April 20, 2026|Franchise Frontlines
April 20, 2026 | United States Court of Appeals for the Ninth Circuit | Amended Opinion
Executive Summary
In an amended opinion, the Ninth Circuit revisited a long-running wage-and-hour dispute involving Jack in the Box Inc. and claims arising from payroll deductions, meal-break practices, and statutory penalty wages under Oregon law. The employees alleged improper deductions related to the state’s Workers’ Benefit Fund, required footwear purchases tied to a vendor program, and unpaid wages for shortened meal periods. The employer argued that any over-deductions were inadvertent, that deductions were authorized and structured for employees’ benefit, and that several claims failed as a matter of law.
The Ninth Circuit reversed key portions of the district court’s rulings and remanded for further proceedings, holding that disputed factual issues precluded summary judgment on willfulness and on whether certain deductions were for the employees’ benefit. The amended opinion also provided additional guidance on the constitutional limits of statutory penalty wage awards, particularly where the ratio between actual damages and penalties is significant. While the decision reopens several issues for trial, it emphasizes that liability in wage-and-hour cases turns on fact-intensive inquiries regarding knowledge, intent, and the structure of the challenged practices.
Relevant Background
The plaintiffs were hourly employees who worked at Oregon locations operated by Jack in the Box prior to the company’s divestiture of those restaurants to franchisees. They brought a class action asserting multiple wage-and-hour violations arising from payroll and operational policies.
The dispute centered on three primary issues. First, the employees challenged deductions tied to Oregon’s Workers’ Benefit Fund (“WBF”), a statutory program requiring employers and employees to share contributions. Although the company updated the total amount paid to the state when rates changed, it did not update the amount deducted from employee wages, resulting in employees paying more than their required share over several years.
Second, the employees challenged a footwear policy requiring them to purchase non-slip shoes from a designated vendor. The vendor provided rebates and certain indemnity protections to the company, and employees often paid for the shoes through payroll deductions.
Third, the employees asserted claims relating to shortened meal periods, alleging that they were required to return to work before completing full meal breaks without receiving compensation for the entire period.
Following extensive pretrial proceedings, a jury returned a mixed verdict that included significant statutory penalty wages tied to the WBF deductions. The district court then issued a series of rulings narrowing the verdict and addressing post-trial motions, which were subsequently appealed.
Decision
The Ninth Circuit’s amended opinion addressed several aspects of the district court’s rulings, with a primary focus on whether key issues were properly resolved at summary judgment.
On the WBF claims, the court held that the district court erred in concluding as a matter of law that the company acted “willfully” in making over-deductions. Under Oregon law, willfulness requires that the employer be fully aware of its obligation and intentionally fail to comply. The record included evidence that the deductions may have resulted from a payroll system configuration or failure to update rates, and the employer presented testimony that it did not discover the issue until later. Because a reasonable jury could find that the error was an unintentional miscalculation rather than a conscious decision, the question of willfulness had to be resolved by a factfinder rather than at summary judgment .
The court also addressed the footwear deductions and rejected the district court’s conclusion that those deductions were necessarily for the employees’ benefit. Oregon law permits certain deductions only if they ultimately benefit the employee. The record reflected that the vendor program generated rebates and other financial protections for the company, which could support a finding that the program served employer interests rather than employee benefit. The court concluded that a reasonable jury could find either way, making summary judgment inappropriate .
In addition, the Ninth Circuit provided further guidance on statutory penalty wage awards. The jury had awarded more than $5 million in penalty wages based on approximately $13,000 in underlying deductions. The court explained that while statutory penalties may serve punitive and deterrent purposes, they remain subject to due process limitations where they become “wholly disproportionate” to the underlying conduct. The court instructed that, on remand, any renewed penalty award must be evaluated in light of proportionality, including the relationship between actual damages and the total award .
The opinion also addressed class certification and procedural issues, including the treatment of meal-break claims. The court clarified that certain regulatory interpretations applied retroactively and that earlier rulings rejecting class treatment based on individualized inquiries required reconsideration in light of more recent authority.
Looking Forward
The amended decision underscores that wage-and-hour exposure often turns on detailed factual questions rather than bright-line rules. Courts remain reluctant to resolve issues such as intent, knowledge, and operational purpose at the summary judgment stage where competing inferences can be drawn from the record.
The ruling also highlights the importance of maintaining clarity and consistency in payroll and deduction practices. Even small discrepancies, when applied across a workforce, may give rise to significant exposure—particularly where statutory penalty provisions are implicated. At the same time, the court’s analysis reinforces that inadvertent errors and reasonable reliance on systems or processes may present viable defenses where supported by the record.
The court’s treatment of vendor-based programs is similarly fact-driven. Arrangements involving required employee purchases, particularly where the company receives financial or operational benefits, may invite scrutiny as to whether such programs are structured primarily for employee benefit or for broader business purposes. The outcome in any given case will depend on how those programs are implemented and documented.
Importantly, the opinion does not suggest that systemwide standards or operational consistency, standing alone, create liability. Rather, the analysis focuses on the specific mechanics of the challenged practices and the employer’s knowledge and intent. Businesses operating across multiple locations should view this decision as reinforcing the need for disciplined implementation and periodic review of payroll systems and related policies, while recognizing that courts will evaluate these issues based on the particular facts presented.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
