What is Business Necessity?

Business necessity is a legal concept that can be used to justify an employer’s decision to use employment criteria that disproportionately affects a particular group, based on the assumption that the company has a legitimate reason to do so due to the needs of the business. While the Equal Employment Opportunity Commission (EEOC) generally prohibits the use of hiring criteria that causes disparate impact, these types of hiring criteria are permitted when they are shown to be “job-related and consistent with business necessity.” In other words, businesses must be able to demonstrate that the criteria they use are necessary for the successful functioning of their businesses.

Almost every type of hiring criteria will disproportionately affect certain groups over others. For instance, simply requiring a college degree may disproportionately screen out members of certain socioeconomic groups. This disproportionate effect, also called disparate impact (or adverse impact), is relatively common across different hiring criteria.

As it relates to pre-employment tests, employers should only use tests that screen for abilities that are job-related and consistent with business necessity. For example, if a company is hiring hairstylists, it would be inconsistent with business necessity to administer a Microsoft Excel test to the applicants unless the company can demonstrate that Excel skills are necessary for performing the job. In this case, a candidate’s ability to use Excel proficiently would not be job-related or consistent with business necessity, and therefore not legally defensible.