October 2013

Economists and other financial experts are often hired to assess damages, assuming that liability will be proven.  However, liability it self can sometimes be established or disproven based on statistics.

For example, in a recently affirmed case involving employment discrimination, the application of a simple method failed to provide the Court with information that would likely have changed their decision.  The Federal Court (and the Sixth Circuit Court of Appeals) concluded employer discrimination against protected classes occurred based on a simple calculation commonly referred to as the “four-fifths rule” or the “80% rule”.  In contrast, more rigorous statistical methods suggest otherwise and the City of Akron, Ohio may have been unfairly penalized.

Employers who employ standardized tests to hire and/or promote candidates must ensure that such tests do not adversely impact protected classes.  In Howe v. City of Akron, Case No. 11-3752 (6th Cir. July 22, 2013) the issue was whether the City of Akron’s fire department used procedures to promote candidates to lieutenant and captain that were prejudicial.  Plaintiffs were allowed to exclusively rely upon the “four-fifths” rule to establish adverse impact.  The U.S. EEOC’s describes this simplistic four-fifths guideline of testing for adverse impact, but also warns against weaknesses in its application:

“A selection rate for any race, sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact. … Greater differences in selection rate may not constitute adverse impact where the differences are based on small numbers and are not statistically significant …(emphasis added)

Using this rule, Plaintiffs convinced the Court that African-Americans and those over 40 were being unfairly treated in the Akron fire department with respect to Lieutenant promotions.  The data and calculations follow:

Table 1:  Four-fifths (aka 80%) test suggests African American don’t get enough Lieutenant promotions

Promoted

Not Promoted

Total

Adverse Impact Ratio

Pass 80% test?

Caucasian

25

44

69

25 / 69 = 36%

NO, because 55% is less than 80%

African American

3

12

15

3 / 15 = 20%

Total

16

56

84

20% / 36% = 55%

 

Table 2:  Four-fifths (aka 80%) test suggests those over 40 don’t get enough Lieutenant promotions

Promoted

Not Promoted

Total

Adverse Impact Ratio

Pass 80% test?

Over 40

7

22

29

7 / 29 = 24%

NO, because 63% is less than 80%