Scale AI’s Regulatory Reprieve: A New Chapter for Gig Economy Labor?

The U.S. Department of Labor’s (DOL) decision to drop its investigation into Scale AI, a $14 billion data-labeling startup, marks a pivotal moment for the gig economy. TechCrunch reported that the probe, which began under the Biden administration, had focused on potential violations of the Fair Labor Standards Act (FLSA), including allegations of underpaying workers and misclassifying them as independent contractors. The DOL’s abrupt closure of the case—amid shifting regulatory priorities and political dynamics—raises critical questions for investors: Does this signal a broader retreat from gig economy labor enforcement, or is Scale AI’s reprieve an anomaly in a still-unresolved legal landscape?

The Case for Optimism: Regulatory Relief and Political Winds

The DOL’s withdrawal aligns with its May 2024 pause on enforcing a Biden-era rule that tightened worker classification standards. This policy shift, coupled with Scale AI’s ties to the Trump administration—CEO Alexandr Wang attended his 2025 inauguration and former managing director Michael Kratsios’s nomination to lead the White House’s Office of Science and Technology Policy—suggests political influence may have played a role. While Kratsios’s role does not directly oversee labor policy, his proximity to the White House could signal regulatory favoritism for firms central to AI innovation.

For investors, the resolution removes a major overhang. Scale AI, which employs over 300,000 contractors globally to train AI systems for tech giants like NVIDIA and Meta, had faced existential risks from a DOL ruling that could force reclassification of workers as employees—a move that would increase costs and disrupt its business model. The company’s valuation, which soared despite a 2023 Washington Post exposé on overseas contractors earning as little as $2.50/hour, now gains further credibility.

The Case for Caution: Lingering Legal and Market Risks

Despite the DOL’s decision, Scale AI’s legal battles are far from over. Two lawsuits alleging systemic underpayment and misclassification remain active, with plaintiffs accusing the company of denying overtime and sick leave. One case, filed in January 2025, even claims psychological harm from reviewing violent or abusive content—a charge Scale AI denies, citing safeguards like opt-out options and wellness programs.

While Scale AI is not publicly traded, the trajectory of Uber—a bellwether for gig economy litigation—offers a cautionary parallel. Uber’s stock dropped 18% in 2021 amid rulings that classified California drivers as employees, a precedent that could resurface if pro-worker policies regain traction under future administrations.

The Broader Gig Economy Dilemma

Scale AI’s case underscores a broader tension in labor law: How to regulate firms that rely on global, decentralized workforces for AI training—a sector projected to grow to $15 billion by 2028. The DOL’s retreat may embolden other companies to push contractor classifications, but the legal pendulum could swing back. A Supreme Court ruling in 2023 (Vazquez v. Jan-Pro Franchising) reinforced the “economic reality” test for worker classification, which examines factors like control over work conditions and entrepreneurial opportunity.

Scale AI’s defense—that its contractors are independent due to flexible hours and self-provided tools—could hold under this standard. Yet its international operations, where workers in cities like Nairobi and Manila often lack U.S.-style labor protections, remain vulnerable.

Investment Implications

For investors, Scale AI’s regulatory reprieve is a net positive, but risks linger. Key considerations:
- Valuation Risk: At $14 billion, Scale AI’s worth hinges on its ability to scale without triggering reclassification costs. A 2024 study by the Economic Policy Institute found that reclassifying a firm’s contractors could increase labor expenses by 20–30%.
- Market Position: As AI training data becomes a commodity, Scale AI’s dominance depends on its global network and relationships with tech titans. Its 2023 revenue of $320 million (per PitchBook) suggests strong demand, but competition from smaller rivals like Figure Eight (now part of Syne) could intensify.
- Political Volatility: While the DOL’s stance is favorable now, Democratic lawmakers have proposed bills like the PRO Act, which would expand worker protections.

Conclusion: A Win for Now, but the Fight Isn’t Over

The DOL’s withdrawal is a strategic victory for Scale AI, reducing immediate legal liabilities and validating its controversial business model. With the gig economy sector expected to add 10% more jobs annually through 2028, firms like Scale AI stand to benefit from a regulatory environment that prioritizes innovation over worker classification rigor.

However, the lawsuits and global labor scrutiny remain unresolved. Investors should weigh the company’s $14 billion valuation against its $320 million revenue (as of 2023)—a 43.75x revenue multiple—indicating high expectations for growth. Should Scale AI weather ongoing litigation and maintain its contractor model, it could solidify its position as a critical supplier to the AI industry. But if courts or regulators reverse course, its valuation could crumble as quickly as it rose. For now, the DOL’s decision buys Scale AI time—and investors a chance to bet on its gamble paying off.

The stakes are clear: In a $15 billion industry, Scale AI’s survival hinges not just on data labeling, but on navigating a labyrinth of law and politics with equal precision.