The U.S. Department of Labor (DOL) is investigating Scale AI, a San Francisco-based data-labeling startup, over potential violations of the Fair Labor Standards Act (FLSA). The investigation, active since at least August 2024, focuses on wage disputes, worker misclassification, and potential retaliation against contractors, according to TechCrunch.
Key Issues in the Investigation
Scale AI, valued at $13.8 billion, relies on a large network of contractors to perform crucial tasks like image labeling for AI training. The DOL probe aims to determine whether these workers should be classified as employees rather than independent contractors, which would entitle them to benefits like overtime pay, minimum wage protections, and sick leave.
While the existence of an investigation does not imply wrongdoing, Scale AI is also facing two lawsuits—filed in December 2024 and January 2025—from former workers alleging underpayment and misclassification.
Scale AI’s Response
Scale AI denies any legal violations, emphasizing that it offers flexible work opportunities and maintains pay rates that meet or exceed local living wage standards. A spokesperson, Joe Osborne, stated that the company has been cooperating with the DOL and believes its business model has been misunderstood by regulators.
Osborne also highlighted that hundreds of thousands of workers use the platform to earn extra income and that contributor feedback is “overwhelmingly positive.”
Potential Consequences
If found in violation of labor laws, Scale AI could face:
Fines and back pay for misclassified workers.
Mandatory reclassification of its workforce.
Further legal scrutiny of its employment practices.
The DOL has precedent for enforcing reclassification, as seen in February 2024, when hotel staffing startup Qwick paid $2.1 million in a settlement and reclassified its California workers as employees.
Political Implications
Scale AI’s political connections may also be in the spotlight. Its former managing director, Michael Kratsios, is President Donald Trump’s nominee for White House Director of Science and Technology Policy. However, his role has no oversight over the DOL.
As the investigation continues, Scale AI remains under legal and public scrutiny over its labor practices, which could have broader implications for gig economy and AI-driven contract work in Silicon Valley.