In a recent Alert, I discussed the OFCCP’s filing of a law suit with the Office of ALJs against Palo Alto company Palantir, a technology company. The claim is that Palantir discriminated systematically against Asian job applicants in hiring in comparison to Non-Asian applicants for three positions. The gist of that alert is that we had seen this before in relation to OFCCP v. Jeanswear Limited. Alerts on that case were written by myself (8/7/13) and Jana Garman and David Cohen (9/4/13). The ALJ in that case (Kevin A. Krantz) ruled against the OFCCP on grounds that it is not Kosher to compare a single group to the aggregate of several other groups to form an adverse impact claim. We stand strongly behind that view.
However, at the same time, I feel it is necessary to understand that one of the ingredients in the Jeanswear case, namely word-of-mouth referral (and walk-in hiring) deserves additional attention. Recall that in Jeanswear, the claim was that non-Asians fared worse than Asians because of word-of-mouth referral. Specifically, the claim was as follows:
a. Applicants referred by employees were given priority in selection for interviews;
b. Asian employees were much more likely to use the referral system;
c. Asian employees made the most referrals; and
d. Asian employees were highly likely to refer Asian applicants when making referrals.
In other words, in this case, it was Asians who were deemed advantaged and non-Asians deemed disadvantaged (the opposite of Palantir).
The word-of-mouth issue was not directly addressed in either of the cases. I am not suggesting that such a case would work in either Jeanswear or Palantir, but rather, it is an issue that can easily entrap small to medium sized companies that rely on word-of-mouth recruitment. It’s been awhile since an enforcement agency actually filed a word-of-mouth claim (see EEOC v. ACM), but the EEOC has a long history of opposing word-of-mouth recruitment when it occurs in a company with a homogeneous population. For example, in its questions and answers on race discrimination the EEOC says the following about word-of-mouth referrals:
The EEOC also states that “Employers should attempt to recruit from racially diverse sources in order to obtain a racially diverse applicant pool.”
There may or may not be merit to the word-of-mouth claim in either Jeanswear or Palantir, but there were critical cases on word-of-mouth recruitment in the late 1980s and mid 1990s. For example, in 1991, World’s Finest Chocolate entered into a 2-million-dollar settlement with the EEOC six days after President Bush signed the Civil Rights Act of 1991 into law. The company was predominantly white male, and it stayed that way because of the combination of word-of-mouth recruitment and walk-in hiring.
There are other cases, but they fit the same mold. The point is there are two ways to get in trouble here. First, to rely entirely on word-of-mouth recruitment absent any attempts to ensure racial and gender diversity in applications is problematic if a small or medium sized company has a homogeneous workforce. Second, if there is both word-of-mouth and other standard means of referral, as suggested in the allegations in Jeanswear, a viable adverse impact claim could arise if word-of-mouth referred applicants are favored over the other applicants.
By Art Gutman, Ph.D., Professor, Florida Institute of Technology
 In fact, word-of-mouth recruitment and walk-in hiring were two of the four alleged sources of discrimination in Wards Cove v. Atonio (1989), the landmark Supreme Court case that fueled the Civil Rights Act of 1991 (the other two being nepotism and subjective decision making).