The U.S. Department of Labor (DOL) has initiated an investigation into Scale AI, a data-labeling startup, to assess its compliance with the Fair Labor Standards Act. This federal law regulates unpaid wages, misclassification of employees as contractors, and illegal retaliation against workers. The investigation, which has been ongoing since at least August 2024, aims to determine whether Scale AI has adhered to these regulations.

Scale AI, valued at $13.8 billion, relies heavily on a workforce categorized as contractors to perform essential AI work, such as labeling images for Big Tech and other organizations. The company spokesperson, Joe Osborne, stated that the investigation was initiated during the previous presidential administration and that Scale AI has worked extensively with the DOL to explain its business model, characterizing the conversations as productive.

Background and Context

Scale AI has faced legal challenges from former workers over its labor practices, with two lawsuits filed against the startup in December 2024 and January 2025. These lawsuits allege underpayment and misclassification of workers as contractors instead of employees, denying them access to protections like overtime pay and sick days. Scale AI has disputed these allegations, asserting that it fully complies with the law and ensures its pay rates meet or surpass local living wage standards.

The company's international labor practices were also subject to an investigation by the Washington Post in 2023, where workers overseas described demanding work at low pay as contractors. Scale AI responded by stating that pay rates were continually improving.

Implications and Potential Outcomes

The US Department of Labor has the authority to resolve most cases administratively but may impose fines and potentially imprisonment on employers who violate the law. The DOL can also force employers to reclassify their workers as employees. A notable example is the hotel staffing startup Qwick, which settled a DOL case by paying $2.1 million and announcing that all California workers performing work using the Qwick app would be classified as employees.

Scale AI's connections to the new presidential administration are also noteworthy, with its CEO and founder, Alexandr Wang, attending Donald Trump's inauguration. Moreover, Scale AI's former managing director, Michael Kratsios, is President Trump's nominee for the director of the White House's Office of Science and Technology Policy, a position that involves advising Trump on science and technology matters without oversight over the Department of Labor.