When the First Domino Falls: The Risks of Outsourcing Hiring Decisions

 Employment Testing: Failing to Make the Grade — Ten Years Later, Part 3

In August 2013, this blog published When the First Domino Falls: Consequences to Employers of Embracing Workforce Assessment Solutions.

The post raised a concern that has become even more significant with the rapid expansion of artificial intelligence in employment screening.

What happens when thousands of employers rely on the same commercially developed assessment system—and that system turns out to violate employment discrimination laws?

The potential consequences are not necessarily limited to one employer, one workplace, or one group of job applicants.

The same problem may be reproduced across thousands of hiring decisions and numerous employers.

The Attraction of Outsourcing

Employers have understandable reasons for using third-party screening products.

Automated systems promise faster processing, consistent evaluation standards, reduced administrative costs, and improved identification of promising candidates.

For companies receiving thousands of applications, those benefits can be substantial.

But outsourcing a hiring function does not necessarily transfer the employer's legal responsibilities to the software company.

Employers remain responsible for complying with applicable employment discrimination laws, even when they rely on vendors to evaluate applicants.

That raises a basic question:

What does the employer actually know about the system it is using to decide who receives an employment opportunity?

Validation Is Not Simply a Vendor's Responsibility

A software company may advertise that its assessment has been scientifically validated or that its algorithms predict successful employees.

But validity is not necessarily universal.

A screening procedure developed using one employer's workforce may not perform in the same way for another employer, occupation, or applicant population.

Likewise, a test that predicts one measure of workplace performance may be less effective—or inappropriate—for evaluating a different position.

Employers should therefore examine whether a selection procedure is suitable for its intended use and whether available evidence supports its application to the particular jobs being filled.

They should also consider whether the system creates discriminatory effects or accessibility barriers.

Accepting a vendor's assurances without examining these questions may leave important legal and practical risks unaddressed.

The Problem of Shared Liability

The 2013 post also questioned whether the widespread use of common assessments could produce systemic legal exposure.

That concern extends beyond employers.

Software developers, assessment companies, consultants, and other vendors may face legal claims depending on their conduct, their relationships with employers, and the applicable laws.

The allocation of liability is not identical under every employment discrimination statute. Nor does the existence of a vendor agreement automatically establish the vendor's responsibility to applicants.

But the growing reliance on shared screening systems raises questions about who designs the selection criteria, who controls the decision-making process, who possesses relevant records, and who can correct discriminatory results.

These questions become especially important when employers cannot fully explain why a particular applicant was rejected.

Can Indemnification Solve the Problem?

The original blog also examined contractual indemnification—agreements under which screening companies may promise to reimburse employers for certain legal claims.

Such agreements can be useful.

But indemnification does not prevent discrimination, erase statutory obligations, or necessarily compensate every employer for every loss.

A vendor might dispute whether a claim falls within an indemnification provision. Coverage may be subject to limitations or exclusions. Insurance may be insufficient for unusually widespread litigation.

And reputational harm, lost applicants, and disruption to hiring operations may be difficult to repair.

The better approach is to evaluate the screening system before problems arise and continue monitoring its operation.

A Warning That Has Become More Relevant

The risks discussed in 2013 have grown alongside the reach of automated employment systems.

A questionable assessment used at a single workplace might affect dozens or hundreds of applicants.

A similar assessment integrated into a widely used hiring platform could affect vastly more people.

That does not mean every shared screening system is discriminatory or that all customers of a vendor automatically face identical liability.

It does mean the consequences of a poorly designed or inadequately evaluated system may extend well beyond its original developer.

The first domino may be a single applicant's challenge. The larger question is how many other hiring decisions depended on the same system.

Next: The Workday litigation and the questions courts are now confronting about automated hiring and vendor responsibility.