Changes to Federal Enforcement of Disparate Impact: How to Comply

In the recent SHRM webinar “Understanding the Changes to Federal Agency Enforcement of Disparate Impact Enforcement,” Alex Alonso, Ph.D., SHRM-SCP, chief data and analytics officer at SHRM, hosted a discussion on executive orders (EOs) on disparate-impact enforcement and diversity, equity, and inclusion programs — and what employers should do to stay compliant. Joining him were David Fortney, an attorney with Fortney and Scott LLC in Washington, D.C., and David Cohen, president of DCI Consulting in Washington, D.C.

Disparate impact occurs “when a seemingly neutral selection procedure disproportionately screens out members of a protected class and that selection procedure is not job-related and consistent with a business necessity,” Alonso said. The critical factor is whether the hiring test measures a candidate’s fit for a particular job and is therefore validated. If a selection procedure is valid and there are no other reasonable alternatives, it is legal even if there is an adverse impact.  

“There is no such thing as a valid test” in itself, Alonso cautioned. “A test can only be validated for a job, and context always matters.” For example, if a selection procedure, such as a physical strength test, disproportionately screened out women, it would raise a red flag. But if the job in question had a physical component, the test may likely be job-related and necessary for the business. However, the same test would likely not be validated for a sedentary office job.  

Disparate Impact Enforcement Deprioritized

In April, the Trump administration issued EO 14281, which seeks to “eliminate the use of disparate-impact liability in all contexts” on the basis that such liability in fact “imperils the effectiveness of civil rights laws by mandating, rather than proscribing, discrimination.” The president ordered federal agencies to no longer pursue adverse-impact claims and to “deprioritize” the issue.  

However, disparate impact is “part of Title VII. It is in the statute itself,” Fortney said. “An executive order from the president cannot change a statute.” This means that disparate-impact liability has not been erased. While federal agencies may not actively enforce the statute, private plaintiffs, states, and other parties are still able to pursue claims.  

“In terms of overall enforcement, I don’t think employers will see a big change,” Cohen said. 

Creating Compliant Selection Procedures 

EO 14281 may lead employers to question the legality of their current selection procedures. “There’s a misunderstanding that [employers] should stop collecting data,” Fortney said, but this notion is misguided. Employers should keep collecting data and monitoring their selection processes, being sure to have documentation on hand in the event of a claim.  

HR professionals should ensure that recruitment and other employment practices prioritize equal opportunity for all, rather than try to guarantee certain outcomes with practices that may lead to Title VII liability, such as quotas or other preferences to ensure equal outcomes. Such actions are “a violation of Title VII,” Cohen said.  

To put together a compliant selection procedure, employers should first ensure that any test actually does what it is meant to do — analyze a candidate’s fit for a position. To do this, HR professionals need to analyze the skills and requirements of a particular job and from there, build a selection system. It is incumbent upon the employer to “tie the test to the job,” Cohen explained. Companies that purchase tests from vendors should ask if the vendor has done a validation study to see whether the test analyzes the characteristics it is supposed to.  

Validating Selection Tests

As a form of due diligence, validation acts as a legal safe harbor, according to Fortney. “If you’ve properly validated a test,” regardless of whether it has a resulting impact, “you’re good to go, legally,” he said.

Pre-employment screening toolkit

A selection tool might inadvertently and unintentionally have an adverse impact, but validation can justify that effect. It guarantees that selection criteria are tied specifically to job duties or company needs. Essentially, “validation is meritocracy,” Cohen said. If an employer can prove validity, “it’s almost like immunity from an impact claim.”

That said, employers must be careful to check whether selection procedures have been validated or not. 

It is important to note that jobs change over time and validations can become out of date. Fortney said this is one of the most common scenarios he has observed. Employers should keep a validation refreshed as the position to which it pertains changes in line with the business or technology adaptations. 

Collecting Demographic Data 

Considering the Trump administration’s view that “disparate-impact liability all but requires individuals and businesses to consider race and engage in racial balancing,” employers may wonder whether they should still collect demographic data from candidates.  

The reality is that collecting demographic information is unlawful “if you’re using it in a way that it is then [possible] to skew hiring decisions,” Fortney said. “That’s not the proper use,” since it suggests the creation of a quota. 

“Decision-makers shouldn’t have that data when determining who to hire,” Cohen agreed. He recommended that HR professionals conduct an inclusion and diversity (I&D) risk assessment to ensure “there aren’t any artificial barriers to employment” during the hiring process.