Everyone has seen it happen. Right from the get-go, that new hire seems awfully friendly with the boss. In fact, they even look a little bit alike.

Nepotism in the workplace is alive and well in 2012. During tough economic times, employers are even more likely to lend a friend or relative a hand by hiring them for a job for which they may or may not be qualified. While there is no “nepotism law” at the Federal level — it is ultimately up to each state to determine nepotism laws – the consequences of nepotism might constitute illegal employment discrimination under Federal discrimination laws.

If an employer hires friends or relatives to the point where they fail to consider people of other races, creeds, sexes, or ages, they make be violating Title VII of the Civil Rights Act of 1964. They are, in affect, discriminating against those groups in regard to hiring.

Close personal relationships in the workplace can have a harmful effect on employee morale, lead to claims of conflict of interest, and interfere with an employee’s independent judgment. 

And should an employer create workplace conditions that effectively force out an existing employee to make room to hire a relative, the employer could be liable for damages to the terminated employee.

It’s All Relative

Nepotism can also rear its ugly head when it comes to business decisions, such as the hiring of vendors or the purchasing of companies. If shareholders get the feeling that nepotism was involved in such a decision, the fallout can be serious — and it may permanently damage a company’s image.

In 2011 Rupert Murdoch’s News Corp was sued by shareholders for the alleged “nepotism” of buying his daughter Elisabeth’s television production company, Shine, for more than £400m. According to a March 2011 article in the U.K. newspaper The Independent, the Amalgamated Bank of New York and the Central Labourers Pension Fund, both shareholders in News Corp, filed complaints that accused the media mogul of treating the business “like a wholly-owned family candy store.”

Such publicity is extremely harmful to a company’s image, as well as that of its leadership. In 2012 the CEO of the large U.S. electronics retailer Best Buy suddenly stepped down among allegations of impropriety. Along with various allegations, the latter included six-figure jobs for family members, according to an article in the Minneapolis Star-Tribune.

One way companies can combat nepotism in the workplace is to incorporate an anti-nepotism policy into their corporate code of conduct. Yet in order to do so, the entire leadership of the organization must be on board and prepared to abide by the policy themselves.

Instead of a blanket anti-nepotism policy, companies may wish to start with an Employment of Relatives Policy. For a sample policy, click here. For guidelines for adopting a policy on employing relatives, click here.

Finally, if you’re thinking of hiring a friend or a relative for a key position in your company for which you feel he or she is truly, uniquely qualified, and you have questions about the legal implications of such a hire, you may wish to cover your bases by consulting an employment attorney beforehand.