The use of tests in personnel decisions has become an increasing legal liability for employers. The major questions raised by the courts concerning this use of tests are described. Current federal guidelines for performance appraisal systems, as established by the Equal Employment Opportunity Commission, are explained and traced to Title VII of the 1964 Civil Rights Act. The legal implications of prima facie discrimination and the assessment of adverse impact upon minorities is explained. The process of judicial validation of performance appraisal systems is discussed, including specific case examples and flow charts. In deciding whether the criteria used in personnel decisions are valid and nondiscriminatory, the courts have utilized predictive, concurrent and content validity evaluations. The legal preferences and problems associated with each type of validity are described. The role of selection ratios, adverse impact, and business necessity in judicial validity decisions is discussed. The courts are concerned with the statistical correlation between test results and the criterion measures of job performance, and it is felt that the conflicting definitions of test validity and fairness provided by industrial psychologists have caused problems in the courts. The social controversy surrounding civil rights and employment testing is also discussed briefly. (Author/JAC)