California Regulators Fine Costco More Than $800,000 for Drivers’ Owed Wages

State labor regulators have found Costco, the membership-only wholesale retailer, liable for the underpayment of dozens of delivery drivers in the San Diego region.

The California Labor Commissioner jointly cited Costco Wholesale Corporation, a delivery contractor and a trucking subcontractor, for nearly $870,000, according to an announcement Thursday.

Investigators found Mega Nice Trucking LLC misclassified 58 drivers as independent contractors, denying them employee rights such as minimum wage, overtime pay and other benefits for a two-year period between August 2022 and September 2024.

The agency also held Costco and contractor Ryder Last Mile Inc. equally responsible as employers for the alleged wage theft, because they closely monitored the drivers’ performance, scheduled deliveries and mandated uniforms.

“Companies that exert control over workers cannot evade responsibility by hiding behind layers of subcontracting,” Labor Commissioner Lilia García-Brower said in a statement. “Misclassification strips workers of their rights and protections, and employers who direct and control their workforce are responsible for paying all wages owed.”

Costco, Ryder Last Mile and Mega Nice Trucking did not respond to requests for comment. All three companies have appealed the citation. That process will determine the amount each employer may ultimately pay, according to an agency spokesperson.

Under state law, most drivers for trucking and logistics companies should be considered employees, as their labor is engaged in the core activity of the firm’s operations. (App-based companies such as Uber and DoorDash carved out an exemption through a 2020 voter-approved ballot measure.)

Yet, tens of thousands of truck and delivery drivers in California could be misclassified as independent contractors because it’s cheaper for the hiring entity, said Steve Viscelli, a sociologist and industry expert at the University of Pennsylvania.

Employers do not have to pay for an independent contractor’s sick days, workers’ compensation insurance or share of social security taxes. In trucking, the costs of fuel, insurance costs and vehicle repairs are also passed on to these workers, Viscelli said, which further decreases their earnings.

“A lot of times, you can see drivers who are working for really subpar wages. And that can add up to big savings for the trucking carrier and for the companies that are shipping products with them,” he said.

One in five U.S. Costco warehouses is located in California. The international corporation, headquartered in Issaquah, Washington, posted a net income of $8 billion this year, up from $7.4 billion in 2024.

The Labor Commissioner’s Bureau of Field Enforcement began its investigation in July 2024 after two former Mega Nice Trucking employees complained of misclassification and wage theft. The agency said the company, which had been penalized for similar violations in the past, paid drivers a flat daily rate and falsified payroll records to conceal ongoing violations. Martin Medina, Mega Nice Trucking’s CEO, was also named as an individual in the $868,000 citation.

About 75% of the proposed penalties would be payable to the impacted workers, according to the agency. But restitution is often elusive, as the Labor Commissioner’s Office, also known as the Division of Labor Standards Enforcement, has been plagued with delays and understaffing.

Small companies in trucking, construction and other industries that are cited for wage theft often close down and resurface with a different name to avoid paying penalties, according to experts. Holding large employers accountable for violations is critical to make workers’ whole and promote compliance, said Lorena Gonzalez, president of the California Federation of Labor Unions, AFL-CIO.

“Because of the laws in California, you can’t plead ignorance because you just keep outsourcing the work. So Costco knew and should have known that those workers were misclassified,” she said. “We need to hold every [guilty] company accountable because they know what they are supposed to be doing and they just try to get by.”

The Labor Commissioner also cited Medina and Mega Nice Trucking $520,000 in a separate case for alleged violations from July 2021 through Sept. 2024, impacting 38 workers in San Diego.

Misclassification costs workers and the social security net thousands of dollars per year. Light truck drivers, who drive small trucks or vans wrongfully considered independent contractors in California, lose as much as $26,000 in annual compensation, according to estimates by the Employment Policy Institute.