Oct 27, 2021 3 Min READ

What California’s New Labor Law Means for 3PL Warehouses

Garrison Ham

Garrison Ham is a solutions engineer at Extensiv. With a background in international supply chain management, freight forwarding, customs brokerage, and warehousing, Garrison focusses on holistic commercial and technological solutions that help businesses streamline operations.

3 Min READ
What California’s New Labor Law Means for 3PL Warehouses


In late September, California Governor Gavin Newsom signed AB 701 into law. This recently passed law regulates the types of metric-based quotas that can be placed on warehouse and distribution center employees. Though mostly a response to claims about hostile working conditions made by Amazon fulfillment center staff members, the law aims to better regulate just-in-time logistics models that have recently come under scrutiny for how businesses apply them to labor.

Despite being a law only applicable in California, other states can expect to see increased regulatory activity moving forward as warehouses and distribution centers look to mitigate the impacts of disrupted supply chains by increasing productivity amongst their staff. Though additional regulations tend to raise concerns for businesses, laws such as AB 701 don’t have to be a boon on productivity. By utilizing an effective technology stack that combines warehouse operations, shopping cart management, and accounting, warehouses can drive operational improvement through workflow adjustments instead of aggressive performance quotas.

Introduced by Assemblywoman Lorena Gomez (D-San Diego), AB 701 seeks to create a safer work environment for warehouse staff by requiring the disclosure of speed metrics and performance quotas to employees and government agencies. Additional features of the law prohibit penalties for activities that slow down production for health and safety such as restroom breaks, or any other type of work stoppage related to personal wellbeing.

Harder Not Smarter

Many warehouse employees have claimed that the increased use of data to monitor employee output has caused some businesses to hyper focus on quantifiable performance outcomes at the expense of worker safety and wellbeing. Such outcomes have allegedly caused employee injury rates to climb while competition in the warehousing and distribution space has dramatically increased over the past few years.

Consequently, AB 701 will call for regulators to scrutinize unsafe conditions. If the on-the-job injury rate rises to 1.5x the industry standard, the state labor commission will determine whether an investigation is necessary. This comes following a California State Senate Judiciary Committee found that Amazon’s fulfillment centers experience almost twice the injury rate as the rest of the warehousing industry.

Although this law might seem like an unfair burden on an entire business community because of allegations against one company, this can also be a gift for smaller warehouses struggling to keep up with Amazon’s massive fulfilment centers.

Many warehouses have trouble competing with Amazon’s fulfillment speeds. Much of this comes from antiquated technology in the warehouse, such as turn of the century on-premises warehouse management system (WMS) solutions or an over-reliance on office tools like Excel to manage commercial and operational workflows. Meanwhile, larger distribution networks benefit from advanced software that allows them to extract every bit of productivity from their employees.
In a state like California, competition is especially tight. With major ports shipping and receiving sea and air freight, there is no shortage of warehouses. However, recent supply chain disruptions stemming from capacity constraints in freight markets, labor shortages, fewer truck drivers, and a growth in ecommerce, warehouses and distribution centers are facing increasingly competitive commercial landscapes.

While we can expect to see performance metrics for larger data driven warehouses to decline, smaller third-party logistics (3PL) warehouses can take this opportunity to dial in their workflows in a way that promotes optimal outcomes through smarter processes and seamless technology integrations.

Invest in Warehouse Infrastructure

Instead of forcing employees to overexert themselves to achieve unsustainable metrics, warehouses can increase infrastructure by leveraging technology in three key areas.

1. Better Inventory Management

A lot of warehouses spend an inordinate amount of time trying to track or locate products in their facilities with Excel sheets or even paper documentation. Using a platform that can track goods in the warehouse from an inbound receipt, to storage, and finally to outbound shipping can help warehouses optimize labor and save money.

By using a system that can tell team members exactly where to pick products, confirm pick accuracy in real time, and manage unit allocation will help save money by driving increased accuracy and help eliminate costly mistakes in the warehouse. Meanwhile pickers and packers can focus on their tasks instead of ambiguous data metrics.

2. Customer Portals and Shopping Cart Integrations

A lot of warehouses spend a massive amount of time transcribing lengthy emails into Advanced Shipment Notices (ASN) and fulfillment requests. These processes often include additional human touch points, which create the potential for increased errors. These errors and slowdowns from data processing strain operational efficiency and profits that usually find businesses making up for lost output by unnecessarily driving marginal output levels out of the pickers and packers.

Instead, warehouses can save a lot of time and money by giving their customers the ability to input ASNs and order requests to a central platform. Additional output gains can be had if that platform can connect to online shopping carts through an application programming interface (API) integration. These processes will drive accuracy and limit time spent on unneeded communication between businesses and their warehouses.

3. Make Your Warehouse Talk to Your Accounting Software

In my time in logistics, uncaptured revenue hurts warehouses more than employee speed. What good is a dialed in team of pickers if charges aren’t being recorded? By using a platform that automatically records charges, prompts employees through organic workflows to update services, and then feeds data into an accounting platform via an API, warehouses can capture more revenue without straining their accounts receivable teams (think of the poor accountants).

Regulation That Can Help

AB 701 was passed by the California State Legislature and signed by the governor to force larger distribution centers to be more transparent about data metrics used to evaluate employees. Consequently, this will likely negatively impact productivity in these warehouses. This slowdown in larger competitors gives other warehouses an opportunity to be more competitive by leveraging carefully built technology stacks to reduce errors and streamline data management. All the while, warehouse staff can increase their output and accuracy without the use of hostile performance quotas and missed bathroom breaks.

For more information on how to better prepare your warehouse, labor plans, and space capacity for 2022, read the Third-Party Logistics Warehouse Benchmark Report.

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