A recent class action lawsuit against Eightfold AI, an AI recruiting platform, may have major consequences for employers using artificial intelligence in candidate screening. Filed by two job applicants in California on January 20, the suit claims Eightfold violated federal and state consumer protection laws by creating “hidden credit reports” on candidates without meeting statutory requirements for consumer reporting agencies. These include securing proper certifications from employers using the reports for employment. While lawsuits about AI hiring tools often focus on discrimination, this may be the first alleging a violation of the Fair Credit Reporting Act (FCRA). Employers should understand this emerging legal challenge and consider five key takeaways to safeguard their organizations. **The Allegations: AI Screening Tools as Consumer Reports** The plaintiffs, Erin Kistler and Sruti Bhaumik, accuse Eightfold’s AI talent evaluation system of compiling detailed dossiers beyond applicants’ submitted information. The complaint contends Eightfold: - Gathered data from third-party sources like LinkedIn, GitHub, Stack Overflow, and other public databases - Analyzed over 1. 5 billion global data points, including over 1 billion worker profiles - Made inferences about applicants’ preferences, traits, behaviors, intelligence, and aptitudes - Rated candidates on a 0-5 scale predicting their “likelihood of success” - Provided these rankings to employers who used them for initial candidate filtering before any human review The plaintiffs argue these AI-generated evaluations qualify as “consumer reports” under the federal FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA). They claim Eightfold failed to meet legal obligations including disclosure, authorization, and opportunity to review or dispute the information. Eightfold denies scraping social media, and further developments are expected. **Legal Framework: 1970s Laws vs. Modern AI** The FCRA, enacted in 1970 prior to AI technology, broadly defines consumer reports as communications concerning an individual’s creditworthiness, character, or personal characteristics used in employment decisions. It mandates: - Clear, standalone written disclosures to applicants before obtaining reports - Written authorization from applicants - Pre-adverse action notices providing a copy of the report and a summary of rights before rejecting a candidate or taking adverse employment action - Adverse action notices after rejection, conveying required statutory information - Consumer reporting agencies must secure certifications from employers confirming compliance California’s ICRAA imposes similar or stricter rules. The plaintiffs maintain they received none of these protections when applying via Eightfold’s platform. **What Sets This Case Apart** Unlike prior AI hiring lawsuits focusing on alleged discrimination against platforms such as HireVue or Workday, this suit centers on consumer protection law. Plaintiffs do not claim Eightfold’s AI is biased but assert that assembling third-party data and ranking candidates triggers FCRA responsibilities that Eightfold allegedly ignored.

If courts agree AI tools constitute consumer reports, companies providing or using these tools may have to comply with FCRA regardless of bias concerns. **Employer Implications: Five Key Takeaways** Though targeting Eightfold, this case signals employers must review AI hiring compliance: 1. **Understand Your AI Vendor’s Data Practices** Clarify what external data your AI platform uses, whether it gathers information beyond applications, makes predictive inferences, or ranks candidates. This helps determine if FCRA or other laws apply. 2. **Review Vendor Contracts and Certifications** Ensure vendors obtain required certifications confirming that you provide standalone FCRA disclosures, secure applicant authorization, follow pre-adverse and adverse action steps, and avoid discriminatory use. Audit current practices for compliance. 3. **Don’t Assume Traditional Background Check Compliance Covers AI Tools** AI screening may fall outside standard HR compliance functions. Coordinate across HR, legal, compliance, and IT teams to map tools and ensure FCRA adherence extends to all screening technologies. 4. **Prepare for Regulatory and Legal Scrutiny** With growing government oversight and litigation around AI hiring, document compliance steps, maintain vendor due diligence records, and consider legal review before issues arise. 5. **Weigh Risks Even if FCRA May Not Apply** Some argue AI tools aren’t consumer reports or are integrated into employer decisions. However, opaque AI decision-making risks reputational harm and candidate distrust, impacting employer branding and talent acquisition. **Next Steps** The Eightfold lawsuit is early stage and may take years to resolve, potentially reaching appellate courts to clarify whether AI screening tools are subject to FCRA. Meanwhile, employers and AI vendors nationwide will monitor the outcome closely. A ruling that these platforms trigger FCRA obligations could transform AI’s role in hiring across the United States.