U.S. Department of Labor Investigates Scale AI Over Labor Practices

The U.S. Department of Labor (DOL) is investigating Scale AI, a San Francisco-based data-labeling company, for potential violations of the Fair Labor Standards Act (FLSA), TechCrunch has learned. The FLSA regulates wage payments, worker classification, and protections against employer retaliation.

The investigation, which has been ongoing since at least August 2024, does not necessarily indicate wrongdoing. It could ultimately clear Scale AI of any violations or be dismissed.

Scale AI, valued at $13.8 billion as of last year, relies on a large workforce of independent contractors to perform essential AI-related tasks, such as image labeling for major tech companies and government organizations.

Allegations and Scale AI’s Response

A Scale AI spokesperson, Joe Osborne, acknowledged the investigation and said it began under the previous presidential administration. Osborne stated that the company has been working extensively with the DOL to clarify its business model.

“Hundreds of thousands of people use our platform to showcase their skills and earn extra money,” Osborne said, adding that Scale AI provides more flexible AI work opportunities than any other company.

The company has faced recent legal challenges over its labor practices. Two separate lawsuits were filed against Scale AI:

• December 2024 lawsuit: Alleged workers were misclassified as contractors instead of employees, depriving them of benefits like overtime pay and sick leave.

• January 2025 lawsuit: Claimed that workers were underpaid for their contributions.

Scale AI has denied the allegations and maintains that it fully complies with labor laws while ensuring pay rates meet or exceed local living wage standards.

Past Scrutiny and International Labor Concerns

Scale AI’s labor practices have previously drawn criticism. A 2023 Washington Post investigation detailed concerns from overseas workers who described low wages and demanding workloads as independent contractors.

At the time, Scale AI responded by saying that pay rates were continuously improving.

The DOL’s website states that most cases are resolved administratively, but companies found in violation of labor laws could face fines, forced worker reclassification, or even imprisonment for serious offenses.

There is precedent for government intervention—Qwick, a hospitality staffing startup, settled a $2.1 million case with the DOL in February 2024, agreeing to reclassify California-based workers as employees.

Political Connections and Industry Context

Scale AI has close ties to the Trump administration, with its CEO, Alexandr Wang, attending Donald Trump’s inauguration in January alongside other tech executives.

Additionally, Michael Kratsios, a former managing director at Scale AI, has been nominated as the new director of the White House’s Office of Science and Technology Policy. Kratsios previously served as the U.S. Chief Technology Officer under Trump. If confirmed, he will advise the president on science and technology matters, though this role does not provide oversight of the Department of Labor.

Kratsios testified in a Senate confirmation hearing on February 25, but has not yet been confirmed. He did not respond to requests for comment.

A DOL spokesperson, Michael Petersen, declined to confirm or deny the investigation, citing long-standing policy.

What This Means

The DOL investigation into Scale AI underscores the ongoing debate over worker classification in the AI industry, where many companies rely on gig workers for data labeling and AI training.

While Scale AI maintains that it offers flexible work opportunities, the outcome of this investigation—and the pending lawsuits—could impact how AI companies classify and compensate their contract workers moving forward.

If the DOL finds violations, Scale AI could face fines, mandatory worker reclassification, or other penalties, potentially influencing labor practices across the AI and tech sectors.

Editor’s Note: This article was created by Alicia Shapiro, CMO of AiNews.com, with writing, image, and idea-generation support from ChatGPT, an AI assistant. However, the final perspective and editorial choices are solely Alicia Shapiro’s. Special thanks to ChatGPT for assistance with research and editorial support in crafting this article.