The U.S. Department of Labor (DOL) has opened an investigation into Scale AI, a fast-growing data-labeling startup, to determine whether it is following the Fair Labor Standards Act (FLSA). This federal law sets rules for pay practices, proper worker classification, and safeguards against illegal retaliation. The probe, which began in August 2024, remains active, according to a source close to the matter.
An ongoing investigation does not necessarily prove wrongdoing. Sometimes, the DOL may review a company’s practices and later decide there are no violations. At other times, the agency could uncover issues that require legal or administrative action.
Why the Department of Labor is Investigating Scale AI
Scale AI is no stranger to attention. Based in San Francisco and valued at over $13 billion last year, the company specializes in labeling vast amounts of data for artificial intelligence. It relies on a large workforce, which it classifies as contractors, to power essential tasks for major tech firms and other organizations.
According to a spokesperson for Scale AI, Joe Osborne, the company’s unique approach to building, testing, and evaluating AI may have been misunderstood by regulators initially. Osborne explained that the investigation actually began under the previous administration, suggesting there might have been confusion about Scale AI’s business model. He added that the company has engaged in “productive” conversations with the DOL to clear things up.
Scale AI’s Official Response
Scale AI maintains that it complies with all relevant labor laws. Osborne emphasized that the company offers more “flexible work opportunities in AI” to Americans than any other similar platform. He also shared that feedback from contributors is “overwhelmingly positive.”
Flexibility is a key selling point for many gig-economy platforms, and Scale AI appears to be no exception. Osborne says that “hundreds of thousands of people” use the company’s platform to sharpen their skills and earn supplemental income. Even so, this positive outlook is overshadowed by the possibility of federal intervention if the DOL finds that Scale AI is misclassifying its workers or falling short of legal wage standards.
Lawsuits and Worker Classification Challenges
The DOL’s investigation is not the only legal issue facing Scale AI. Two lawsuits were filed against the company—one in December 2024 and another in January 2025—by former workers. Both suits claim they were underpaid for their efforts and misclassified as contractors instead of employees. In the United States, employees are entitled to certain benefits such as overtime pay and sick leave, while contractors generally are not.
Scale AI strongly disputes these claims. The company insists it fully adheres to the law, adding that it strives to meet or exceed living wage standards in every region where it operates. Still, accusations of underpayment and misclassification bring renewed scrutiny to a sector already grappling with how to fairly compensate gig workers.
International Labor Concerns: A Wider Perspective
This is not the first time Scale AI’s labor practices have made headlines. In 2023, The Washington Post published an investigative piece highlighting the challenges some overseas workers faced when they performed data-labeling tasks for the startup. These international contributors said they worked long hours for relatively low pay. At that time, Scale AI responded by saying it was committed to improving compensation rates.
While it’s unclear how foreign labor issues factor into the current DOL investigation, the pattern of worker complaints underscores a growing debate around the gig economy. Critics argue that global platforms sometimes shift work to regions with fewer labor protections to cut costs, while companies often maintain that they are providing valuable income opportunities worldwide.
Potential Outcomes of the DOL Investigation
The DOL is known for resolving most cases administratively, often working with companies to correct any compliance issues. If violations are confirmed and not resolved, the department can impose fines or more serious penalties. In some instances, it has the authority to require firms to reclassify contractors as employees.
A notable example occurred in February 2024 when Qwick, a hospitality staffing startup, settled a case brought by the DOL. Qwick paid $2.1 million and agreed to classify its California workers as employees. Although this situation may not directly mirror Scale AI’s, it demonstrates how far-reaching a DOL ruling can be.
Political Links and Executive Ties
Apart from legal hurdles, Scale AI appears to have strong connections within the tech and political arenas. Its CEO and founder, Alexandr Wang, joined numerous tech leaders at Donald Trump’s inauguration ceremony. More notably, Michael Kratsios, who once served as Scale AI’s managing director, was nominated by President Trump to lead the White House’s Office of Science and Technology Policy.
During his previous role as U.S. Chief Technology Officer, Kratsios was a central figure in shaping technology policies. Although his potential new position would not directly oversee the Department of Labor, it places a former Scale AI executive in a prominent advisory position. Kratsios participated in a Senate hearing on February 25, but he has not yet been confirmed. He did not respond to requests for comment.
What It Means for Scale AI and Gig Workers
The future remains uncertain for Scale AI as the DOL investigation continues. If regulators conclude that the company’s workforce is misclassified or underpaid, Scale AI may be forced to adopt a new employment model. On the other hand, a finding in favor of the startup could strengthen its position as a leader in the AI labeling industry.
Either way, this case highlights the ongoing tension between the flexibility gig platforms promise and the benefits traditional employment provides. As artificial intelligence and remote work expand, companies like Scale AI are testing the boundaries of labor laws. The final outcome could set precedent, influencing how emerging tech startups handle worker classification in an increasingly globalized economy.
