Jan 21 (Reuters) - Eightfold AI, a venture capital-backed artificial intelligence hiring platform used by Microsoft, PayPal and many other Fortune 500 companies, is being sued in California for allegedly compiling reports used to screen job applicants without their knowledge.

The lawsuit filed on Tuesday is the first in the U.S. to accuse an AI hiring company of violating the Fair Credit Reporting ‌Act, according to the law firms that filed the case, and shows how consumer advocates are seeking to apply existing law to AI systems capable ​of drawing inferences about individuals based on vast amounts of data.

Santa Clara, California-based Eightfold provides tools that promise ‍to speed up the hiring process by assessing job applicants and predicting whether they ⁠would be a good ⁠fit for a job using massive amounts of data from online resumes and job listings.

But candidates who apply for jobs at companies that use ‌those tools are not given notice and a chance to ​dispute errors, job applicants Erin Kistler and Sruti Bhaumik allege in their proposed class action.

Because of that, they claim Eightfold violated the FCRA and a California law that gives consumers the ⁠right to view and challenge credit reports used in ‍lending and ​hiring. 

"There is no AI-exemption to these laws, which have for decades been an essential tool in protecting job applicants from abuses by third parties-like background check companies-that profit by collecting information about and ‍evaluating job applicants," they said in the lawsuit.

Eightfold spokesperson Kurt Foeller said the platform operates on data shared by candidates or provided by customers.

"We do not scrape social media and the like. We are deeply committed to responsible AI, transparency, and compliance with applicable data protection and employment laws," Foeller said.

Eightfold is backed by venture capital firms including SoftBank Vision Fund and General Catalyst.  

Kistler and Bhaumik sued in California state court on behalf of ​all U.S. ‍job seekers who applied for jobs and were evaluated using the company's tools. Labor law firm Outten & Golden and nonprofit advocacy group Towards Justice represent the proposed class.

Eightfold creates talent profiles of job ​seekers that include personality descriptions such as "team player" and "introvert," rank their "quality of education," and predict their future titles and companies, according to the lawsuit.

Kistler applied to roles at several companies that use Eightfold, including PayPal, and Bhaumik applied to companies including Microsoft, according to the complaint. Both hold science or tech degrees and have more than 10 years of experience. Neither was hired, and both believe that Eightfold's tools played a role.

Microsoft and PayPal are not defendants in the lawsuit. A Microsoft spokesperson ​declined to comment. A spokesperson for PayPal did not immediately reply to a request for comment.

One-third of Eightfold customers are Fortune 500 companies, including Salesforce and Bayer, according to the company's website. The New York State Department of Labor and Colorado Department of Labor and Employment also ‍offer Eightfold-powered platforms for job seekers.