Mercor’s Controversial Contractor Cut: Billionaire Founders Under Scrutiny

In a dramatic turn of events that has raised eyebrows across the tech industry, AI training startup Mercor has found itself embroiled in controversy just weeks after its founders achieved billionaire status. The San Francisco-based company, recently valued at an impressive $10 billion following a $350 million funding round, allegedly terminated thousands of contractors working on a Meta-related AI project with little warning, only to offer to rehire some at significantly reduced wages hours later. This situation highlights the growing pains and ethical questions surrounding the rapidly expanding AI training industry, where human labor remains essential despite the high-tech veneer.

The incident unfolded suddenly when contractors working on a project codenamed “Musen” found themselves locked out of their work Slack channel without warning. These workers had been reviewing video and audio content from Meta’s Facebook and Instagram Reels platform for several months, earning $21 per hour. According to multiple contractors who spoke anonymously with Forbes, project managers had assured them just weeks earlier that the work would continue at least through December. Many described a sense of shock at the abrupt termination, with one contractor noting, “It was all very sudden. I have never seen anything like that and have worked on a few AI projects.” The suddenness of the termination left thousands of workers scrambling to understand what had happened, with many turning to Reddit to connect with fellow displaced contractors and share information.

Adding salt to the wound, approximately 24 hours after the project’s cancellation, Mercor emailed the contractors with an opportunity to join a new project called “Nova.” While the company promised “steadier task volumes” and more consistent weekly hours, the offer came with a significant catch – the hourly rate would be reduced to $16, representing a 24% pay cut. This new rate falls below minimum wage requirements in several states where contractors might be based, including California, Washington, and Connecticut. In its communication, Mercor framed this reduction as a trade-off for greater stability, stating: “While this reflects a change from the current structure, our goal is to offer greater earning stability and consistent access to work, rather than fluctuating opportunities.” The timing of this move has been particularly striking to many observers, coming so shortly after the company’s founders – Brendan Foody, Adarsh Hiremath, and Surya Midha, all just 22 years old – became the world’s youngest self-made billionaires following their recent funding round.

The controversy shines a light on the often-precarious nature of contract work in the AI industry. While Mercor CEO Brendan Foody defended the company’s actions by stating that contractors had been informed the project was “temporary” in job descriptions and onboarding materials, workers expressed frustration at what they perceived as a lack of professional courtesy and respect. “It’s contract work but we are real people who deserve some notice, or warning or some consideration,” one former contractor told Forbes. “I know we are working with AI but we don’t work for AI. You don’t just dump thousands of people, that’s not just right.” This sentiment reflects growing concerns about how workers are treated in the rapidly evolving AI ecosystem, where human labor remains essential for training and refining AI models despite often being treated as disposable. The situation is particularly poignant given that many contractors reported having recently been asked to increase their productivity while dealing with inconsistent work availability in the weeks leading up to the termination.

The Mercor incident occurs against the backdrop of massive growth and disruption in the AI data labeling industry. The company, founded by three friends who dropped out of college, originally positioned itself as an AI recruiting platform for software engineers before pivoting to data labeling – a fortuitous move that reportedly helped them achieve $500 million in annualized revenue by September 2023. The sector has seen significant consolidation, most notably when Meta acquired a 49% stake in Scale, one of the industry’s largest players, for $14 billion earlier this year. This acquisition sparked what some describe as a “feeding frenzy” among remaining independent firms like Mercor, as AI labs sought partners not partially owned by competitors. The booming demand has also led to increasing competition and legal tensions, with Scale filing a lawsuit against Mercor in September alleging theft of trade secrets – an accusation that Foody dismissed, saying, “It’s not something we spend a lot of time thinking about.”

The stark contrast between Mercor’s treatment of different types of contractors further illustrates the hierarchical nature of AI labor. While data annotation workers on Project Nova were offered just $16 per hour, the company simultaneously advertises positions for specialized professionals like lawyers, journalists, and doctors, promising up to $200 per hour for their expertise in shaping new AI models. Despite the controversy, many former Musen contractors reported signing up for the lower-paid Nova project out of necessity. As one worker explained, “I’m part time but for a lot of my colleagues this was their bread and butter and they have kids.” This reality underscores the vulnerability of many AI contract workers, who often lack the employment protections and bargaining power of full-time employees despite performing work that is fundamental to the development of cutting-edge technology. As the AI industry continues its explosive growth, incidents like this raise important questions about labor practices, ethical responsibilities, and whether the human workers enabling AI advancement are receiving their fair share of the industry’s extraordinary wealth creation.