Job Applicants File Lawsuit Against AI Screening Company for Violating FCRA: 5 Important Points for Employers

A recent lawsuit filed against an artificial intelligence recruitment platform has raised concerns for employers using AI tools to screen job candidates. Two job seekers have taken legal action against Eightfold AI, alleging violations of federal and state consumer protection laws by creating “hidden credit reports” on applicants without meeting regulatory requirements for consumer reporting agencies. While previous lawsuits have targeted AI hiring systems for discrimination, this case could be the first to address potential violations of the Fair Credit Reporting Act (FCRA) by an AI tool. Employers should be aware of this legal challenge and consider these key takeaways to safeguard their organizations.

The lawsuit, brought by Erin Kistler and Sruti Bhaumik in Contra Costa County Superior Court, challenges Eightfold’s AI-based talent evaluation platform. The plaintiffs claim that when applying for jobs at organizations using Eightfold’s system, the platform compiled detailed profiles on applicants using data beyond what was provided in their applications. Allegedly, Eightfold’s technology sourced information from platforms like LinkedIn, GitHub, and Stack Overflow, among other databases, analyzing an extensive dataset to make predictions about candidates’ suitability for roles. These assessments were shared with employers for candidate screening before any human review took place.

The legal argument rests on the definition of “consumer reports” under the FCRA and California’s Investigative Consumer Reporting Agencies Act. The lawsuit asserts that Eightfold’s assessments qualify as consumer reports, subjecting the company to compliance requirements under these laws. Eightfold has denied the allegations of scraping social media for data, emphasizing the importance of additional information emerging as the case progresses.

The FCRA, enacted in the 1970s, predates modern AI screening tools but was intended to adapt to technological advancements and protect individuals from decisions based on inaccessible or incorrect information. It broadens the scope of consumer reports beyond credit checks to encompass various aspects of an individual’s character and lifestyle relevant to employment evaluations. When these reports are used for hiring purposes, the FCRA mandates clear disclosure to applicants, authorization for obtaining reports, pre-adverse action notifications, and adverse action notifications as necessary steps to protect individuals’ rights and ensure fair treatment in employment decisions.

Employers should understand the implications of using AI tools for candidate screening and ensure compliance with FCRA requirements to mitigate legal risks. The intersection of longstanding consumer protection laws with cutting-edge technology highlights the importance of transparency and accountability in employment practices. As legal challenges in this space continue to emerge, organizations must stay informed and adapt their hiring processes to uphold fairness and integrity in recruitment.