The U.S. Department of Labor (DOL) has launched an investigation into Scale AI, a prominent San Francisco-based data-labeling startup, to ensure its compliance with the Fair Labor Standards Act. This federal law addresses critical labor issues such as unpaid wages, worker misclassification, and protection against retaliation.
According to information obtained by TechCrunch, this ongoing inquiry began in August 2024. However, the presence of an investigation alone doesn’t imply wrongdoing by Scale AI, and the outcome could still favor the company or result in the case being dismissed entirely.
Scale AI, valued at approximately $13.8 billion in the previous year, relies heavily on contractors who perform essential AI tasks, including labeling datasets for major tech corporations and other organizations. This flexible gig-work model has positioned Scale AI as a popular choice among American workers seeking additional income.
In response to the investigation, Joe Osborne, a spokesperson for Scale AI, clarified that the initial scrutiny began under the previous presidential administration, suggesting the company’s work was misunderstood by regulators. Osborne noted that the ongoing conversations with the DOL have been productive, emphasizing Scale AI’s role in providing flexible employment opportunities within the AI sector.
“Hundreds of thousands of people use our platform to showcase their skills and earn extra money,” Osborne highlighted, adding that feedback from contractors has been overwhelmingly positive.
Despite the popularity of Scale AI’s platform, the company recently faced two significant lawsuits filed in December 2024 and January 2025 by former workers. These lawsuits accuse Scale AI of misclassifying workers as independent contractors, depriving them of fundamental employee protections such as overtime pay, minimum wage standards, and paid sick leave. Scale AI has vehemently denied these allegations, asserting full legal compliance and commitment to fair compensation that meets or exceeds local wage benchmarks.
Additionally, Scale AI’s international labor practices previously attracted scrutiny. A Washington Post investigation in 2023 reported concerns from overseas contractors about low wages and demanding workloads. In response, Scale AI claimed it continually adjusts and improves pay rates for international contractors.
The DOL regularly resolves such investigations through administrative means. However, companies found violating labor laws could face fines, be compelled to reclassify contractors as employees, or even face criminal penalties.
A similar case involving Qwick, a hotel staffing startup, concluded in February 2024 with a $2.1 million settlement. As part of the settlement, Qwick agreed to classify all California-based workers on its platform as employees.
Meanwhile, Scale AI maintains a close relationship with key figures in the current presidential administration. Its CEO Alexandr Wang notably attended Donald Trump’s January inauguration alongside other Silicon Valley executives. Additionally, Scale AI’s former managing director, Michael Kratsios, was nominated by President Trump to lead the White House Office of Science and Technology Policy. Kratsios previously served as the U.S. chief technology officer and is awaiting Senate confirmation for his new role, although this position holds no direct influence over DOL activities.
Michael Petersen, a spokesperson for the Department of Labor, maintained the agency’s long-standing policy of neither confirming nor denying ongoing investigations.
