Locked Out of Work and Left Unpaid: A Contractor Dispute with a San Francisco AI Startup

For many people working in the AI space, contract roles are marketed as flexible, high-paying opportunities tied to cutting-edge technology. Contractors are often told they can log in on their own schedule, complete tasks remotely and get paid based on output. When wage disputes arise, workers may not fully understand their rights in a fast-growing industry that is still evolving.

A recent dispute that made headlines involves Handshake AI, a San Francisco-based company that started as a job platform and expanded into AI data training. Several contractors who worked on OpenAI-related projects told Business Insider they were abruptly suspended from the platform between late December and January. When they tried to continue working, they discovered their accounts had been disabled.

According to the contractors, the suspensions came without advance warning. After reaching out to the company for clarification, they were told they had violated contract terms and were therefore not eligible for payment. In multiple cases, workers say they were never paid for work they had already completed.

Handshake AI allegedly cited several reasons for the decisions, including task completion times exceeding internal benchmarks and work performed from locations not allowed under the contractor agreement. At least one contractor disputed the company’s claims, saying the issues were not raised during the work period. Some workers said they had already spent dozens of hours completing tasks before their access was removed.

Other contractors described similar experiences, where their access to projects was cut off, and payment was withheld after internal reviews. Some workers also pointed to a lack of any meaningful appeals process, with support communications indicating that decisions were final and there would be no further review. According to news reports, at least one contractor previously sued Handshake AI over unpaid wages. Another case reportedly resulted in a contractor receiving allegedly withheld compensation.

While the facts of each dispute vary, they reflect a broader tension in the AI industry. Companies rely on large networks of contractors to perform detailed tasks such as evaluating responses, labeling datasets and training machine learning models. The work can be technically demanding and time-consuming, even when structured as short-term or task-based assignments.

Under California law, how a worker is classified determines which labor protections apply. The main standard for evaluating a worker’s classification is known as the ABC test. The test looks at three factors: (A) whether the worker is free from the control and direction of the hiring entity in the performance of the work, both under the contract and in practice; (B) whether the work performed is outside the usual course of the company’s business; and (C) whether the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work being performed. If all three conditions are not met, the worker may be considered an employee under California law rather than an independent contractor.

This distinction matters because employees are generally entitled to protections under California wage laws, including timely payment of earned wages and overtime pay. Independent contractor arrangements, by contrast, are governed mainly by the terms of the contract itself. That means companies often point to the contract when denying payment after a claimed violation.

At the same time, classification is not always straightforward. In some disputes, workers challenge whether they were properly classified in the first place. If a worker is later found to have been misclassified, they may be entitled to unpaid wages and other protections under California law, even if the contract labeled them as an independent contractor.

For contractors, such situations can be difficult because the work is often completed before any concerns are raised. Once access to a platform or project is removed, as alleged in the Handshake AI case, they may be left without a clear way to resolve pay issues. That is where speaking with an experienced employment attorney may help workers better understand their rights.

If you suspect you have been misclassified or denied the wages you are owed, discuss your situation with a San Francisco Bay Area employment attorney. McCormack Law Firm is dedicated to helping workers resolve employment disputes. Contact us today at 415.925.5161 to learn more.

Disclaimer: This article is for information purposes only. McCormack Law Firm is not involved in this case.