Don’t Fire Your DEI Strategy

Fair separation practices that won’t undermine your DEI progress (or land you in court)

By JENNIFER BENDER & SARAH RODEHORST

After the summer of 2020 spotlighted the racial tension that has been building in the United States, many companies placed greater emphasis on diversity, equity, and inclusion (DEI). In 2021, about 83% of U.S. organizations reported having diversity, equity, and inclusion initiatives, according to a survey by WorldatWork. Of those organizations, 89% used metrics to track DEI in recruitment — an indicator of progress. Companies talk a lot about diversity, equity, and inclusion in recruitment and hiring. However, there’s an absence of data related to employee separations, and especially involuntary separations. U.S. Bureau of Labor Statistics data shows that approximately 12% of the private workforce is involuntarily terminated each year. With more than 1 in 10 employees involuntarily terminated annually, companies must consider how these separations impact their DEI strategy. Even organizations with the best laid DEI plans may be surprised by the story the data tells about involuntary separations — whether due to layoffs or for-cause terminations. Most organizations manage employee separations manually, making it difficult to implement consistent and fair separation processes. Without automation and centralized data, transparency is limited, creating challenges when auditing for bias. There are two tiers to the DEI discussion. The first relates to legal boundaries for compliance with federal and state regulations. The second is about culture and strategic decisions to embrace a diverse, equitable, and inclusive workforce.

The Role of the EEOC

The U.S. Equal Employment Opportunity Commission (EEOC) enforces federal laws that make it illegal to discriminate against job applicants or employees. The EEOC oversees several regulations, including - Title VII of the Civil Rights Act of 1964 (Title VII), which prohibits discrimination on the basis of race, color, religion, national origin, or sex; - The Americans with Disabilities Act (ADA), which prohibits discrimination based on disability; and - The Age Discrimination in

Employment Act (ADEA) and the

Older Workers Benefit Protection Act (OWBPA), which together prohibit discrimination based on age. To stay compliant, employers should evaluate for potential discrimination throughout the employment process — but what does that really mean?

Prevent Bias in Your Selection Criteria

When planning a workforce reduction, an employer’s most important decision is identifying why employees will be let go. Companies make layoffs for many reasons, like reducing costs, restructuring, moving operations, selling an operation, or changing technology. Creating selection pools — i.e. the employees considered for reduction — is key when planning a reduction in force. Does your selection pool create risk of bias? Fair and equitable decisions can get messy when mixing reduction in force selection criteria. Therefore, it’s best to choose a single criterion, commit to it, and use DEI analytics to audit your decisions for inadvertent bias. Tenure and work elimination are relatively risk-averse reduction in force (RIF) selection criteria. If companies choose tenure, for example, they should follow the “last in, first out” rule because it’s objective. Employees who are the most tenured are typically older and age discrimination comes into play, whereas newer employees that are impacted may typically don’t meet that age threshold. Like tenure, work elimination is a straightforward criterion to use when selecting employees. If certain positions are going away or an operation is being relocated, the selection pool is easy to identify. Companies should choose selection criteria that eliminate the risk of bias.

Selection criteria that can undermine your DEI strategy include things like employee performance or skill set. These factors are more subjective, so they require solid supporting documentation. This includes performance reviews, skills surveys, email, feedback forms, or other productivity measurements. If companies use employee performance as their measure, ensure documentation illustrates that the employee knows where they stand. Employees should already know they are low performing in comparison to their peers. Carefully identified selection criteria can set a company up for success, but a less strategic approach can create significant risk.

Evaluate for Adverse Impact During a Layoff Diversity and inclusion should be top of mind during RIFs. Companies should run the numbers to ensure a particular employee demographic is not disproportionately impacted. If decisions adversely impact a protected employee class, companies will lose diversity of thought and create greater risk of discrimination claims.

For example, RIF selection criteria like reverse tenure (those with the longest tenure are the first to go) or largest salary put the company at risk of a lawsuit. Why? These scenarios are most likely to impact older employees, increasing the potential for age discrimination claims.

Regardless of RIF selection criteria, companies should always complete an adverse impact analysis. This helps ensure a protected employee class isn’t unfairly impacted.

Employers can evaluate employment decisions for adverse impact using the FourFifths Rule. If the selection rate for a certain group is less than 80% of the selection rate for the group with the most favorable rate, then that group has been adversely impacted.

In hiring, the most favorable rate is the highest rate, meaning all hiring rates should be at least 80% of the highest hiring rate. For terminations, the most favorable rate is the lowest rate, meaning all termination rates should be at least 80% of the lowest termination rate.

Though the Four-Fifths rule is widely accepted for large RIFs, it is sometimes criticized when used for smaller data sets. Therefore, to mitigate bias in RIFs, it’s best to evaluate your data against additional statistical models — including the Fisher Exact, Chi Square, and Standard Deviation.

Leverage Descriptive, Predictive, and Prescriptive DEI Analytics In addition to evaluating every RIF for adverse impact, organizations should measure voluntary and involuntary attrition on a monthly basis to identify any global trends that could reverse the company’s DEI progress. This data can then be used to forecast likely outcomes if there are no changes to the company’s separation practices. For more advanced organizations, the data can be used to model scenarios and evaluate actions or interventions that best support the company’s DEI strategy.

Prevent Age Discrimination by Complying with OWBPA When letting go of employees 40 years and older, companies should understand the requirements of OWBPA (defined earlier in The Role of the EEOC). OWBPA mandates requirements that protect older workers when asking them to “knowingly and voluntarily” waive their rights under the ADEA. The OWBPA waiver of rights is often part of the employee separation agreement. The EEOC pinpointed seven criteria that must be met to ensure a waiver of rights is knowing and voluntary under OWBPA. • Be written in a manner that can be clearly understood. • Specifically refer to rights or claims arising under the ADEA. • Advise the employee in writing to

consult an attorney before accepting the agreement. • Provide the employee with at least 21 days (45 days in group layoffs) to consider the offer.

• Give an employee seven days to revoke his or her signature. • Not include rights and claims that may arise after the date on which the waiver is executed.

• Be supported by consideration in addition to that to which the employee already is entitled. While employers may find it difficult to disclose the age of all considered and impacted employees, it is an OWBPA requirement that provides employees with the information they need to assess for age discrimination.

Develop Fair Separation Practices with Technology Separation technology simplifies individual separations and RIFs in compliance with corporate policy and employment laws. It guides human resources and legal teams through the separation process to mitigate bias and prioritize compliance. For example, companies can use separation technology to build employee pools and justify selections, comply with the Worker Adjustment and Retraining Notification Act (WARN), assess for adverse impact, and generate OWBPA disclosures. Companies can even calculate severance pay and generate severance packages to ensure consistent severance practices, all while the tool tracks notifications, deliveries, and signatures. Separation technology empowers HR, legal, and finance teams to protect their company and their employees by improving compliance, preventing bias, and promoting equity. Companies benefit operationally by reducing time spent and hard costs. Better yet, companies deliver a consistent, fair, and supportive employee exit experience that promotes a culture of trust while protecting the employer brand.

Jen Bender

SVP People Solutions Change Healthcare jennifer.bender@changehealthcare.com www.changehealthcare.com

Sarah Rodehorst

CEO & Co-Founder Onwards HR sarah@onwardshr.com www.onwardshr.com