TechCrunch has obtained information indicating that the U.S. Department of Labor is currently examining the data annotation startup Scale AI to ensure its adherence to the Fair Labor Standards Act.
This federal legislation is designed to oversee issues related to unpaid wages, the misclassification of employees as independent contractors, and unlawful retaliation against workers.
According to a document reviewed by TechCrunch, the inquiry has been active since at least August 2024. Sources familiar with the situation confirmed that it is still ongoing.
However, the initiation of an investigation does not imply wrongdoing by Scale AI; the results may ultimately rule in favor of the company or see the case dismissed.
Headquartered in San Francisco, Scale AI was valued at $13.8 billion last year and employs a large number of workers it classifies as contractors to perform crucial AI-related tasks, such as annotating images for major technology firms and other entities.
Joe Osborne, a spokesperson for Scale AI, shared with TechCrunch that this investigation was launched under a prior presidential administration and that the company believes its roles in developing, testing, and evaluating AI were not properly understood by regulators at that time.
Osborne emphasized that Scale AI has engaged extensively with the Department of Labor to clarify its business model, describing these discussions as fruitful. He also expressed that Scale AI provides more “flexible work opportunities in AI” to Americans than any other company and noted that feedback from contributors has been largely positive.
“Our platform is utilized by hundreds of thousands of people to demonstrate their skills and earn additional income,” Osborne stated.
While Scale AI is indeed a notable platform within the gig economy, it has recently encountered legal obstacles from former employees challenging its labor practices. Two lawsuits have been filed against the startup — one in December 2024 and another in January 2025 — by ex-workers who claim they were underpaid and misclassified as contractors, which deprived them of benefits like overtime and sick leave.
Scale AI has vehemently countered these lawsuits, asserting its full compliance with the law and its commitment to ensuring compensation meets or exceeds local living wage benchmarks.
The labor practices of Scale AI on an international level have also been scrutinized, as highlighted by a Washington Post article in 2023. Workers in other countries shared experiences of receiving low pay while working as contractors. The company asserted at that time that compensation rates were gradually improving.
According to the U.S. Department of Labor’s website, it successfully resolves the majority of cases through administrative processes, yet employers found in violation of the law may face fines and even imprisonment. Furthermore, the DOL has the authority to compel employers to reclassify workers as employees.
For instance, in February 2024, the hotel staffing platform Qwick resolved a DOL case by agreeing to pay $2.1 million, while also declaring that all workers in California using the Qwick app would be reclassified as employees, as reported by Bloomberg Law here.
Moreover, Scale AI seems to be a company that has garnered favor from the new presidential administration in Silicon Valley. Its CEO and founder, Alexandr Wang, attended the inauguration of Donald Trump, along with many tech leaders.
More significantly, Scale AI’s former managing director, Michael Kratsios, has been nominated by President Trump to assume the role of director of the White House’s Office of Science and Technology Policy. Kratsios previously held the position of the U.S. Chief Technology Officer during the first Trump term.
In this capacity, Kratsios will provide counsel to Trump on matters concerning science and technology. This role does not entail oversight of the Department of Labor. Kratsios participated in a Senate hearing on February 25, though he has yet to be confirmed. He has not returned requests for comment.
Michael Petersen, a spokesperson for the U.S. Department of Labor, informed TechCrunch that the agency cannot confirm or deny the existence of any investigations due to its longstanding policy.
Compiled by Techarena.au.
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