Did you know that almost four in five employers make hiring decisions by prioritizing personal connections over the candidate’s skills? Nepotism not only occurs in the hiring process; 70% of employers admit that personal relationships also influence promotion decisions, but only 11% stated they have measures in place to prevent nepotism in the workplace. These statistics are based on a survey into diversity, equity and inclusion in the workplace from global recruitment group Robert Walters and raises serious concerns.

Not surprisingly, the survey also found that people have a 71% higher chance of being promoted within an organization if they are “upper class” as opposed to working class. The report reveals: “This type of judgment impacts employees significantly – 62% feel as though their progression opportunities are hindered, even though their skills or output qualify them for a promotion”.

So, what is nepotism, and what can employers do about it?

Nepotism in the workplace

Nepotism is defined as

“the practice among those with power or influence of favouring relatives, friends, or associates, especially by giving them jobs.”

In practice, nepotism presents as the opposite of meritocracy – that is, relationships between individuals are prioritized over an individual’s qualifications, abilities and/or skills. For example, an employer would be engaging in nepotism if they hire or promote a family member or a friend as opposed to an individual who is more qualified for the position. Similarly, if an employer treats the person, they have an existing relationship with in a better way than another individual employee, all else being equal, such as providing better working conditions and compensation structures and not disciplining versus taking disciplinary measures for the same wrongdoing, then that would constitute nepotism in the workplace.

The issue is not necessarily with an employer deciding to hire a relative, friend or someone they have a pre-existing relationship with. Rather, the concern is employers engaging in and allowing conflicts of interest to occur within the workplace.

Nepotism and the law

Although many people may agree that nepotism is unethical, it is technically not “illegal,” which means employers largely have free reign to engage in nepotism without facing harsh legal consequences. In fact, although the Ontario Human Rights Code (the “Code”) prohibits discrimination on the basis of family status, the Code makes an exception for nepotism and anti-nepotism policies. The Ontario Human Rights Commission states the following in its Policy and guidelines on discrimination because of family status:

“Section 24(1)(d) of the Code specifically permits employers to grant or withhold employment or advancement in employment to someone who is the spouse, child or parent of the employee. For example, an employer can have a policy that spouses, parents or children cannot be employed in positions where one would report to the other. An employer could also have a policy providing preferential treatment to children of current employees for summer employment. Where such policies are in place, an employer may make inquiries during the hiring process as to whether an applicant is the child or parent of a current employee.”

Having said that, if an employer has an anti-nepotism and/or conflict of interest policy in the workplace but does not follow their own policies, then an employee may have a claim against them. Even if this were the case, however, the large majority of employees would likely not sue their employer, especially since the costs of doing so may outweigh the benefits.

In addition, depending on the nature of nepotism within a particular workplace, an employee may have a valid claim against their employer, alleging a toxic work environment and constructive dismissal. For example, let’s say an employer hires someone they have a pre-existing relationship with and substantially changes an existing employee’s duties to favour the new employee. This would likely be a conflict of interest. Suppose the new employee is now the existing employee’s direct supervisor, performing many of the same duties the existing employee was responsible for prior to the hiring of the new employee. Now, if the new employee, along with the employer, is treating the existing employee in a negative manner in an attempt to squeeze them out of the organization, it could arguably result in a toxic work environment, and the employee may allege that they have been constructively dismissed.

Although nepotism may not be illegal per se, it poses serious concerns, including a bad workplace culture at best and the creation of a toxic work environment at worst, poor employee morale, bad business practices and decision-making, conflicts of interest, and damage to an employer’s reputation.

The need for a workplace policy

Employers can and should take the necessary steps to avoid conflicts of interest in the workplace, whether arising from nepotism or otherwise. An ounce of prevention really is worth a pound of cure, as it could otherwise lead to potential liability. Even if you are not being sued, an employee may decide to speak with the media about nepotism and conflicts of interest in the workplace, which could substantially damage your reputation and impact your profitability.

At the end of the day, inclusive hiring and promotion practices are critical to ensuring diversity and equity within the workplace. A conflict of interest policy, along with a reevaluation of your hiring and promotion practices, are some of the best ways you can proactively address nepotism in the workplace. In particular, the policy should explicitly preclude individuals within the organization from making decisions (including decisions with respect to hiring, promotion or compensation) that impact someone they have a personal relationship with and from supervising or managing such individuals. It should require that any actual or potential conflict of interest be disclosed promptly.

Employers looking to implement a workplace policy would find it wise to seek legal advice from an employment lawyer. It would also be helpful to seek feedback from your existing employees to understand what the primary concerns are so you can work towards ensuring a diverse, equitable and inclusive workplace. This would not only be the “right” thing to do – it would also be better for your business in the short and long run. Otherwise, you risk losing talent, employee morale, reputation, and a decline in your bottom line.

By Nadia Zaman, Rudner Law

If you are looking for a Nepotism policy, try PolicyPro®, Canada’s Top HR/Payroll and Internal Controls Policy Management Software, published by First Reference.