Nepotism

Scope

Undisclosed nepotism can be against the law. State and local laws may also affect the practice of nepotism. A number of states prohibit the practice of nepotism in public sector organizations.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Nepotism is not necessarily a bad thing. In some cases, it can be advantageous for a company to rely upon family referrals from quality employees. Problems arise, however, when employees secure a job solely through their familial relationships with current employees or supervisors and not by emerging from the selection process as the most qualified applicant.

Impacts

Like favoritism, unmerited nepotism fosters distrust and frustration within the workplace. Quality employees passed over for promotions in favor of the manager’s daughter or supervisor’s husband may leave the company or see their productivity suffer. These unfair situations may also lead to wrongful termination suits, discrimination claims, and other negative outcomes. These claims can be costly for employers, even if the claim is unsuccessful.

Another concern with nepotism in the workplace is the question of whether employees will provide honest reporting on another employee if their coworker has a familial relationship with their supervisor. If the CEO’s son is stealing office supplies or losing sales accounts, his coworkers may be hesitant in bringing this to management’s attention for fear of retribution.

Relatives who work together may sometimes bring their family arguments to work. In these cases, other employees may feel uncomfortable, and the productivity levels of the family members involved may suffer.

Liability

Isolated acts of nepotism often do not make up the basis of legitimate discrimination claims, but nepotism on a larger scale, to the detriment of a protected class, can lead to litigation. For example, hiring only family referrals of employees or company owners may constitute discrimination on the basis of race.

• The Bonilla v. Oakland Scavenger Company of 1982. This was a case heard in the Ninth U.S. Circuit Court of Appeals. The employees in the case argued that the company discriminated against African American and Hispanic workers by giving preference to family members and close friends, all of whom were Caucasian, of the company’s original directors. The court ruled the company had violated Title VII by discriminating against the employees on the basis of race and national origin.
• The Sarbanes-Oxley Act of 2002. This case sets forth specific requirements and mandates related to the financial reporting of publicly held companies. The Act requires companies to disclose relationships that may result in a conflict of interest affecting the work of officers, directors, and director nominees. Family relationships and business dealings must be disclosed under the securities act.

Addressing the problem

To avoid problems caused by nepotism, it is best practice to treat all employees fairly, regardless of their familial relations. In smaller companies, remind management to make their decisions based on the facts, rather than family. In larger companies, consider separating employees who have a family bond and moving one to another department.

Whatever the organization’s policy on nepotism in the workplace, be sure it is implemented and followed fairly and consistently.