San Francisco AI Startup Sued for Wage Theft and Worker Misclassification

Artificial intelligence is already transforming the daily lives of Americans and posing new challenges. What hasn’t changed is workers’ fundamental rights to fair pay and proper classification. A San Francisco-based AI startup currently faces multiple lawsuits for misclassifying its workers as independent contractors and failing to pay them fairly. The company, valued at over $13 billion, allegedly required workers to complete unpaid training, did not provide paid breaks, failed to reimburse for business expenses, and did not pay them overtime, according to recent legal filings.

Scale AI, which helps train generative AI models, was sued last December in California’s Superior Court of San Francisco. The proposed class-action lawsuit, filed by a former contractor, argues that the company’s business model depends on misclassifying workers to cut costs. Scale AI allegedly hired thousands of people to train AI models but treated them as contractors rather than employees despite controlling key aspects of their work.

The lawsuit concerns Scale AI’s Taskers, workers who label data and refine AI-generated responses. Tech giants like Meta and Google use the company’s services to improve their AI models, the complaint said.

Under California’s Assembly Bill 5 (AB5), workers must be classified as employees unless they meet specific criteria. A worker is considered an independent contractor if they have the freedom to control their own work and how tasks are completed, carry out work outside the company’s usual scope of business, and typically perform tasks similar to the ones the company hired them to do as their own business. According to the lawsuit, Taskers do not meet these AB5 standards because they have little control over their assignments and perform tasks central to the company’s operations.

Scale AI requires Taskers to use employee-monitoring software, which further suggests that they function as employees, not as independent contractors. Taskers were required to download software that tracks their computer keystrokes and the websites they access. Between 10,000 and 20,000 California workers have been affected by Scale’s alleged misclassification of contractors.

Scale AI workers were allegedly forced to complete unpaid training sessions and were often assigned sensitive or distressing content without proper consent or preparation. The lawsuit highlights that Scale AI’s pay structure made it difficult for workers to earn a fair wage, as they were sometimes not paid for all the hours they worked. By limiting the time a worker could spend on certain tasks and refusing to pay for extra time, the company allegedly ensured that Taskers received minimal earnings despite playing a crucial role in AI development.

Another lawsuit was filed in January 2025, which raises similar allegations. The new case claims that Scale AI violated state labor laws by misclassifying workers as contractors and paying them below minimum wage. The plaintiff alleges that she often worked 10-hour days but only received pay for five hours. Her lawsuit seeks penalties for wage violations that could amount to thousands of dollars per worker if successful.

California’s labor laws, particularly AB5, were designed to prevent companies from misclassifying workers to cut costs. Workers classified as employees are entitled to benefits such as overtime pay, sick leave, and reimbursement for business expenses. When tech companies misclassify employees as independent contractors, workers often bear the financial burden of job-related costs while missing out on essential benefits.

Legal options are available for workers who believe they have been misclassified or underpaid. California labor laws provide strong protections that allow workers to pursue claims for unpaid wages, overtime violations, and misclassification.

If you have concerns about your employment status or believe your rights have been violated, McCormack Law Firm can help. While we are not involved with the lawsuits against tech start-up, Scale AI, our experienced San Francisco employment lawyers can answer your questions. Contact us today to schedule a free case evaluation and learn about the next best steps.