof

Some experts have questioned the sweeping generalization of the “80% Rule.” Discrepancies may be the product of legitimate factors including culture, geography and required qualifications, which the “80% Rule” doesn’t take into account.

Instead, professionals have turned to the practice of comparing an employer’s actual rate with the rate that would occur if decisions were being made at random. This practice works better than the “80% Rule” because it acknowledges the imbalance these factors may cause.

Step 2: Prove Business Necessity

A practice that causes adverse impact doesn’t always need to be eliminated. In some cases, it can be justified.

From a legal standpoint, if there’s evidence of disparate impact, the burden of proof shifts to the employer. They must explain why their process is a “business necessity” and show that the practice is essential to the operation of the business for reasons relating to safety or efficiency.

Three Conditions for Business Necessity

According to the Legal Dictionary, three conditions must exist before an employer can use this defense. The practice in question must:

1. Be apparently neutral
2. Be uniformly applied
3. Have a disparate impact on a protected class

Examples of Business Necessity

Imagine you’re a movie director holding auditions for a male role in an upcoming film. In this situation, casting a male is a business necessity. Therefore, it’s justifiable to hold auditions with only male actors.

Similarly, job requirements for a firefighter may include the ability to carry 50 pounds minimum. Obviously, this will adversely impact many female applicants. But for safety reasons, it’s considered a job-related necessity.

On the other hand, it is not justifiable for a CEO to refuse to interview a woman for a job simply because customers may prefer to have a man in that role.

Step 3: Identify Alternative Practices

If an employer proves that their discriminatory practice is necessary based on a genuine business need, an employee can identify alternative practices that meet the same need without creating as much adverse impact. If the employee succeeds, the employer must eliminate the discriminatory practice and may face other punishments.

For this reason, it’s important that employers thoroughly review all procedures before implementation (and then routinely afterward). The golden rule here is to always go with the practice that causes the least harm.

How to Minimize Disparate Impact & Treatment

Any recruitment practice has the potential to cause adverse impact. This is true for traditional methods like interviews and assessment centers, as well as more modern approaches like situational judgment and personality tests.

To minimize your chances of causing disparate impact, follow the best practices outlined below.

Be Consistent

First, design your recruitment process to be consistent and fair for all applicants. Use standardized questions. The same concept applies when considering promotions and raises.

For example, if you choose to incorporate oral exercises during an interview, ask each individual the same set of situational questions.

Note: Being consistent may reduce the likelihood of intentional discrimination. But it’s important to note that consistency can still cause unintentional adverse impact. Audit your questions to make sure they aren’t inherently biased (check out this list for questions to avoid).

Train Assessors Properly

Assessors must have the skills to evaluate people fairly and objectively. They should be able to identify, focus and measure the right competencies.

For example, if the assessor is asking each candidate the same situational question, they must score the candidate’s answer according to the same criteria (such as originality, reasoning or comprehension). They should never focus on traits unrelated to the answer.

Monitor Your Processes

Monitor the assessors’ scoring process to ensure they haven’t fallen into a pattern influenced by conscious or unconscious biases. Review your training process several times every year.

Also, monitor the results of the hiring process across different protected groups to test for inconsistencies. Do you always dismiss women and never men? Does the hiring manager seem to always overlook Muslim candidates? When you start intentionally looking for patterns, you may uncover adverse impact.

Document Your Processes

After you’ve critiqued your processes, go a step further by carefully documenting each of your actions. Protect yourself from false allegations by keeping notes about hiring processes, job applicants and rejections. Document the reasons for promotions and pay increases. Formally document any disciplinary actions or dismissals.

For example, if an employee is dismissed due to poor professional performance, it’s important to record specific examples demonstrating a lack of ability. If a victim makes a disparate impact or treatment claim, you want to be prepared to defend the reasoning behind your actions.

How Case IQ Can Help

Case IQ’s comprehensive case management platform streamlines your investigative process while providing the data you need to analyze trends, prevent incidents and protect your employees and organization.

Insightful reports help you prevent discrimination, harassment and other incidents while avoiding fines and reputation damage.

Learn more about how Case IQ can help your organization investigate and prevent discrimination here.