McKinney v. Scale AI, Inc. (S.F. Super. Ct. No. CGC-24-620481)
Key Takeaway: Scale AI, the San Francisco company behind much of the labeled data that trains today’s leading AI models, agreed to a $12.5 million class action settlement over claims that it misclassified its data-annotation workforce as independent contractors rather than employees.
The case is a test of whether California’s worker-protection laws apply with the same force to AI data work as they do to every other industry that depends on controlled, supervised human labor.
What Happened in the Scale AI Misclassification Case
Scale AI, Inc. is the San Francisco company behind much of the labeled data that trains today’s leading AI models. Since 2016, it has recruited enormous numbers of people to annotate images, write example responses, and rate chatbot outputs through worker-facing platforms like Outlier and Remotasks. Scale calls these workers “Contributors.” By June 2025, Meta had invested roughly $14 billion in Scale for a large minority stake (valuing the company at over $29 billion).
Scale has also, for years, classified these Contributors as independent contractors rather than employees — a distinction that determines whether a worker is entitled to minimum wage, overtime, meal and rest breaks, and reimbursement for business expenses under California law.
Former Contributor Steve McKinney tested that classification in December 2024, filing a class action against Scale AI, staffing firm HireArt, and the company’s top executives, including then-CEO Alexandr Wang, in San Francisco Superior Court. The complaint described Scale’s control over its workforce as “Orwellian” and alleged that the company monitored Contributors with software that took periodic screenshots of their computers, docked their pay when tasks ran longer than Scale’s time estimates, and reassigned workers to lower-paying projects without notice.
McKinney argued that this level of control meant Scale’s Contributors failed California’s ABC test for independent contractor status — the test, codified at Labor Code section 2775, that presumes a worker is an employee unless the hiring company proves the worker operates free of its control, performs work outside its usual business, and runs an independent business of their own.
Two more lawsuits followed within weeks, including a separate suit from Outlier workers who said they were assigned to write disturbing prompts involving violence and abuse without adequate psychological safeguards.
Scale disputed the claims.
The wage-and-hour claims moved toward trial until the parties reached a settlement through mediation before a retired judge. The Superior Court of California, County of San Francisco granted preliminary approval of a $12.5 million fund covering everyone who worked as a Contributor for Scale, Smart Ecosystem, or through HireArt while residing in California between December 10, 2020, and February 28, 2026.
How California’s ABC Test for Independent Contractor Status Works
California’s ABC test, codified at Labor Code section 2775, presumes that a worker is an employee. The hiring company bears the burden of proving all three of the following conditions to establish that the worker is an independent contractor:
- 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 fact.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
If the company fails to prove any one of these prongs, the worker is an employee as a matter of law. The McKinney complaint focused heavily on prongs A and B: Scale allegedly dictated how work was done, monitored performance through surveillance software, and assigned projects without negotiation — the hallmarks of employer control under prong A. And because Scale’s entire business is producing labeled data for AI training, the Contributors who performed that labeling were doing work squarely within Scale’s usual course of business under prong B.
The ABC test is strict by design. It replaced the older test for most employment relationships precisely because the Borello test gave companies too much room to structure relationships that looked independent on paper but felt like employment in practice. Under the ABC test, the question is not whether the company calls the worker a contractor — it is whether the company can prove, affirmatively, that the worker really is one.
How to Know If You Were Misclassified as an Independent Contractor
You may have been misclassified if:
- You were called an independent contractor, but the company controlled when, where, or how you performed your work — including setting deadlines, requiring specific tools or software, or monitoring your screen.
- The work you performed was the company’s core business. If you annotated data for an AI data company, wrote content for a content company, or drove deliveries for a delivery company, that work is likely within the usual course of the company’s business.
- You did not have your own independent business performing similar work for other clients. You worked primarily or exclusively for one company, used its platform, and had no independent marketing, client base, or business infrastructure of your own.
- You were paid per task or per piece at rates the company set, with no ability to negotiate your rate or choose which projects to work on.
- The company could reassign you, reduce your pay, or remove your access to the platform without notice or negotiation.
Misclassification is not limited to AI data work. The same analysis applies to gig workers, platform workers, staffing-agency workers, and anyone whose employer labels them a contractor while treating them like an employee.
What This Means for AI Workers and the Gig Economy
For a company whose product depends entirely on human labor performed at scale and at speed, the settlement is a reminder that California’s wage-and-hour laws do not bend for novelty. It does not matter that the work involves training large language models instead of picking produce or driving for a rideshare app — if a company dictates when, how, and under what surveillance the work gets done, California law asks whether that worker is really independent, or just labeled that way.
The Scale AI settlement is not an isolated event. The AI industry’s reliance on large numbers of low-paid human annotators has drawn increasing scrutiny, and the legal theory underlying McKinney — that AI data-labeling workers are employees under the ABC test — applies broadly across the sector. Companies that recruit California residents to annotate, label, rate, or write training data through online platforms face the same exposure if they classify those workers as contractors while controlling the work.
Scale’s willingness to pay $12.5 million to settle before trial, while denying liability, is itself significant. It reflects the reality that California’s ABC test is a difficult standard for companies like Scale to meet at prongs A and B, and the risk of a classwide finding of employee status — with attendant liability for unpaid wages, overtime, penalties, and interest across thousands of workers — is substantial enough to justify a seven-figure settlement even when the company believes it would prevail.
Talk to a Worker Misclassification Attorney
Contributors, annotators, and other gig workers who believe they were misclassified and denied wages, overtime, or expense reimbursement in California can contact King & Siegel LLP for a free consultation. The firm represents employees in wage-and-hour class actions, PAGA claims, and individual misclassification cases. Consultations are free and confidential.
