The U.S. Department of Labor (DOL) has launched an investigation into Scale AI, a data-labeling startup, to determine its compliance with the Fair Labor Standards Act, as reported by TechCrunch.

The Fair Labor Standards Act is a federal law that governs issues related to unpaid wages, misclassification of employees as contractors, and retaliation against workers.

According to a document obtained by TechCrunch, the investigation has been ongoing since at least August 2024. A person familiar with the matter has confirmed that the investigation is still active.

It is essential to note that the existence of an investigation does not necessarily imply that Scale AI has engaged in any wrongdoing. The investigation may ultimately find in favor of the company or be dismissed.

Scale AI, a San Francisco-based company, was valued at $13.8 billion last year. The startup relies on a large workforce, classified as contractors, to perform essential AI-related tasks, such as image labeling for Big Tech companies and other organizations.

A spokesperson for Scale AI, Joe Osborne, stated that the investigation was initiated during the previous presidential administration. According to Osborne, the company believes that its work in building, testing, and evaluating AI was misunderstood by regulators at the time.

Osborne noted that Scale AI has worked closely with the DOL to explain its business model, and the conversations have been productive. He emphasized that Scale AI provides more flexible work opportunities in AI to Americans than any other company and that the feedback from its contributors is overwhelmingly positive.

Osborne added, “Hundreds of thousands of people use our platform to showcase their skills and earn extra money.”

While Scale AI is a popular gig work platform, it has faced legal challenges from former workers regarding its labor practices. Two lawsuits were filed against the startup, one in December 2024 and the other in January 2025, alleging underpayment and misclassification of workers as contractors instead of employees.

Scale AI has disputed the lawsuits, stating that it fully complies with the law and ensures its pay rates meet or exceed local living wage standards.

The company’s international labor practices were also investigated by the Washington Post in 2023. Workers overseas reported demanding work conditions and low pay as contractors. Scale AI responded by saying that pay rates were continually improving.

The U.S. Department of Labor’s website states that it can resolve most cases administratively, but employers who violate the law may face fines and imprisonment. The DOL also has the authority to force employers to reclassify their workers as employees.

For instance, in February 2024, hotel staffing startup Qwick settled a DOL case by paying $2.1 million and agreeing to classify all California workers using the Qwick app as employees, as reported by Bloomberg Law.

Scale AI appears to be seeking favor with the new presidential administration. Its CEO and founder, Alexandr Wang, attended Donald Trump’s inauguration in January, along with many other tech CEOs.

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

In this position, Kratsios will advise Trump on science and technology matters, although he will not have oversight over the Department of Labor. Kratsios was part of a Senate hearing on February 25 but has not been confirmed yet. He did not respond to a request for comment.

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