Disparate Impact & Treatment: The Definitive Guide

Not sure what disparate impact and disparate treatment look like? Wouldn’t know what to do if you’re accused of one or the other? This guide makes sense of it all.

Posted by Katie Yahnke in on August 7th, 2018

In 2017 (FY), the EEOC filed more than 80,000 discrimination cases and secured nearly $40 million in payouts for victims. Based on these numbers, workplace discrimination (including both disparate impact and disparate treatment) is not something to disregard.

Discrimination is often explained as being based on sex, gender, religion, etc. This is true, but when you learn about discrimination this way, you only capture the obvious and explicit types. You won’t 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)

 

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Below, you will learn about disparate impact and treatment, how and why they happen, exactly what to do if you’re accused of either and how to make sure your business practices are just.


What is Disparate Impact?

Disparate impact is a form of indirect and 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”.

 

How Does Disparate Impact Happen?

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 discriminatory in application or outcome. 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 while using basic screening methods such as background and credit checks, past work experience, testing and educational requirements.

For example, a credit check may unintentionally screen out minority applicants who often come from lower income areas and therefore have not had an opportunity to build up a good credit score.

Want a glimpse of the many forms of harassment? Check out this 11 Types of Workplace Harassment Cheat Sheet.

The main issue with disparate impact is that many employers believe they’re being fair by applying consistent standards for all. However, these practices may be advantageous for certain groups and disadvantageous for others.

 

How Big of a Problem is Disparate Impact?

Employers can’t afford to ignore this phenomenon. Even testing as thorough and standardized as the general practitioner (GP) clinical examination causes adverse impact. In fact, evidence has shown that ethnic minority doctors are 4x more likely to fail the examination than their white counterparts.

It seems that the issue with the test is that it is culturally specific.

A representative for the British Pakistani Doctors Forum argued that “the significantly different pass rates cannot be explained by a lack of knowledge, skills or competency” and that “there is indirect race bias and discrimination at play which would explain why highly-qualified doctors…are failing”.

Disparate impact is a theory of liability under Title VII, meaning it’s prohibited (except in a few important situations which are covered in more detail later on). 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 actually be the other form of discrimination called 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) are singled out as being intentionally discriminatory. For example, separate pay scales for men and women is a familiar form of disparate treatment.

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

 

Examples of Disparate Treatment

In a true example from 2010, a temporary labor agency in Ohio agreed to pay more than $600,000 for systematically assigning (and rejecting) job applicants by race, sex, national origin and age.

Further, the company described applicants in a discriminatory manner by using code words such as “chocolate cupcake” to mean young black woman and “hockey player” to refer to young white male.

In this 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 female walks up, describing a similar situation and asks Betty to waive the fee. This time, she does. This may be considered disparate treatment if Betty intentionally treated the customers differently due to sex or race.


Disparate Impact vs. Treatment

Disparate Impact:Disparate Treatment:
All applicants are tested. Answers to many questions rely on knowledge of cultural nuances that non-white applicants are less likely to possess.Only African American applicants are required to take the pre-employment assessment test.
The job description says applicants must be at least five feet six inches tall. In the U.S., the average height for a female is five feet four inches.A retail store’s new dress code policy says that employees are not permitted to wear a hijab during work because it won’t match the store’s “image”.

Dealing with Disparate Impact

If a company is accused of disparate impact, the next steps are as follows:

First, the affected employee(s) must prove that a specific practice is causing an adverse impact on a group of protected individuals.

Second, the employer must demonstrate that the practice is a “business necessity” or job-related.

Record all actions in case you need to defend your behavior later. Use this Disciplinary Action Form and this Termination Letter Template.

Third, if the employer fails to justify their behavior, the employee wins. If the employer succeeds, the claimant must either:

  • Identify a practice that would’ve met the business need without causing as much harm
  • Accept a loss

Step 1: Identifying Adverse Impact

Almost every methodology will produce some disparate impact so it’s more important to gauge the significance of the disparity. This is difficult to do because there is no single 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 4/5ths 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 would work like this:

Imagine there are 150 candidates applying for a job opening. Ethnically, 82 belong to the majority group and 68 are a minority. Eight from the majority group are hired (9.7 per cent hire rate), and only three from the minority are hired (4.4 per cent hire rate).

That means the minority group’s hire rate is only 45 per cent of the majority group’s rate, which is significantly less than the standard set by the 80% Rule.

 

Example

In 2010, Scrub, Inc., a janitorial service in Chicago, was found guilty of failing to recruit and hire African Americans.

According to a press release from the EEOC, “the statistical disparity in hiring rates between African-American applicants and non-African-American applicants was so high that there is effectively zero probability that Scrub’s failure to hire African-Americans occurred by chance”.

The company was required to pay $3M for this incident.

If the economist found a probable disparity, the company could have argued that this was a coincidence. But, in this case, the difference was too large and Scrub, Inc. was found guilty.

 

Other Methods of Proof

Experts have questioned the sweeping generalization of the 80% rule. Discrepancies may be the product of legitimate factors such as culture, geography and required qualifications, for which the 80% rule does not account.

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


Step 2: Proving a Business Necessity

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

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

 

Three Conditions for Business Necessity

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

  • Be apparently neutral
  • Be uniformly applied by the employer
  • Have a disparate impact on a protected class

 

Examples of Business Necessity

Imagine you’re a movie director and holding auditions for an upcoming male role in one of your films. In this case, casting a male is a business necessity therefore it’s justifiable to hold auditions with only male actors.

Similarly, a job as a firefighter may require you to carry 50kg minimum. Obviously, this will adversely impact many female applicants who physically are less capable of meeting that requirement. For safety reasons, it’s a job-related necessity.

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


Step 3: Identify Alternative Practices

If the employer proves that their discriminatory practice is necessary because it’s a business need, an employee can identify alternative practices that meet the same need without the same levels of adverse impact. If the employee succeeds in doing this, the employer must eliminate the practice and may face other punishment.

For this reason, it’s important that employers thoroughly review their practices prior to implementation (and then routinely afterward). A golden rule is to always implement the practice that causes the least harm.


How to Minimize Disparate Impact & Treatment

Any recruitment practice can cause adverse impact, whether you prefer traditional methods such as interviews and assessment centers, or modern methods such as situational judgement and personality tests.

To minimize your chances of causing disparate impact, there are a few best practices to follow.

 

Be Consistent

An important first step is to design your recruitment process well to ensure it’s consistent and fair for all applicants. Use standardized questions. The same concept applies for 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. However, it’s important to note that being consistent can cause unintentional adverse impact.

 

Train Assessors Properly

Assessors must have the skills to evaluate 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 answers according to the same criteria (such as originality, reasoning or comprehension). They should not focus on traits unrelated to their answer.

 

Monitor Your Processes

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

Also, monitor the results of the hiring process across different protected groups to monitor for inconsistencies. Are women always being dismissed and men never? Are the Hispanic men always being overlooked for the position? Look for patterns and you may uncover adverse impact.

 

Document Your Processes

After you’ve critiqued your processes, take it a step further by carefully documenting all of your actions. Protect yourself from false allegations and keep notes about hiring processes, job applicants and rejections. Document reasons for promotions and pay increases. Clearly record and explain disciplinary actions or dismissals with formal documentations.

Use templates, such as a Termination Letter or a Disciplinary Action Form, to track and document all of your actions.

For example, if an employee is dismissed due to poor professional performance, record specific examples proving their lack of ability. Be prepared to defend the reasoning behind your actions in case the victim makes a disparate impact or disparate treatment claim.


Katie Yahnke
Katie Yahnke

Marketing Writer

Katie is the marketing writer at i-Sight. She writes on topics that range from fraud, corporate security and workplace investigations to corporate culture, ethics and compliance.

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