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«NOTES WORD-OF-MOUTH RECRUITING: WHY SMALL BUSINESSES USING THIS EFFICIENT PRACTICE SHOULD SURVIVE DISPARATE IMPACT CHALLENGES UNDER TITLE VII Tobin ...»

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NOTES

WORD-OF-MOUTH RECRUITING: WHY SMALL BUSINESSES

USING THIS EFFICIENT PRACTICE SHOULD SURVIVE

DISPARATE IMPACT CHALLENGES UNDER TITLE VII

Tobin M. Nelson*

Joe’s Widget Company, a sole proprietorship specializing in

manufacturing and selling widgets to businesses and consumers, operates in

a small community in the Midwest. Joe started the company eighteen years ago out of his own garage with a five thousand dollar loan from his father and a single employee in his brother. Within two decades, Joe’s had sales exceeding four million dollars annually and sold its widgets to customers in three different countries and twelve states. With twenty-one employees, Joe’s had become one of the community’s fifteen largest employers.1 However, the historical success of this small business is being threatened by its present economic environment. Over the last few years, competition in the widget industry has become fierce. Several foreign widget manufacturers have used e-commerce to successfully penetrate the American widget market.

Due to significantly cheaper labor overseas, these foreign manufacturers have a strong competitive advantage over domestic widget manufacturers. In response, many domestic manufacturers have moved their manufacturing operations overseas to take advantage of the lower wage rates, a capability Joe * The author is a J.D. and M.B.A. candidate at the University of Pittsburgh’s School of Law and Joseph M. Katz Graduate School of Business. He will receive his degrees in December 2007. The author wishes to thank Benjamin E. Bratman, Associate Professor of Legal Writing at the University of Pittsburgh School of Law, for his guidance and scholarly feedback during the preparation of this note.

1. An employer is not bound by the requirements of Title VII unless it employs fifteen or more employees. 42 U.S.C. § 2000e(b) (2005).

450 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 68:449 feels he does not possess as a small manufacturer. Furthermore, WidgMart, a discount widget producer known internationally for “choking” its suppliers for the lowest possible price in order to offer retail customers the absolute lowest price, recently opened a store near Joe’s community. By offering these low prices, WidgMart is notorious for quickly putting small local competitors out of business. Moreover, due to skyrocketing healthcare costs, Joe is not sure if he can continue to offer his employees health insurance while keeping the company above water. If he stops offering health insurance, Joe knows that several of his most valuable and loyal employees will be forced to seek employment elsewhere in order to insure themselves and their families. Times are very difficult for Joe’s Widget Company.

Despite these difficulties, due to a new production contract and a current employee who wants to switch to part-time, Joe needs to hire another employee. Historically, Joe has actively encouraged and exclusively used a word-of-mouth recruitment system in order to attract and hire new employees.

Joe’s only reasons for the policy are that it is a cost-free method of recruiting employees and has previously resulted in a very efficient and reliable workforce. Joe has never considered racial animus a motivation for the policy. Because Joe’s current employees are all white, this system increases the chances that prospective employees will likewise be white since employees of a certain race are more likely to recommend friends and family of the same race than persons of a different race.2 Joe’s local attorney has cautioned him that continuing this recruitment policy could potentially result in liability under Title VII through a disparate impact legal theory.3 Because the company’s workforce is composed entirely of white workers and the surrounding community has a twenty-percent minority population, Joe’s attorney advised him that he potentially could be forced to adopt other recruitment policies that require a greater investment of capital and time.

2. See Thomas v. Wash. County Sch. Bd., 915 F.2d 922, 925 (4th Cir. 1990) (holding that nepotistic and similar practices in a predominantly white work force may operate to exclude outsiders); Jean Powell Kirnan et al., The Relationship Between Recruiting Source, Applicant Quality, and Hire Performance: An Analysis by Sex, Ethnicity, and Age, 42 PERSONNEL PSYCHOLOGY 293, 295 (1989) (noting that “current employees would most often refer applicants like themselves”).

3. See 42 U.S.C. § 2000e-2(k)(1)-(3) (2005). Numerous employment practice materials warn against the use of word-of-mouth recruiting as an exclusive means of filling job vacancies. See, e.g., Wordof-Mouth Recruiting, 5 EMPLOYMENT COORDINATOR § 39:31 (2006), available at EMPC Employment 39:31 (Westlaw); Louis A. Jacobs & Andrew J. Ruzicho, Communicating About Openings By Word-ofMouth, 1 EMPLOYMENT PRACTICES MANUAL § 4:1 (2006), available at 1 EMPPM 4:1 (Westlaw); STEVEN KAHN & BARBARA BERISH BROWN, LEGAL GUIDE TO HUMAN RESOURCES § 2:17 (2006), available at LGHR 2:17 (Westlaw).

2006] WORD-OF-MOUTH RECRUITING 451 However, the extreme competition that Joe’s Widget Company currently faces, Joe fears that a costly policy change could force the company into bankruptcy.





An employer violates Title VII when he “fail[s] or refuse[s] to hire...

any individual... with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”4 Congress’s primary goal in enacting Title VII was to “achieve equality of employment opportunities and remove barriers that have operated in the past to favor an identifiable group of white employees over other employees.”5 Title VII causes of action arise under both “disparate treatment” and “disparate impact” theories. Disparate treatment theories proscribe overt discrimination by requiring proof of employer intent or facts from which the court can infer discriminatory intent.6 On the other hand, disparate impact theories make it unlawful for employers to make use of practices that are neutral on their face and in terms of intent, but that discriminate in their operation.7 Generally, word-of-mouth recruitment is the cheapest form of employee recruitment since it is essentially costless.8 Furthermore, under certain circumstances, this form of recruitment may also be the most efficient and effective practice for an employer.9 For instance, new employees procured through existing employees’ referrals are generally more likely to have an accurate picture of the current status of the business, its working conditions, and the organization’s norms than employees acquired through methods unconnected to the business, such as through employment agencies or newspaper advertisements.10 Additionally, existing employees are unlikely to refer persons who would not be a good fit within the organization because an

4. 42 U.S.C. § 2000e-2(a)(1) (2005).

5. Griggs v. Duke Power Co., 401 U.S. 424, 429-30 (1971); Albemarle Paper Co. v. Moody, 422 U.S. 405, 417 (1975).

6. Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 645-49 (1989), superseded by statute, Civil Rights Act of 1991, Pub. L. No. 102-166, 105 Stat. 1074, as recognized in Raytheon Co. v. Hernandez, 540 U.S. 44 (2003).

7. Griggs, 401 U.S. at 430-33.

8. See EEOC v. Consol. Serv. Sys., 989 F.2d 233, 235 (7th Cir. 1993) (“If an employer can obtain all the competent workers he wants, at wages no higher than the minimum that he expects to have to pay, without beating the bushes for workers—without in fact spending a cent on recruitment—he can reduce his costs of doing business by adopting [word-of-mouth recruitment].”); Kerri Koss Morehart, How to Create an Employee Referral Program That Really Works, HRFOCUS, Jan. 2001, at 3 (stating that employee referral programs lead to the lowest cost per hire of all recruitment methods).

9. See Consolidated, 989 F.2d at 236; discussion infra Part III.

10. Consolidated, 989 F.2d at 236.

452 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 68:449 unworkable relationship between the employer and the referred employee only reflects poorly upon the existing employee.11 Therefore, besides being much cheaper than alternative recruitment methods, the result of word-of-mouth recruitment may often be a better informed pool of new employees who are more likely to be a good match within the organization.12 Yet a few circuit courts of appeals have either fashioned or instructed district courts to fashion remedies that require employers to pursue more expensive, and possibly less efficient, recruitment methods.13 Efficiency has been accepted by at least one court as a sufficient employer justification in rebutting a plaintiff’s prima facie case in the disparate treatment context,14 but not yet in the disparate impact context.15 This article addresses why, under certain narrow circumstances,16 a small business should be able to successfully rebut a plaintiff’s disparate impact prima facie case based on efficiency and cost arguments, and thereby lawfully maintain a word-of-mouth recruiting practice as its primary or exclusive method of employee recruitment.

Part I of this Note examines the current status of the disparate impact framework and the confusion surrounding an employer’s burden in demonstrating business necessity under Title VII. Part II scrutinizes the active versus passive word-of-mouth practice distinction and describes the circumstances under which employees have failed to successfully demonstrate that word-of-mouth recruiting is a “particular employment practice.” The effect of the Seventh Circuit’s decision in EEOC v. Consolidated Service Systems17 on how the efficiency of word-of-mouth practices plays a role in Title VII analyses is the focus of Part III. Lastly, this Note concludes that, when a small business is under extreme competitive pressures and word-ofmouth recruitment is the most efficient and effective method of recruitment,

11. Id.

12. Id.

13. See, e.g., Thomas v. Wash. County Sch. Bd., 915 F.2d 922, 926 (4th Cir. 1990) (instructing the district court to award an injunction requiring the school board to publicly advertise vacancies); United States v. Ga. Power Co., 474 F.2d 906, 926 (5th Cir. 1973) (holding that the employer’s word-of-mouth recruiting practice must be supplemented or changed, and encouraging public advertising).

14. See EEOC v. Consol. Serv. Sys., 989 F.2d 233, 236 (7th Cir. 1993).

15. See, e.g., EEOC v. Andrew Corp., No. 81 C 4359, 1989 WL 134001, at *6 (N.D. Ill. Sept. 12, 1989) (rejecting an employer’s argument that it should not be forced to adopt more costly recruiting procedures since word-of-mouth recruitment attracted enough sufficiently qualified applicants).

16. See discussion infra Part IV.

17. 989 F.2d 233 (7th Cir. 1993).

2006] WORD-OF-MOUTH RECRUITING 453 the small business should not be vulnerable to employees’ disparate impact claims under Title VII.

–  –  –

Disparate impact claims do not require any evidence of an employer’s discriminatory intent or motivation.18 Therefore, an employer’s facially neutral employment practices that in operation have significant adverse effects on protected groups may still violate Title VII.19 The motivation behind the Supreme Court’s interpretation of disparate impact theories is that certain employment practices that appear to lack deliberately discriminatory motives “may in operation be functionally equivalent to intentional discrimination.”20 The disparate impact framework entails a burden-shifting analysis that is common in Title VII causes of action.21 The employee’s prima facie case involves a three-prong analysis first formulated in part by the Supreme Court in Griggs v. Duke Power Co.22 In order to make out a prima facie case, the employee must “demonstrate[] that a[n] [employer] uses a particular employment practice that causes a disparate impact on the basis of race, color, religion, sex, or national origin....”23 Therefore, the employee must identify a specific employment practice and demonstrate that the identified practice causes24 a disparate impact on a protected group. The burden then shifts to the employer to demonstrate “that the challenged practice is job related for the position in question and consistent with business necessity.”25 If the employer satisfies this burden, the employee may still prevail by demonstrating that an

18. Coleman v. Sch. Bd. of Richland Parish, 418 F.3d 511, 520 (5th Cir. 2005).

19. Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 645-49 (1989), superseded by statute, Civil Rights Act of 1991, Pub. L. No. 102-166, 105 Stat. 1074, as recognized in Raytheon Co. v. Hernandez, 540 U.S. 44 (2003).

20. Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 987 (1988) (plurality opinion).

21. See Cengr v. Fusibond Piping Sys., 135 F.3d 445, 451 (7th Cir. 1998) (observing the common use of the burden-shifting approach for Title VII cases originally laid out in McDonnell Douglas Corp. v.

Green, 411 U.S. 792, 802-03 (1973)).

22. 401 U.S. 424, 431 (1971).

23. 42 U.S.C. § 2000e-2(k)(1)(A)(i) (2005). The three prongs can succinctly be labeled: (1) particular employment practice, (2) causation, and (3) disparate impact.

24. This causal relationship between the identified employment practice and the disparate impact is usually proven through statistics. However, the “statistical disparities must be sufficiently substantial that they raise such an inference of causation.” Watson, 487 U.S. at 994-95.

25. 42 U.S.C. § 2000e-2(k)(1)(A)(i) (2005); Griggs, 401 U.S. at 431.



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