Costco Cited $870,000 for Misclassifying California Delivery Drivers as Independent Contractors

Workers often assume that if they wear a company uniform, follow delivery routes assigned by a supervisor, and report to a manager, they are employees. However, in many industries, including trucking and logistics, companies sometimes label those workers as independent contractors. That label can make a big difference in how someone is treated and paid. A recent case involving Costco Wholesale Corporation shows how misclassification can harm workers.

California is home to one in five U.S. Costco warehouses. The state Labor Commissioner’s Office found that Costco, Ryder Last Mile Inc. and Mega Nice Trucking LLC misclassified 58 delivery drivers. After launching an investigation in 2024, the agency cited the companies for nearly $870,000 in unpaid wages and penalties.

According to investigators, Mega Nice Trucking had treated its drivers as independent contractors, paying them flat daily rates that didn’t meet minimum wage or overtime requirements. The violations occurred between August 2022 and September 2024. The agency said Costco and Ryder also shared responsibility because they controlled key parts of the drivers’ work, including delivery schedules, performance tracking, and uniform policies.

Under Assembly Bill 5, most workers are presumed to be employees unless the hiring company can prove otherwise using the three-part ABC test. To be considered an independent contractor, a worker must be free from the company’s control, perform work that is outside the company’s usual business, and run an independent trade or business.

In the case of the delivery drivers, their work was central to Costco’s retail operations and Ryder’s logistics services. Both companies directed how the work was done. That means the drivers met the legal definition of employees, not independent contractors.

The Labor Commissioner’s investigation revealed more troubling behavior beyond the misclassification itself. The agency reported that Mega Nice Trucking falsified payroll records to hide ongoing violations. The company had also faced previous penalties for similar misconduct, showing a pattern of noncompliance.

Large companies that rely on subcontractors can’t escape responsibility when those subcontractors break the law. If a company benefits from a worker’s labor and controls how that work is performed, California law holds that the company is responsible for ensuring the worker is paid correctly.

Costco and Ryder have appealed the citation, and the final amount owed will be determined through that process. Approximately 75 percent of the penalties in this case are expected to be distributed directly to the affected workers.

For delivery drivers and other workers, understanding their classification and knowing their rights can make all the difference in recovering what they are owed. If you believe your employer has misclassified you or failed to pay you for all hours worked, you don’t have to handle it alone.

Erlich Law Firm helps workers who have experienced wage theft, misclassification, and other employment law violations. Our Oakland employment lawyers can review your situation, explain your rights under state law, and assist you in recovering unpaid wages. Contact us today to schedule a free initial consultation and learn more.