What is disparate effect?

Disparate effect definition and meaning

A disparate effect occurs when a seemingly neutral employment practice or policy unintentionally discriminates, leading to a disproportionate and negative impact on a protected group of employees. In such cases, the employer can be held liable for the resulting damages.

More about what disparate effect is

Disparate effect, also known as disparate impact or adverse impact, is a practice prohibited by law, even when it’s unintentional. This extends to all areas of employment, including recruiting, selection, compensation, promotion, and termination.

It’s important to distinguish between disparate impact and disparate treatment. While the former concerns unintentional discriminatory practices, the latter pertains to intentional forms of discrimination.

Legal considerations of disparate effect

• Title VII of the Civil Rights Act of 1964. This law forbids employers from discriminating against job applicants and employees based on race, color, sex, religion, disability, national origin, or age. Importantly, Title VII prohibits employers from implementing seemingly neutral tests and selection procedures that disproportionately exclude protected-class individuals, unless those procedures are directly related to the job and consistent with “business necessity.”

• Under the “business necessity” rule, the employer must demonstrate that the policy or practice in question is clearly tied to a significant, legitimate employment objective.

• Title VI of the Civil Rights Act of 1964. This regulation prohibits discrimination in educational programs receiving federal funding, on the basis of race, color, or national origin. The US Supreme Court has ruled that Title VI not only prohibits intentional discrimination but also practices that unintentionally lead to discriminatory effects on protected groups.

Examples of disparate effect

Below are examples of disparate effect during the employment application stage:

• Criminal convictions. Automatically disqualifying applicants based on criminal convictions might unintentionally lead to a disparate effect on certain minority groups. Consequently, several states have introduced “ban-the-box” laws. These laws prevent employers from inquiring about criminal convictions during the initial stages of the application process.

• Salary history. Asking applicants to provide their salary history can inadvertently cause pay discrimination, resulting in a disparate impact. To address this, many states have passed laws banning employers from asking job applicants about current or previous salary.

In the event of a disparate impact claim, the onus is on the employee to prove the presence and extent of the impact.

Requirements for demonstrating disparate effect

The employee must show that the employer’s actions resulted in a discriminatory and disproportionate effect on them due to their membership in a protected class (e.g., race, color, or sex). They don’t need to prove intent to discriminate, because the focus is on the actual impact rather than the intention.

Ultimately, the employee needs to demonstrate that they suffered a significant and identifiable disadvantage or loss of opportunity. Typically, this means presenting comprehensive data and statistics that highlight how the employment practice adversely affects individuals within the protected class.

It’s worth noting that the Equal Employment Opportunity Commission (EEOC) utilizes the 4/5ths rule to gauge whether employment tests and selection procedures comply with disparate impact regulations. According to this rule, a disparate impact is evident if one group’s selection rate is substantially less (by 80%) than that of another group.

What employers should know about disparate effect

• A disparate effect can have major organizational consequences. These may include systemic inequities that directly affect employees, potential class-action or individual employee lawsuits, and a dip in employee morale. This, in turn, can lead to retention challenges and difficulties in attracting top-tier talent.
• Employers must be vigilant about anti-discrimination laws, taking into account federal and applicable state or local laws that might lay the groundwork for disparate impact claims.
• Employers should never assume a policy is non-discriminatory simply because employees are abiding by it. With disparate impact, the employer doesn’t intend to discriminate, which means the policy can be discriminatory without the employer realizing it.
• To safeguard their organizations, employers should liaise closely with their legal teams, ensuring their employment policies are soundly crafted to minimize the potential of disparate impact.
• Employers can take practical measures to prevent disparate effects. For instance, conducting a thorough job analysis for each position helps ensure that the requirements in the job description are truly essential for the role. Moreover, executing pay audits can bring pay disparities to light, which must be addressed without delay.
• It’s important to offer discrimination training for pivotal roles like management and human resources, to promote awareness and compliance.