Published by MBA Skool Team, Last Updated: November 30, 2015
What is Business Necessity?
Business necessity is defined as a particular practice which is considered necessary for effective or efficient business operation and there exists an explicit purpose for applying a particular business practice that might be considered discriminatory in nature. It is a defence that has been created by the courts and it is not easy to substantiate a business necessity.
Under the Civil Rights Act of 1964, the Equal Employment Opportunity Commission (EEOC) was established, which stated two types of discrimination- disparate treatment, which is illegal, and disparate impact treatment. For example, an organisation that prohibits Negroes to work because of factors that are totally unrelated to job performance, falls under the purview of disparate treatment, and is thus prohibited.
A business necessity decision taken by the management is consistent with other decisions of similar nature taken in the past and aim solely at genuine requirements of the organisation. Such decisions can be employment related and usually affect a disproportionately large group of people. If some management decisions require rejecting a large number of applicants on the basis of a single criteria even though they are otherwise suitable for the job, the case is that of a ‘business necessity’. Any business necessity defence that has been presented must be coupled with a significant proof of job relatedness. If the organisation can prove that the test used for a measure of employability has a genuine business necessity, they have a strong defence against disparate impact charges. On the other hand, it is prohibited to use business necessity as defence for an act of ‘disparate impact’.
A classic case that illustrates business necessity is Spurlock vs. United Airlines wherein United Airlines was sued by a candidate on the behest of their requirements of a pilot to have a college degree and 500 flight hours. The candidate was a minority and the court agreed that such requirements adversely impacted the prospective candidates of the minority group. However, as United Airlines has to expend heavy costs in training and there is a huge cost involved in terms of both human and material risks in hiring sub-par candidates, the determined selection criteria were purely job related and a business necessity.
Hence, this concludes the definition of Business Necessity along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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