Scale AI is under federal investigation over labor practices

Behind every shiny frontier AI demo sits an invisible army of workers clicking, labeling, and grading outputs. Now, the biggest middleman running that machine is in the crosshairs of federal regulators.

According to an exclusive report from TechCrunch, the U.S. Department of Labor (DOL) is investigating Scale AI for potential violations of the Fair Labor Standards Act.

That federal law covers unpaid wages, illegal retaliation, and most critically, the misclassification of employees as independent contractors. Documents show the probe has been active since at least August 2024 and remains ongoing.

The $13.8B backbone of Big Tech AI

Scale AI was valued at $13.8 billion last year and provides essential data labeling and model evaluation for virtually every major tech giant. To deliver that data, it relies on hundreds of thousands of gig workers classified as contractors.

Scale AI spokesperson Joe Osborne pushed back, saying the inquiry began under the previous presidential administration when regulators simply misunderstood how AI data work works. Osborne noted that discussions with the DOL have been productive and claimed the company provides more flexible AI work opportunities to Americans than anyone else, with overwhelmingly positive feedback.

Former contributors tell a different story. In December 2024 and January 2025, workers hit Scale AI with two separate lawsuits alleging wage theft and misclassification. The suits claim workers were treated like regular staff but denied overtime pay, sick leave, and other standard protections.

This isn't Scale AI's first labor headache. A 2023 Washington Post investigation detailed harsh overseas conditions where contractors worked demanding hours for low pay. While the DOL resolves most cases administratively, it has real teeth: it can issue fines, refer criminal charges, or force companies to reclassify contractors. Last February, staffing app Qwick paid $2.1 million to settle a DOL probe and agreed to reclassify its California workers as employees.

Washington ties and political timing

The timing of the probe puts Scale AI at a peculiar political crossroads. Founder Alexandr Wang attended President Trump’s inauguration in January alongside other tech leaders.

Even closer to power, Scale AI's former managing director, Michael Kratsios, is Trump's nominee to lead the White House Office of Science and Technology Policy. Kratsios, who served as U.S. CTO during Trump's first term, attended his Senate confirmation hearing on February 25.

While OSTP does not oversee the Department of Labor, having a former top executive advise the president on technology policy gives Scale AI significant influence in Washington just as regulatory scrutiny mounts.

Why it matters

Data labeling has always been the open secret of the generative AI boom: high valuations built on low-wage gig labor. If the DOL forces Scale AI to treat its contractors as employees, the unit economics of the entire data pipeline could break.

In our view, Scale AI's gig model was brilliant for rapid scaling during the early LLM gold rush, but it was always vulnerable to basic labor law. When workers log full-time equivalent hours under strict algorithmic metrics, calling it a casual side hustle stops holding up under scrutiny.

If reclassification happens, Scale AI's margins will shrink, and those higher training data costs will inevitably pass downstream to OpenAI, Meta, and Google. Yet with its former managing director poised to take the White House science helm, this investigation looks like the ultimate test of whether the new administration will protect gig workers or shield the infrastructure driving American AI dominance.