6 ways to cut legal risk of employee-referral programs

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.

Relying too much on referrals can place you at risk of a discrimination charge. Why? Employees tend to refer people like themselves, which may eliminate any chance of workforce diversity. Employers have been slapped with multimillion-dollar discrimination judgments for homogenous hiring that resulted from employee referrals.

Here are six ways to structure a legally sound referral program:

1. Limit the use of referrals to no more than 40% of hires. Don’t make it your only recruiting tool.

2. Use several channels to spread the word about open positions: email alerts, your website, career fairs and public job advertising. Always post jobs internally, too.

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3. Open your referral program to all employees. Don’t accept referrals only for certain job types or jobs in certain departments.

4. Don’t use referrals as a shortcut. Remind hiring managers that their goal is to find the best-qualified person, not the easiest option.

5. Verify referrals’ qualifications just as thoroughly as you would outside candidates.

6. 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.