In OFCCP audits, the greatest risk of a big dollar, “hidden” discrimination finding has always been and continues to be from applicant to hire adverse impact analyses. Despite all the recent press surrounding the Agency’s heightened focus on finding and eradicating compensation discrimination, failure to hire claims are still the Agency’s “bread and butter.”

One reason for this is because it can be very difficult to explain (i.e. defend) hiring decisions made several months, if not years, in the past. OFCCP knows many employers receive far too many applications to be able to do a comprehensive job of documenting why each candidate fell out of the hiring process, which is exactly what you need to be able to do when defending a hiring decision. For example, can you say that you have all of your recruiters’ notes from candidate interviews that occurred in 2015? How about 2014? Or 2013?

That’s where disposition codes come in. Disposition codes are brief explanations for why candidates fell out of the hiring process that are stored in applicant tracking systems. As historical records, disposition codes can be a powerful tool to help counter what the statistical analyses may suggest. But that is not all they do. When constructed appropriately, disposition codes can impact the statistical analyses themselves . . . thanks to the Internet Applicant Rule (the “Rule”).

For example, a contractor may have a statistical flag in a position that is notoriously difficult to fill with females and that has no current female representation. If disposition codes are strategic and consistent, the contractor may be able to demonstrate that the female candidates were not “applicants” under the Rule because they simply were not qualified, declined offers for employment, or otherwise withdrew themselves from consideration. If they are not “applicants,” then they do not belong in an applicant-to-hire adverse impact analysis.

Strategically removing non-applicants from adverse impact analyses can be a great way to move the needle below statistical significance, particularly in view of the “Big Numbers Are Bad Numbers” phenomenon (i.e. the larger the group size, the more opportunity for a statistical trend to develop). But even if these female candidates were “applicants,” then appropriate disposition codes should reflect their rejection was for legitimate reasons, which is invaluable should the employees involved in the hiring (or rejection) decision leave the company before an audit begins.

The recent case of OFCCP v. Bank of America, ARB No. 13-099, ALJ No. 1997-OFC-016, is a timely reminder of the importance of disposition codes. In April, more than two decades after the OFCCP’s compliance review of Bank of America (“BOA”) began, the U.S. Department of Labor’s Administrative Review Board (“ARB”) largely upheld a lower decision finding hiring discrimination against African American applicants. At the heart of this case was the use, and alleged misuse, of disposition codes. In explaining its holding, the ARB provided valuable insight on how disposition codes may and should be used.

 

DISPOSITION CODES DID NOT HELP BANK OF AMERICA DISPROVE BAD STATISTICS

In Bank of America, statistical analyses of the contractor’s hiring process showed that African Americans were disfavored in the hiring process – at times by more than six standard deviations. “In effect, BOA admits that the statistical evidence is not good and, therefore, this case is not a case of a rosy version of the statistics competing with a troubling version; all the versions are troubling.” Bank of America, ARB No. 13-099, ALJ No. 1997-OFC-016, at p. 15.

Bank of America relied on its disposition codes and supporting evidence to attempt to demonstrate it did not rely on race in its hiring process. Unfortunately for Bank of America, however, two of their disposition codes – “RH” (disqualified for incompatible hours), and “RC” (disqualified because of credit checks) – resulted in exclusion of African Americans at a statistically significant greater rate than other racial groups.

After a “battle of the experts,” the lower court rejected Bank of America’s argument because it found the disposition codes were applied in an inconsistent and discriminatory fashion. The ARB upheld this determination.

 

WHAT WE CAN LEARN FROM BANK OF AMERICA

When a case like Bank of America comes down, it is important to consider how your systems would fair under similar scrutiny.

 

1. Are Your Disposition Codes Useful?

There may be nothing wrong with disqualifying candidates to bank positions who cannot work the required hours, or who have poor credit history, as Bank of America argued it was doing by using the “RH” and “RC” disposition codes. However the ARB appeared to want more specific and less cryptic codes. Because the standard deviations were so significant in this case, the ARB scrutinized Bank of America’s reasons for non-selections, but found the “RH” and “RC” disposition codes ambiguous.

Ideally, should it become necessary to justify an employment decision, strategic disposition codes will provide contemporaneous evidence of what the recruiter or interviewer thought and the basis for the decision. Remember, between the time your recruiter or hiring manager enters the disposition code and the time they are inspected by OFCCP or a court, years may have passed – in Bank of America, the hiring decisions occurred more than 20 years ago. In short, disposition codes should be clear enough to tell the story on their own.

bq lquo The best codes strike that delicate balance between being specific enough to convey “what happened” and not being so specific that recruiters and hiring managers are overwhelmed by too many options.bq rquo

Specifically, strategic disposition codes should include both the “when” and the “why” of the decision: When (or at what stage) did the candidate fall out of the hiring process (e.g., screening, testing, and interview)? And why did the candidate not advance?

Here are some examples of strategic codes:

  • Prescreening Stage – Not Considered
  • Screening Stage – Does Not Meet Basic Qualifications (Education)
  • Interview Stage – Candidate Withdrew
  • Interview Stage – Poor Communication Skills
  • Offer Stage – Candidate Declined Offer Due to Location

The general idea is to provide clarity and certainty about the decision, without overly long explanations that could themselves work against you. The best codes strike that delicate balance between being specific enough to convey “what happened” and not being so specific that recruiters and hiring managers are overwhelmed by too many options.

Vague codes and codes that don’t provide enough information will not be helpful in defending hiring decisions. For example, “Not Chosen” or “More Qualified Applicant Selected” do not explain anything useful and may actually be seen by OFCCP as a “cover” for something else, like discrimination. Other unhelpful codes include “interviewed/screened” or “applicant disqualified” – neither code explains why someone was not hired.

Further, OFCCP may be more willing to accept the applications of disposition codes at face value if they are unambiguous and tailored to the elements of the Internet Applicant Rule. For example, “Did Not Meet Basic Qualifications – Education” may be more readily accepted than “Not Qualified.” Similarly, “Candidate Self-Selected Out of Process – Salary Too Low” may be more readily accepted than “Candidate Not Interested.”

 

2. Are Your Managers Trained on Consistent and Non-Discriminatory Use of Disposition Codes?

Although strategic and clear dispositions are important, even the best disposition codes in the world will not help a contractor whose employees do not use them correctly. Throughout the Bank of America opinion, the ARB cited “the use of” the disposition codes as a central problem.

The ARB found “no evidence of criteria used by the recruiters in application of [the “RC”] disposition code.” In fact, the ARB wrote that because “no objective standards that BOA applied that could explain the gross disparity in BOA’s use of the codes,” it appeared the “RH” and “RC” disposition codes were “nothing more than code talk for ‘African American.’” Bank of America, ARB No. 13-099, ALJ No. 1997-OFC-016, at p. 16. In other words, there were no protocols in place that the Bank could use to explain why recruiters used these particular disposition codes when they did so, which may have cast light in why the codes were applied to African Americans so frequently.

What’s the lesson here? Regular training of recruiters, hiring managers and anyone else tasked with assigning dispositions is necessary to ensure the strategic codes you spent so much time developing are implemented properly. Without guidance and protocols in place, all your hard work on those codes may be for naught.

Such training should:

  • explain not only what each disposition means, but also under what circumstances each would apply;
  • discuss why precision in assigning them is critical – this information could become evidence in government investigations down the road;
  • discourage use of “catch-all” disposition codes that may tempt managers to default to one code for a group of seemingly like people; and,
  • emphasize that the disposition code selected should be reflective only of the candidate’s job-related qualifications and not the candidate’s membership in a protected class.

 

3. Conduct a Self-Audit

To ensure current disposition practices in your company are mitigating risk, as opposed to creating risk, consider periodic self-audits. Employers should routinely review their disposition codes to make sure they do not meet the criteria discussed above, but also still make sense for the organization. For instance, if you no longer use a pre-employment test, then you probably no longer need a disposition code that says something like “Failed Test.”

Employers should also examine how the codes are actually being used. For example, you can proactively analyze the use of individual disposition codes for potential adverse impact (preferably, under attorney-client privilege) to avoid a Bank of America situation 20 years from now. Another idea is to pull counts of how often each code is used to investigate whether some are being overused as a catch-all, or whether some may be no longer relevant to the organization and only add clutter to an already overly detailed process.

Finally, employers should periodically review their training materials and re-train their trainers.

 

CONCLUSION

If Bank of America has taught us anything, it is that employers must pay attention to their disposition codes. The good news is disposition codes can actually be quite helpful to employers in reducing the possibility of a discrimination finding, even in the face of tough statistical evidence.

Many nondiscriminatory reasons exist for not selecting a candidate. Disposition codes that document those reasons may be helpful evidence where statistical indicators are present. Employers who develop strategic disposition codes, apply them correctly, and periodically audit their processes to ensure ongoing compliance can lay a solid foundation for good evidence when OFCCP starts asking questions.

To discuss best practices related to your strategic disposition codes, or for more information on pay equity, OFCCP compliance, and audit defense, contact Scott Pechaitis at 303-876-2201 or scott.pechaitis@jacksonlewis.com or Chris Patrick at 303-876-2202 or christopher.patrick@jacksonlewis.com.

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