Labor force is becoming more diverse than ever, yet Negative Stereotype Threats (NSTs) still inhibit the performance of the employees who belong to negatively stereotyped social groups (e.g., non-whites, poor, or residents of economically disadvantaged communities) across various types of workforce. Current research shows fair treatment as an underlying influence mechanism through which ethical leadership affects followers’ stereotype threats. Based on a field experiment with sixty slum dwellers that included a real job position recruitment and reliable biological measures of anxiety, we find that ethical leaders’ fairness - as compared to authentic leaders’ internalized moral perspective - is more capable of minimizing physiological effects of social identity threat of the followers. This study shows that direct supervisors have the key ability to reduce threats that could impact their followers’ performance. The results of the present field experiment provide initial evidence that the ethical leader has the ability to create an identity safer setting for threatened followers, alleviating their anxiety and stress. The moral identity offered and enforced by ethical leader’s reward and punishment system resulted in the salience of high group ethical standards. This suggests that equal and consistently fair treatment of the followers from distinct status groups comparing in diverse teams can render positive outcomes and reduce the negative effect of NSTs on performance.