Does your referral program cause illegal ‘Inbreeding’?

You view your employee referral program as a hands-down success because it brings in many new hires who perform well and have a tendency to stick around long-term.

But take a closer look at those referred candidates. Do they have the same skills, backgrounds, racial and ethnic traits as the people who referred them? Has that led to a homogeneous-looking workforce?

That’s a big red flag. It indicates that your referral program may actually be creating what recruiting consultants call “employee inbreeding.”

Hiring too many near-replicas can undermine long-term business goals and hurt efforts to bring in employees with different skills. Plus, it can create big-time legal trouble.

A Chicago meat-processing company paid $2.5 million to settle an EEOC lawsuit alleging that the company excluded black candidates. The EEOC said a key factor was the company’s overreliance on employee referrals.

To avoid inbreeding claims:

1. Limit the use of referrals to no more than 40% of hires.
Don’t make it your only recruiting tool. Two years ago, the EEOC issued a warning to employers to avoid depending too heavily on referral programs.

2. Track referral hires
to the employees who recommend them to see if the organization is bringing in clones.

3. Be wary of big bonuses for referrals.
Large bounties encourage people to recruit only for the money without thinking about the quality of the recruits. Generally, referral bonuses shouldn’t exceed $1,500 to $2,000.

4. Advertise openings through several channels.
Be able to show you reached out to a broad applicant pool. Post all jobs internally and externally. A broad advertising effort is a good defense against discrimination charges.

To create diverse (and legal) referrals, ask employees to:

  • Consider people other than friends, family members and neighbors.
  • View social situations—sporting events, dinner parties, working out at the gym—as opportunities to meet potential referrals.
  • Refer people because they are qualified, not because they are friends.
  • Objectively consider whether potential referrals would be good employees. (One way to encourage that: Require the referring employee to write a few sentences on why the person would be a good hire.)