U.S. Department of Labor Ends Investigation into Scale AI’s Worker Classification Practices

The U.S. Department of Labor (DOL) has officially ended its investigation into Scale AI's compliance with the Fair Labor Standards Act (FLSA), according to a reliable source. The FLSA is a federal law that governs issues such as the misclassification of employees as independent contractors and the non-payment of wages. TechCrunch initially reported the investigation in March, highlighting concerns about how Scale AI treats its workers. The DOL has also ceased investigations into Upwork and Hireart, two HR partners of Scale AI, regarding their adherence to FLSA regulations, as confirmed by both companies to TechCrunch. Scale AI, valued at $13.8 billion last year, relies heavily on a workforce categorized as independent contractors to perform crucial tasks, such as labeling images for major tech firms. Despite the DOL's decision, Scale AI is not out of the legal woods. Former employees have filed lawsuits alleging misclassification and underpayment. These workers claim that being labeled as contractors rather than employees has denied them essential benefits, including sick leave. The reasons behind the DOL's decision to drop the investigation are unclear. Scale AI, based in San Francisco, declined to provide a comment, and the DOL has not responded to inquiries. However, there are several potential factors at play. One possible explanation is a shift in the DOL's stance on worker classification. On May 1, the agency announced it would temporarily halt the enforcement of a rule introduced during the Biden administration. This rule had made it more challenging to classify workers as independent contractors, potentially aligning with a more business-friendly approach under the current administration. Another factor could be Scale AI's efforts to curry favor with the Trump administration. CEO Alexandr Wang attended Trump’s inauguration, along with several other tech industry leaders, and has publicly supported Trump's policies on artificial intelligence. Wang even authored a letter urging the former president to “win the AI war,” highlighting the company's strategic positioning in the political landscape. Additionally, the appointment of Scale AI's former managing director, Michael Kratsios, as the new director of the White House’s Office of Science and Technology Policy (OSTP) in March might have influenced the decision. Kratsios, who advises the President on science and technology matters, does not have direct oversight over the DOL. Despite this, he did not respond to a request for comment on the matter. While the investigation's closure may bring some relief to Scale AI, the legal challenges from former employees remain ongoing. These disputes continue to cast a shadow over the company's labor practices and highlight broader issues in the tech industry related to worker classification and compensation.