The United States Department of Labor has announced that it has dropped its investigation into artificial intelligence startup Scale AI. The agency had been carrying out an investigation into the company, but has now halted the move, according to a source familiar with the matter.
According to reports, Scale AI was the subject of an investigation by the department after it was suspected of non-compliance with the Fair Labor Standards Act (FLSA). The FLSA is a federal law that regulates misclassification of employees as independent contractors and unpaid wages. The initial investigation started in August 2024, but it was made available to the public in March 2025.
Scale AI is an artificial intelligence firm based in San Francisco and was valued at approximately $13.8 billion as of last year. The company has an army of workers it categorizes as contractors to do important AI work which includes labeling images for Big Tech and other organizations. According to a spokesperson for Scale AI, their work was misunderstood under the previous administration, prompting regulators to look into their activities.
Department of Labor halts compliance investigation against Scale AI
According to Inc. magazine, the Department of Labor was also investigating Upwork and HireArt, two of Scale AI’s HR partners, but both companies have now been let off the hook. It is not clear why the agency dropped the probe, with previous reports noting that numerous ex-workers have sued the company, alleging they were underpaid and classified as contractors instead of employees, denying them access to sick leave.
The company was slammed with a second lawsuit by one of its ex-workers, Amber Rogowicz, in January. Notably, that was the second lawsuit against the company by a previous employee in under a month. In the lawsuit, Rogowicz claimed that the company treated her and others as contractors instead of workers. She claimed that the total pay of the company amounts to $15 per hour, violating California’s $16 minimum wage rule at the time of her employment.
The company, through its spokesperson Joe Osborne, has mentioned that it is pleased with the development. “We’re pleased with this update,” Osborne said. “Creating new forms of work in AI is vital to America’s economic growth, and we’re proud of the flexible earning opportunities offered through our platforms.” While there has been no clear reason why the Department of Labor dropped the investigation, there are some possible reasons why it happened.
DOL softens classification of workers as contractors
According to recent reports, the agency has been making moves towards a friendlier approach to classify workers as contractors, according to its announcement on May 1. The agency mentioned that it was no longer enforcing the rule, which was created in the Biden era.
“While the department reviews the 2024 final rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act — which is also being challenged in federal court — agency investigators are directed not to apply the 2024 rule’s analysis in current enforcement matters,” the agency said.
Scale AI has also been seeking favor with the Trump administration. Its CEO Alexandr Wang was present at Trump’s inauguration, like many other tech CEOs. He also recently published a letter, urging Trump to win the AI war. In addition, the company’s former managing director, Michael Kratsios, was confirmed as the new director of the White House’s Office of Science and Technology Policy in March. He will advise the president on science and tech issues, and has no oversight over the DOL.
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