Academic journal article Journal of Legal, Ethical and Regulatory Issues

Making More Informed Hiring Decisions: Policy and Practice Issues for Employers

Academic journal article Journal of Legal, Ethical and Regulatory Issues

Making More Informed Hiring Decisions: Policy and Practice Issues for Employers

Article excerpt


Making an accurate hiring decision is extremely important for most employers. The cost associated with making a poor hiring decision from a productivity, customer service, and liability prospective have been widely studied and has been estimated to be three times the annual salary of the individual involved. Also, in recent years numerous studies have reported that applicants for employment have grown increasingly willing to misrepresent their credentials in the application process. This growing phenomenon has further complicated the hiring decision for employers attempting to hire the right individual for a position. The purpose of this paper is to examine the problems created by this increased willingness of job applicants to misrepresent their credentials, and to present policy and practice suggestions that employers can utilize in order to reduce their legal liability and the cost associated with making poor hiring decisions.


The cost associated with making a poor hiring decision have been widely studied. A 2004 studied conducted by SHL and the Future foundation concluded that "the hidden cost of selecting the wrong candidate for a position equals an annual sum of $105 billion in the United States" (, 2007). This estimate, derived from an analysis of managerial earnings and the time spent managing poor performance only captures part of the cost of making a poor hiring decision. Often the eventual remedy utilized to correct a poor hiring decision is either voluntary or involuntary termination. In those situations, the most obvious costs the firm will incur are those associated with filling the vacated position. Severance payments, cost associated with re-advertising the job, recruitment, assessment, selection process cost, and training a new hire are incurred again and possibly again if the organization repeats the same mistakes it made the first time. Poor hires can also lead to lost production, sales, and customer satisfaction in addition to poor morale as competent and productive employees develop resentment at "being on the same team with losers" (Burke, 2007).

In those situations where involuntary termination occurs, the potential for wrongful discharge allegations is usually greater (Dinse, Knapp & McAndrew, 2006). The potential legal cost associated with wrongful discharge allegations can add up very quickly in today's litigation happy society. With the wide array of protected class status options available to unhappy former employees, the possibility of having to defend an allegation of some type of discrimination and or retaliation is very real. On the Job Solutions, citing research conducted by the Jury Verdict Research Series, reported the following average compensatory losses:

According to On the Job Solutions, "these amounts do not include legal fees which historically have ranged from $200,000 to $1 million per claim. Plus the cost of managements' time, which can be expensive" (On the Job Solutions, 2007). Another often cited study by ELT and Littler Mendelson, identified both the hard and soft costs and their average dollar and time amounts incurred by an organization to defend itself against a single claim in the employment law area:

One of the more expensive hiring mistakes that a company can make is associated with applicants that lie. If an untruthful applicant is eventually connected to a negligent-hiring lawsuit, "settling or losing such a suit can cost an employer $1 million or more" (Babcock, 2003).


   In today's workplace, an employer is confronted with a host of 
   human resources-related issues, not the least of which is effecting 
   hiring decisions that are appropriate for the organization and 
   compliant with the plethora of employment laws and regulations. … 
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