The four-fifths rule prescribes that a selection rate for any group (classified by race, sexual orientation or ethnicity) that is less than four-fifths of that for the group with the highest rate constitutes evidence of adverse impact (also called ‘disparate impact’), that is, discriminatory effects on a protected group. Adverse impact may occur in any of the company’s decisions related to employees – be it hiring, promotion, training, transfer or layoff. A particular test or selection procedure must be evaluated for effectiveness in terms of selection based only on characteristics relevant to the job or task. It may, however, render disadvantage to members of a race, sex or ethnic group.
For instance, if a company hires 50 percent of male applicants for positions in a predominantly male occupation but the rate for female applicants is 20 percent, there may be judged to be an issue of discrimination as the rate of hiring women is only 40 percent of that for male applicants, thereby violating the four-fifths rule.
The rule was first laid down by the Technical Advisory Committee on Testing (TACT) formed by the State of California Fair Employment Practice Commission (FEPC) in 1971. Although not a legal definition, it is specified in the Equal Employment Opportunity Commission (EEOC) guidelines and is a rule of thumb adopted by agencies worldwide to be eliminate vulnerability to charges of discrimination.
Disparate impact was first described by the Supreme Court of the United States in Griggs v. Duke Power Co., 401 U.S. 424, 431-2. The latter practised segregation of employees by race in a way that greatly disadvantaged African Americans. In the wake of the Civil Rights Act of 1964, Duke Power Co. added requirements of high school diplomas or minimum IQ test scores, thereby eliminating a significant proportion of African American applicants. The Supreme Court opined that businesses must demonstrate that such tests are reasonably related to the job or are consistent with business necessity. However, if the complainant can demonstrate that there is an alternative that can adequately screen applicants and be less discriminatory, then the business cannot defend itself on such grounds.