Issue: Employees tend to refer people with similar characteristics to themselves.
Risk: Overrelying on employee referrals can create a homogeneous work force and spark discrimination complaints.
Action: Limit referrals to 40 percent of your new hires, and follow these other seven tips for a legally safe referral program.
Employee-referral programs can be a reliable, inexpensive way to find great talent. But you probably don't realize that they carry a hidden legal risk, too.
As recent court rulings have shown, relying too much on employee referrals can place your organization at risk of a hiring-discrimination charge. Why? Employees tend to refer people like themselves, which may eliminate any chance of work force diversity. Consider these two examples:
Case 1: Carl Buddig & Co., a meat processing company, agreed to pay $2.5 million and change its hiring practices to end a two-year spat with the EEOC. The agency said African-American applicants were rarely hired due, in large part, to Buddig's heavy reliance on employee referrals. (EEOC v. Carl Buddig & Co., No. 02 C 2240, N.D. Ill.)
Case 2: The Palm Restaurants were targeted by the EEOC, which said the restaurant group failed to recruit and hire women for server jobs. The problem: As the restaurants grew rapidly, they recruited solely through employee referrals. The Palm settled by agreeing to pay $500,000 and develop an extensive diversity program.
Legally safe referrals: 8 steps
Litmus test: If your employee-referral program "leads to applicants or hires who all share the same race or ethnicity, (you) may be steering into rocky waters," warned Ethan Cohen, the EEOC attorney in the Buddig case.
Here are eight ways to structure a productive, yet legally sound, employee-referral program:
1. Limit the use of referrals to no more than 40 percent of hires. Don't make it your only recruiting tool.
2. Spread the word about open positions via several channels, including e-mail alerts, newsletters, your Web site, career fairs and public job advertising. Always post jobs internally and externally. A broad advertising effort is a good defense against hiring-bias charges.
3. Let everyone participate; don't exclude certain groups. While you can encourage high performers to refer colleagues and friends, open your referral program to all employees. And don't accept referrals only for certain job types or jobs in certain departments.
4. Urge managers to resist peer pressure to hire employees' family and friends just because of the relationship. Apply the same qualifications to all applicants. Communicate job-related reasons behind every decision.
5. Don't use referrals as a shortcut. It's tempting to shave time off your search, but remind hiring managers that their goal is to find the best-qualified person, not the easiest option.
6. Verify referrals' qualifications just as thoroughly as you would outside candidates. Don't ease up on prescreening, reference checks or background checks just because an employee can vouch for the person.
7. Keep employee-referral rewards attractive but reasonable. Money or prizes can be a motivator, but it shouldn't be the main one.
8. Keep an ear to the ground. Even though you think your recruiting and referral methods aren't discriminating, some employees may see things differently. If an employee cries foul, take a fresh look at the referral program's fairness.
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