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Adverse Impact

What is Adverse Impact?

It refers to a situation where a policy, practice, or decision unintentionally disadvantages a particular group. It is usually based on race, gender, age, or another protected characteristic. Even when organisations try to avoid discrimination, the outcome can be. From hiring to promotions and layoffs, it is the most common thing.

For example: A company’s pre-employment test may appear neutral but could disproportionately screen out candidates from a specific ethnic group.

Why Companies Should Reduce Adverse Impact?

Though there is no legal risks, it can negatively impact on employees’ emotions and diminish employer brand presence. Moreover, an organisation’s diversity, equity and inclusion (DEI) goals.

Here’s why it’s important to minimize it:

  • Promote fairness and equality in hiring and internal policies
  • Build a diverse and inclusive workplace
  • Enhance employee trust and retention
  • Improve decision-making by eliminating biased filters
  • Avoid legal consequences (e.g., lawsuits or regulatory penalties

How to Avoid?

You don’t have to wait for a lawsuit to take action. Here’s how HR teams and hiring managers can reduce the risk of any impact.

  1. Review Your Job Descriptions

Avoid biased language or unnecessary requirements (e.g., “must have 10+ years of experience” could exclude younger candidates unfairly).

  1. Use Structured Interviews

Ask every candidate the same set of questions and score them using a standard rubric. This limits personal bias.

  1. Diversify Your Hiring Panel

A diverse panel ensures decisions aren’t skewed by the unconscious bias of a homogenous team.

  1. Monitor Screening Tools

Whether it’s AI-based hiring software or pre-employment assessments, audit them regularly for unintended discrimination.

  1. Run Adverse Impact Analysis

Use tools like the Four-Fifths Rule to check whether hiring rates for minority groups fall below 80% of the rate for the majority group.

Difference Between Adverse Impact and Disparate Impact

All disparate impact is adverse impact, but not all adverse impact is necessarily illegal disparate impact.

Consequences of Adverse Impact

Ignoring it can have serious consequences for an organisation:

  • Consequence
  • Impact
  • Legal Action
  • Investigations, penalties, lawsuits under anti-discrimination laws
  • Reputational Damage
  • Negative employer branding, reduced candidate pool
  • Low Employee Morale
  • A sense of unfairness can reduce trust and engagement
  • Missed Talent
  • Unfair systems can block top talent from underrepresented groups

How to Perform Adverse Impact Analysis

You can measure using the Four-Fifths Rule, recommended by the EEOC.

How it works:

  1. Calculate selection rates for each group (e.g., men vs. women).
  2. Divide the selection rate of the minority group by that of the majority.
  3. If the result is less than 80%, adverse impact may exist.

Example:

100 men apply, 60 are hired = 60% selection rate.

100 women apply, 40 are hired = 40% selection rate.

40 ÷ 60 = 66.7% → below 80% ➡️ potential adverse impact.

Adverse impact isn’t always easy to spot but it can quietly affect your hiring quality, workplace culture, and compliance posture. Proactively monitoring and correcting your policies not only helps you avoid legal trouble but also builds a more inclusive and high-performing workforce.