A recent executive order claimed that disparate impact liability “has hindered businesses from making hiring and other employment decisions based on merit and skill, their needs, or the needs of their customers.” In this article, Affirmity Principal Business Consultant, Patrick McNiel, PhD, argues why this is a mischaracterization of disparate impact liability and why impact analysis remains a critical risk assessment tool.
The Situation: EO 14281 and the Mischaracterization of Disparate Impact Liability
With the signing of Executive Order 14281 (Restoring Equality of Opportunity and Meritocracy—April 23) and its attack on the concept of disparate impact liability, organizations must figure out how to walk the tightrope between established laws and requirements and the intense pressure being brought to bear by the Trump administration to eliminate what they have been calling “illegal DEI”.
Unfortunately, this executive order grossly mischaracterizes what disparate impact liability is, and fails in any way to address the reasons for its existence in the first place. This form of liability serves to protect people from systemic discrimination. This is discrimination that is built into operations, policies, procedures, and methodologies that directly relate to, or that significantly influence, decisions that can positively or negatively affect people.
Systemic discrimination can take obvious forms, such as height or strength requirements for jobs that don’t need people to have a particular height or strength level (negatively impacting women). It can take forms that are a bit less obvious (but still fairly obvious), such as redlining, where people in certain neighborhoods were denied loans despite their creditworthiness (negatively impacting immigrants and minority groups). And, it can take forms that are harder to see, such as using employment tests with idiomatic expressions that are confusing and nonsensical to people outside of a particular majority group, which makes it more difficult for non-majority group members to do well on the test (negatively impacting everyone not in the majority group).
Such practices may be designed and intended to negatively impact particular groups (like redlining), but others may unintentionally impact groups in an adverse manner (like tests with unclear language).
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The Continued Value of Disparate Impact Liability
Disparate impact liability ensures that organizations and institutions in positions of power do not use proxies for race, gender, or some other protected class as a way to intentionally discriminate through indirect means. Additionally, this form of liability is meant to encourage due diligence in ensuring that operations, policies, procedures, and methodologies do not unintentionally discriminate by creating unnecessary barriers, hardships, or requirements that would disproportionately affect people in a protected class.
This focus on effect is needed as bad intentions are typically hidden. Adverse impact analyses are statistical tests designed to reveal disparate impact. These tests can show clearly how practices are disproportionately affecting people in different classes. Note that disparate impact specifically applies to “facially neutral” practices, however many practices are considered to be facially neutral until they are sufficiently challenged, at which point they may be broadly considered to be discriminatory in most cases.
5 Reasons Why Impact Analyses Remain Necessary and Guard Against Risk
So, what does all this mean for organizations? Essentially, it means that organizations can ill afford to dispense with matters relating to disparate impact, and that they should still know where they might carry liability. They should still be:
- Conducting adverse impact analyses of their hiring practices and major employment decisions.
- Ensuring that their employment selection tools are valid and consistent with business necessity (especially when they cause disparate impact).
- Modifying their processes to minimize disparate impact, as long as this does not unduly reduce the quality of employment decisions.
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1) Disparate Impact Remains Law, and Will Be Pursued Via Other Channels
First, despite EO 14281, disparate impact liability is part of a legal framework that has been built up for over 50 years. Disparate impact theory and liability are codified in the 1991 amendment to the Civil Rights Act of 1964, and have been upheld by the Supreme Court in Griggs v. Duke Power Co. (1971) and Smith v. City of Jackson (2005). Additionally, many court cases and the vast majority of the U.S. Courts of Appeals have considered and uniformly upheld the application of the disparate impact theory of discrimination.
While the Trump administration is instructing the EEOC and other federal agencies to cease enforcement activities related to disparate impact, plaintiffs’ attorneys will still be pursuing these cases, perhaps with more vigor than before. Additionally, we can be fairly sure that many states will re-emphasize or start creating legal frameworks in opposition to EO 14281.
2) Impact Analyses Do Not Act Contrary to Recent EOs
Second, conducting adverse impact analyses does not actually go against anything stated in EO 14281 or any of the other EOs issued by the Trump administration. These analyses simply provide information. Individual employment decisions are not made, and nothing is being done that might constitute “illegal DEI”. Even if this information is used to change practice, as long as the change does not unfairly disfavor a protected class, then it would be both lawful and likely not “illegal DEI” (I’m hedging here as the Trump administration has a history of being vague and mercurial about such things).
3) Impact Analyses Are Meritocratic By Definition
Third, the very function of conducting adverse impact analyses coupled with validation studies is to ensure well-qualified individuals are not unduly discounted because of their protected characteristics. Further, these analyses serve to ensure that the most qualified candidates who most deserve to be hired, promoted, trained, etc., and who have the most merit are not discounted.
From a business perspective, this is the most important function of the application of disparate impact theory as it ensures the pools of well-qualified candidates are as large as possible. It also ensures that an organization does not underutilize or reject people who would have the most positive impact due to their protected characteristics.
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4) Future Administrations May Pursue Organizations That Discontinue Impact Analyses
Fourth, political winds shift fast. We are already seeing the Trump administration engaged in its campaign against “illegal DEI” by targeting law firms and other organizations that were essentially acting in good faith to uphold the tenets of equal opportunity and engage in lawful DEI as they were understood through the communications of agencies in prior administrations. Unfortunately, this may set a precedent. Organizations that take the current administration’s stance as an excuse to ignore EEO requirements may become targets of future administrations when the winds shift again.
5) Inconsistency on Conducting Adverse Impact Analyses Is a Negative Trust Signal
Finally, people appreciate consistency in moral and ethical stances. If an organization was conducting adverse impact analyses before the Trump administration, then continuing to do so reinforces principles that employees, customers, investors, and the broader community have come to expect. This can enhance an organization’s reputation and the trust people have in it.
To equip your organization with software and solutions that address incoming policies and properly risk assess your employment decisions, contact us today.
About the Author
Patrick McNiel, PhD is a Principal Business Consultant for Affirmity. Dr. McNiel specializes in workforce analytics using both qualitative and quantitative methods to analyze employment practices and inform employment decisions. Dr. McNiel holds a PhD in Industrial and Organizational Psychology, and he is licensed to practice psychology by the State of Texas. Connect with him on LinkedIn.