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Employers like word-of-mouth referrals to find new hires because the job candidate recommendations come from a trusted source – their own employees. However, when businesses recruit new employees solely on staff referrals they can run afoul of federal and state anti-discrimination laws.

Why? Hiring based on staff referrals alone tends to produce an applicant pool that reflects the gender, race, and ethnic background of the existing workforce, rather than the community at-large.

A New York bakery found this out the hard way, and recently agreed to pay $850,000 to resolve allegations it discriminated against female, Black and Asian applicants in the recruitment process by relying exclusively on referrals from existing employees to hire cashiers, packers, and bakers.

Rockland Bakery, which has a federal contract to supply baked goods to West Point, entered into a conciliation agreement with the Office of Federal Contract Compliance Programs (OFCCP) after a OFCCP compliance review determined the bakery’s referral recruitment system at its Nanuet facility contributed to hiring disparities affecting female, Black and Asiana job applicants.

The agency determined the company’s actions violated an executive order which prohibits federal contractors from discriminating against employment based on race, color, religion, gender, sexual orientation, or national origin.

“This investigation demonstrates that federal contractors should not rely solely on employee referrals to replace good faith outreach and recruitment, especially when their applicant pools do not resemble the available workforce in the communities they serve,” OFCCP Northeast Regional Director Diana Sen said in a USDOL press statement on April 28.

In addition to paying $850,000, which includes back pay for affected applicants, Rockland Bakery agreed to extend job offers to female, Black and Asian applicants, cease its word-of-mouth referral practice and inform local recruitment centers of job openings.