Scale AI Under Investigation by US Department of Labor

Scale AI Under Department of Labor Investigation

The United States Department of Labor (DOL) is currently conducting an investigation into Scale AI, a data-labeling company, to ascertain its adherence to the Fair Labor Standards Act. This information was recently obtained by TechCrunch.

Fair Labor Standards Act Compliance

The Fair Labor Standards Act is a federal regulation governing areas such as unpaid wages, the accurate classification of workers – specifically addressing potential misclassification of employees as independent contractors – and unlawful reprisal against employees.

According to documentation reviewed by TechCrunch, the investigation commenced no later than August 2024 and remains active as of this reporting.

Investigation Does Not Imply Wrongdoing

It is important to note that the initiation of an investigation does not inherently indicate any wrongdoing on the part of Scale AI. The investigation’s findings could ultimately favor the company, or the case may be dismissed entirely.

Scale AI's Business Model

Headquartered in San Francisco, Scale AI was assigned a valuation of $13.8 billion in the previous year. The company’s operations are heavily reliant on a substantial workforce categorized as contractors. These individuals perform crucial tasks related to artificial intelligence, including image labeling for major technology companies and other organizations.

Company Response

Joe Osborne, a spokesperson for Scale AI, communicated to TechCrunch that the investigation was originally launched during the prior presidential administration. He stated that Scale AI believed its contributions to the development, testing, and evaluation of AI were not fully understood by regulators at that time.

Osborne further indicated that Scale AI has engaged in extensive discussions with the DOL to clarify its business practices, and these conversations have been constructive. He emphasized that Scale AI provides more opportunities for “flexible work in AI” to American workers than any other company, and that feedback from its contributors is generally very positive.

Gig Work and Legal Challenges

“Hundreds of thousands of individuals utilize our platform to demonstrate their abilities and supplement their income,” Osborne explained.

Scale AI is, in fact, a widely used platform for gig work. However, the company has recently encountered legal challenges from former workers concerning its labor practices. Two lawsuits were filed against Scale AI – one in December 2024 and another in January 2025 – alleging underpayment and improper classification of workers as contractors, thereby denying them benefits such as overtime pay and sick leave.

Disputed Lawsuits

Scale AI has vigorously contested these lawsuits, asserting its full compliance with applicable laws and its commitment to ensuring that its compensation rates meet or exceed local living wage standards.

International Labor Practices

In 2023, an investigation conducted by the Washington Post examined Scale AI’s international labor practices. Workers in other countries described conditions involving demanding work at low wages as contractors. The company responded by stating that pay rates were consistently being improved.

DOL Enforcement Powers

The U.S. Department of Labor’s website states that the majority of cases are resolved through administrative processes. However, employers found to be in violation of the law may face financial penalties and, in some instances, imprisonment. The DOL also possesses the authority to mandate the reclassification of workers as employees.

Recent DOL Settlement

As an example, in February 2024, Qwick, a hotel staffing startup, reached a settlement with the DOL, agreeing to pay $2.1 million and reclassify all California workers utilizing the Qwick app as employees, as reported by Bloomberg Law.

Political Connections

Scale AI also appears to be cultivating relationships with the current presidential administration. Alexandr Wang, the CEO and founder of Scale AI, attended Donald Trump’s inauguration in January, alongside numerous other technology executives.

Notably, Michael Kratsios, Scale AI’s former managing director, has been nominated by President Trump to serve as the new director of the White House’s Office of Science and Technology Policy. Kratsios previously held the position of U.S. chief technology officer during the first Trump administration.

Kratsios' Role and Confirmation Status

In this capacity, Kratsios would provide counsel to President Trump on matters related to science and technology. This role does not have direct oversight of the Department of Labor. Kratsios participated in a Senate hearing on February 25 but has not yet been confirmed. He did not respond to a request for comment.

DOL Policy on Investigations

Michael Petersen, a spokesperson for the U.S. Department of Labor, informed TechCrunch that the department cannot confirm or deny the existence of any ongoing investigation, citing a long-standing policy.