I should have worded it better - it's effectively illegal.

http://en.wikipedia.org/wiki/Griggs_v._Duke_Power_Co

TL;DR: It's hard to defend an IQ test against a discrimination lawsuit.

Unless there's an explicit business need to concretely identify someone's IQ, a business is at risk of being called out as using the IQ test to discriminate against some protected group, since that protected group is potentially disadvantaged while taking the IQ test by any one of dozens of (legitimate) reasons.

It's not effectively illegal. That's a mis-characterization of both current law and that lawsuit in particular.

The court ruled that "the company's employment requirements did not pertain to applicants' ability to perform the job". And it was more specific than that. If such tests disparately impact ethnic minority groups, businesses must demonstrate that such tests are "reasonably related" to the job for which the test is required.

That does not make IQ tests effectively illegal. Demonstrate that anyone with an IQ lower than X cannot perform the job in question, and you're good. The actual "problem" is that other tests are far better at determining if you will do well in a job role. So companies use the better tests. If there were a job for which IQ was highly related to being able to do the job, then companies would surely use IQ as the test for that job.

To give a concrete example, why would I give a programmer an IQ test when I can give them a programming test? I'll take it further: an extremely high IQ is a deficit for many developer roles. Most of the genius programmers I personally know write code no one else can maintain, and are often condescending - usually without even knowing it, which hurts team moral. I love those guys and they often inspire me, but many of them would make bad employees if the job required writing average business programs on a large team. A programming test would reveal that when you see their code is very clever, and also includes an internal compiler so they can write the solution in a high level language they invented... There is good reason my very smartest programming friends are often unemployed. When a genius programmer is called for though, boy do they shine.

So it's not a case of companies avoiding the use of a good test due the law and replacing that good test with less effective proxies, as you first suggested. The real effect of that ruling and the law is that companies use tests that can be proven to demonstrate whether or not you can perform the job. That's better for everyone.

It is almost certainly legal to hire based on assessments of intelligence. If I insisted in a job interview that 4+9=12, the moon is simply a sky-reflection of the lights from Manhattan, and that I can’t stand to be in the same room as tall people since they affect gravity in disturbing ways, you would draw conclusions about my intelligence. Would you then avoid hiring me?

IQ tests might be illegal under some circumstances, but I would point out that they are not a reliable measure of intelligence anyways, making this all a bit of a moot point.

Interesting read, as was https://en.wikipedia.org/wiki/Ricci_v._DeStefano

I'm glad I don't have to worry about hiring. Seems like employers are caught in a catch-22.