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Improving Hiring and Avoiding Employment Litigation

By Chris Wright, Ph.D.

It’s time to take out the magnifying glass and take a hard look at your company’s hiring process.  Is your hiring process designed to select the highest quality candidates who have the greatest chance for success?  How vulnerable is your hiring process, and how likely is the process to be challenged?  

The costs of making poor hiring decisions are staggering.  The following statistics from the U.S. Chamber of Commerce, ACFE and FBI highlight this fact:

• Over 30% of all business failures are the result of negligent hiring.
• Embezzlement alone costs companies $4 billion a year.
• 7% of annual revenues are lost to fraud.
• 34% of resumes and 73% of job applications contain falsified or embellished information
• 34% of all employment verifications performed reveal exaggerated or fraudulent information.
• 11% of all educational verifications performed contain falsifications.  
• 37.6% of surveyed college students admit to a history of criminal offenses 

Similarly, the costs of employment litigation are significant.   If your hiring process is challenged, the typical employment litigation costs refer to expenses for filing and processing fees, depositions, witness fees, investigations, expert research, trial preparation and potentially damages and plaintiff legal fees.  According to a Business Week study, the average costs of an employment lawsuit are:

• $10,000 if the suit is settled
• $100,000 if it’s resolved through summary judgment or other pre-trial ruling
• $175,000 if it goes to trial
• $250,000 if the trial is won by the plaintiff(s)
• $300,000 if the plaintiff victory survives appeal

In my work with companies over the years, I have found that companies with a very structured selection process have a better chance of avoiding employment litigation and also end up hiring better people.   You have seen this diagram in one of my January blog’s, but I believe it is applicable for this discussion.  I would recommend the followings process and procedures for hiring.

The more objective your company’s hiring process is, the more successful it will be and also help you reduce the risk of litigation.  Many companies utilize assessments and behavioral interviews in order to gather as much information about a candidate as possible and to make sure that the same information is gathered for each candidate.    It is important, however, that companies be able to defend the “business necessity” of the tests, assessments or any other criteria they are using in the hiring and screening process.   In order for a test or assessment to demonstrate business necessity, the test or assessment must be job-related.   A great reference on the use of tests and assessments in the workplace is the EEOC guidelines for employment tests and selection procedures.

Finally, the best advice I can give is to make sure your hiring process has been reviewed by both a qualified industrial/organizational psychologist and an employment attorney.   These experts will be able to provide practical advice for developing a great selection process and avoiding employment litigation.

Dr. Wright is the founder, President and CEO of Reliant (www.reliantlive.com). He led the development of Reliant’s end-to-end Talent Management solutions and assessments. Over 1000 companies globally utilize one of Reliant’s talent management solutions.

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1 Response to “Improving Hiring and Avoiding Employment Litigation”

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