Adverse Impact Analyses

"Adverse impact" is defined as a substantially different rate of selection in hiring, promotion, termination, or other employment decision that works to the disadvantage of members of a race, sex or ethnic group. (Note that it applies to Caucasians and males as well.)

The Impact Ratio Analysis (IRA) is the most common tool -- or statistical analysis -- for identifying areas of adverse impact.

"It is important to remember that an adverse Impact Ratio Analysis is only a preliminary indicator of a potential discrimination problem. It is not proof, in and of itself, of discrimination, or of the existence of an affected class . . . Only further investigation onsite can determine whether discrimination has occurred." (Federal Contract Compliance Manual)

If a Compliance Officer determines adverse impact against a particular group during an OFCCP Compliance Evaluation (formerly, Compliance Review), the Compliance Officer will investigate to determine if there is discrimination in the employer's selection processes. Generally, it will be up to the employer to justify the difference in selection rate on the basis of business necessity or job relatedness. In other words, if the Compliance Officer's statistical analysis determines adverse impact, the employer must be able to adequately account for it, or the OFCCP is likely to call it discrimination.

Just as a federal Compliance Officer does, we use the Impact Ratio Analysis (IRA) to determine if adverse impact is indicated in a selection process. We run an IRA by AAP job group, for each selection process (hires, promotions and terminations) for women and each minority group. If a group's rate of selection is less than 80% of the most favored group's, the group with the lower rate will probably be regarded as experiencing adverse impact. The results of our pre-emptive IRA will help your company identify personnel activity that should be investigated immediately.

It is critical that an Impact Ratio Analysis be done on selection rates at least annually (and always before a significant lay off).

Knowing the potential areas of adverse impact will help your company pre-empt the Compliance Officer in a Compliance Evaluation (and the plaintiff's attorney in a lawsuit). Better still, if you have analyzed selection rates and addressed potential areas of adverse impact in previous years, there may no longer be such areas for a Compliance Officer to find!

Note: The OFCCP may presume adverse impact if your company has not maintained required data to prove otherwise. OFCCP is particularly likely to draw that inference if there are placement goals for a protected class, disproportionately few promotions/hires for that protected class, and missing records.

To conduct the Impact Ratio Analyses, we'll need the previous Affirmative Action Plan (AAP) year's worth of personnel activity data, including:

  • applicant flow
  • hires
  • promotions and transfers
  • terminations (both voluntary and involuntary)
  • baseline data from the previous AAP's Job Group Analysis

If your company did not have an AAP, but does have applicant flow and hires data from the previous year, we will be able to conduct the Hires vs. Applicants Impact Ratio Analysis only.

Rest assured, we will offer you guidance and templates for setting up the systems and processes to collect the requisite data going forward.


 back to top