Industry Updates
Magazine
Brand Story
Press Release
BLOGS
The U.S. Department of Labor (DOL) is investigating the data-labeling startup Scale AI for potential Fair Labor Standards Act violations.
That federal law governs unpaid wages, worker misclassification, and illegal retaliation against employees.
As per TechCrunch, the investigation has been active since at least August 2024 and remains ongoing, according to a source familiar with the matter.
Founded in San Francisco, Scale AI was valued at $13.8 billion last year. The company relies on a large network of independent contractors to perform critical AI-related tasks, such as labeling images for Big Tech firms and other organizations.
According to Scale AI’s spokesperson Joe Osborne, the investigation began under the previous presidential administration and suggested that regulators at the time misunderstood the company’s role in building, testing, and evaluating AI.
Osborne also said that the organization has worked extensively with the DOL to explain its business model and that conversations have been productive. He also emphasized that the company provides more “flexible work opportunities in AI” than any other employer, with “overwhelmingly positive” feedback from its contributors.
Despite its popularity, Scale AI has faced several legal challenges over its labor practices. Two lawsuits were filed against the company—one in December 2024 and another in January 2025—by former workers alleging they were underpaid and misclassified as contractors, depriving them of benefits such as overtime pay and sick leave. Scale AI has firmly denied these allegations, insisting that it complies with labor laws and ensures its pay rates meet or exceed local living wage standards.
The company’s international labor practices have also come under scrutiny. A 2023 investigation by The Washington Post reported that overseas contractors performing work for Scale AI faced demanding conditions and low pay. In response, Scale AI stated that it continually improves its compensation rates.
According to the Department of Labor’s website, most labor disputes are resolved administratively. However, employers found in violation of the law may face fines, forced worker reclassification, and, in some cases, imprisonment. For example, in February 2024, hotel staffing startup Qwick settled a DOL case by paying $2.1 million and reclassifying its California workers as employees, per Bloomberg Law.
