Adverse Impact Analysis / Four-Fifths Rule

In 1978, four government agencies (EEOC, Department Of Labor, Department of Justice, and the Civil Service Commission) adopted a set of guidelines known as the Uniform Guidelines for Employee Selection Procedures, which provided information on what constitutes a discriminatory test surrounding employment testing, as well as all personnel decisions.  They focused on when a personnel process has adverse or disparate impact and how an employer can defend a process that has been identified as having adverse impact.  Adverse impact can occur when identical standards or procedures are applied to everyone, despite the fact that they lead to a substantial difference in employment outcomes for the members of a particular group.

Typically, adverse impact is determined by using the four-fifths or eighty percent rule.  The four-fifths or 80% rule is described by the guidelines as “a selection rate for any race, sex, or ethnic group which is less than four-fifths (or 80%) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact.”  Since the 80% test does not involve probability distributions to determine whether the disparity is a “beyond chance” occurrence, it is usually not regarded as a definitive test for adverse impact.  Instead, other statistically significance tests, such as the standard deviation analysis, may be used for this purpose.

Example of the four-fifths (or 80%) rule

In the following illustration, there are 135 applicants: 72 non-minority compared to 63 minority and 84 male compared to 51 female.  Seven of the 72 non-minority applicants were hired, which is a 9.7% hire rate compared to the hire rate for minorities of 4.8%.  The 80% rule states that the selection rate of the protected group should be at least 80% of the selection rate of the non-protected group.  In this example, 4.8% of 9.7% is 49.5%.  Since 49.5% is less than four-fifths (80%), this group has adverse impact against minority applicants.  In the second illustration for males versus female hires, the male hire rate is 91% of the female hire rate.  Since it is greater than 80%, there is no evidence of adverse impact.

Group Applicant Pool Hires Hire Rate Adverse Impact
Non-minority 72 7 9.7% 49.5%
Minority 63 3 4.8% YES
Group Applicant Pool Hires Hire Rate Adverse Impact
Male 84 6 7.1% 91.0%
Female 51 4 7.8% NO

If your employment process reveals evidence of adverse impact, it is important that you are able to justify your personnel processes and decisions.  The presence of adverse impact does not require the elimination of the procedure (e.g. selection, promotion), but rather its justification as being job-related or a business necessity.  Business necessity means that using the procedure is essential to the safe and efficient operation of the business — and there are no alternative procedures that are substantially equally valid and would have less adverse impact.

According to the Guidelines “Each user should maintain and have available for inspection records or other information which will disclose the impact which its tests and other selection procedures have upon employment opportunities of persons by identifiable race, sex, or ethnic groups… in order to determine compliance.”

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