by Andy Rodman
Q My company is having difficulty attracting qualified candidates for high-tech positions. We’re considering implementing a referral bonus policy, under which a current employee would be paid $500 for referring a candidate who is hired. Is this type of policy legal?
A There is nothing inherently illegal about a referral bonus policy. In fact, many companies have successfully implemented such policies to attract and retain qualified employees. Some studies have shown that employees hired through word of mouth are less likely (perhaps up to 15 percent less likely) to quit.
That said, referral bonus policies are not without risk. When it comes to word-of-mouth recruiting, the Equal Employment Opportunity Commission’s (EEOC) position is as follows: “While word-of-mouth recruiting in a racially diverse workforce can be an effective way to promote diversity, the same method of recruiting in a non-diverse workforce is a barrier to equal employment opportunity if it does not create applicant pools that reflect the diversity in the qualified labor market.”
Essentially, the EEOC is saying that if your workforce is already diverse, then word-of-mouth recruiting is permissible and may even promote further diversity. But if your workforce is not diverse, then word-of-mouth recruiting may perpetuate the company’s lack of diversity. When a facially neutral policy (e.g., a referral bonus policy) perpetuates a company’s lack of diversity, the policy may have a disparate impact on people with protected characteristics. A policy that has such a disparate impact may violate Title VII of the Civil Rights Act of 1964.
For example, when it comes to word-of-mouth recruiting, one study has found that approximately 71.5 percent of employees refer candidates of the same race, and 63.5 percent refer candidates of the same gender. So if your company already is largely composed of white male employees, then implementing a word-of-mouth referral bonus policy may perpetuate the white male composition of the workforce and inhibit diversity. The policy may even violate Title VII under a disparate impact theory.
When it comes to recruiting, it is prudent to cast a wide net. Don’t rely exclusively on a single source to recruit and hire qualified employees. A referral bonus policy may be part of your overall recruiting plan, but don’t forget about recruiting through classified ads, the Internet, job fairs, trade groups, and summer internship programs.
Andy Rodman is a shareholder and director at the Miami office of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.. You may contact him at email@example.com.