The U.S. Department of Labor (DOL) is investigating startup scale AI that labels data to comply with the Fair Labor Standards Act, TechCrunch has learned.
This is a federal law that regulates unpaid wages, misclassification of employees as contractors, and illegal retaliation against workers.
The survey has been active since at least August 2024, documents seen by TechCrunch show. According to people who are directly familiar with the issue, it is ongoing.
The mere presence of the investigation does not, of course, mean that the AI did something wrong, and the investigation could be found in the company’s favor or rejected.
Scale AI is based in San Francisco and was valued at $13.8 billion last year. It relies on an army of workers who are classified as contractors to perform important AI tasks, such as labeling images of major technologies and other organizations.
Scale AI spokesman Joe Osborne told Tecrume that the investigation was launched during the previous presidential administration, and that Scale AI felt its work construction, testing and AI evaluation was misunderstood by regulators.
Osborne said that Scale AI worked extensively with DOL to explain the business model and that the conversation was productive. More generally, Osborne said scale AI offers “flexible job opportunities” for Americans than other companies, and feedback from its contributors is “overwhelmingly positive.”
“Hundreds of thousands of people use our platform to showcase their skills and make extra money,” Osborne said.
Scale AI is actually a popular gigwork platform. However, recently, they have faced legal challenges from some former workers regarding labor practices. Two lawsuits have been filed against the startup – one in December 2024 in January 2025, and the other claimed to be misclassified as a contractor on behalf of employees as a contractor, denied access to protections such as overtime pay and sick days.
Scale AI has strongly challenged the lawsuit, saying it is fully compliant with the law and works to ensure wage rates meet or exceed local living wage standards.
Scale AI’s international labor practices were also the subject of a 2023 Washington Post survey. The company said wage rates were constantly improving at the time.
The U.S. Department of Labor website says that while most cases can be resolved administratively, employers who violate the law could potentially be fined and imprisoned. DOL also has the power to allow employers to reclassify workers as employees.
For example, in February 2024, hotel staffing startup Qwick announced that it would resolve the DOL case by paying $2.1 million and that all California workers working using the QWick app will be classified as employees, Bloomberg Law reported.
Scale AI appears to see Silicon Valley companies seeking favor with the new presidential administration. For example, CEO and founder Alexandr Wang, like many other high-tech CEOs, attended Donald Trump’s inauguration in January.
More prominently, Michael Kratsios, former managing director of Scale AI, is the candidate for President Trump as the new director of science and technology policy at the White House. Kratsoos previously served as the US chief technology officer in the first Trump administration.
In this position, Kratsoos would advise Trump on science and technology issues. This position does not monitor the Ministry of Labor. Kratsios was part of the Senate hearing on February 25th, but has not been confirmed yet. Kratsios did not respond to requests for comment.
US Department of Labor spokesman Michael Petersen told TechCrunch that long-standing policies cannot confirm or deny the existence of the investigation.
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