November 25, 2025|Franchise Frontlines
November 25, 2025 | United States Court of Appeals for the Ninth Circuit | Published Opinion
Executive Summary
In a published decision, the Ninth Circuit addressed a wide-ranging wage-and-hour dispute between former employees and a national restaurant chain concerning payroll deductions, meal-break practices, and statutory penalty wages under Oregon law. The employees alleged that Jack in the Box improperly deducted wages for state Workers’ Benefit Fund contributions, required employees to purchase specific non-slip shoes through a vendor that provided rebates to the company, and failed to compensate workers for shortened meal breaks. The employer argued that any over-deductions were inadvertent, that the shoe deductions were authorized and benefitted employees, and that the class claims were legally defective. The Ninth Circuit reversed portions of the district court’s rulings and remanded for further proceedings, holding that disputed factual issues remained regarding whether the company acted willfully when over-deducting wages and whether the shoe deductions were truly for the employees’ benefit.
Relevant Background
The plaintiffs were hourly employees who worked at Oregon restaurants operated by Jack in the Box prior to the company’s sale of those restaurants to franchisees in 2011. They brought a class action asserting several wage-and-hour violations arising from the company’s payroll and workplace policies. The case focused on three categories of alleged misconduct: over-deductions related to Oregon’s Workers’ Benefit Fund (WBF), deductions from employee wages for required non-slip shoes, and unpaid wages associated with shortened meal breaks.
The WBF program requires employers and employees to split a small hourly contribution used to fund Oregon’s workers’ compensation system. Over time, Oregon reduced the assessment rate. The company updated the total amount it paid to the state but failed to adjust the amount deducted from employee paychecks, which resulted in workers paying more than half of the required contribution. The error remained in place for several years before the company discovered and corrected it in 2012.
The employees also challenged the company’s policy requiring workers to purchase non-slip shoes from a particular vendor. According to the record, the vendor paid the company a rebate for each pair of shoes sold to employees and provided indemnity protection for certain workplace injury claims. Employees could pay for the shoes through payroll deductions spread across several paychecks. The plaintiffs alleged that these deductions unlawfully reduced their wages and improperly benefitted the company.
After extensive pretrial litigation, a jury returned a mixed verdict that included statutory penalty wages based on the WBF deductions. The district court partially set aside the verdict and resolved several issues through post-trial motions. Both sides appealed.
Decision
The Ninth Circuit first addressed whether the district court properly granted summary judgment on the question of willfulness regarding the WBF over-deductions. Under Oregon law, penalty wages may be imposed only when an employer “willfully” fails to pay wages owed at the time of termination. The court explained that willfulness requires proof that the employer was fully aware of the obligation to pay the wages but intentionally failed to do so.
The appellate court concluded that the district court erred by resolving that issue as a matter of law. Evidence in the record suggested the over-deductions might have resulted from a payroll software configuration or an unintentional failure to update deduction rates when the state changed the assessment. Because a reasonable jury could find the error was inadvertent rather than intentional, the question of willfulness had to be decided by a jury rather than resolved through summary judgment.
The court also rejected the district court’s ruling that payroll deductions for employee footwear were necessarily lawful. Oregon law allows employers to deduct certain amounts from wages only when the deduction is for the employee’s benefit. The record showed that the shoe vendor paid the company rebates and indemnified it against injury claims, which could support a finding that the deduction ultimately benefitted the employer rather than the employees. As a result, the court held that a jury must determine whether the deductions satisfied the statutory standard.
The opinion further addressed the constitutional limits of statutory penalty wage awards. In this case, the jury awarded more than $5 million in statutory penalties based on approximately $13,000 in underlying wage deductions. The Ninth Circuit explained that although legislatures may impose punitive statutory penalties, courts must still ensure that such awards are not “so severe and oppressive as to be wholly disproportionate to the offense.” The panel instructed the district court to reevaluate the proportionality of any penalty wage award on remand if the plaintiffs again prevail.
Finally, the court resolved several class-action and procedural issues, including notice to absent class members and the scope of Oregon meal-break regulations. The panel concluded that the district court did not abuse its discretion in handling the class notice process and clarified that certain meal-break rules applied retroactively while others did not, depending on the regulatory text in effect at the relevant time.
Looking Forward
This decision highlights several recurring themes in wage-and-hour litigation that are particularly relevant to franchised restaurant systems and other multi-unit operations.
Even small payroll deductions can produce significant statutory exposure when penalty wage statutes apply. Employers operating large workforces should ensure that payroll systems are regularly audited to confirm that statutory deduction rates are updated promptly and applied consistently.
The opinion also underscores the risk associated with vendor programs tied to required employee purchases. When a company mandates that employees purchase equipment or uniforms through a specific supplier—especially when rebates or financial incentives are involved—courts may scrutinize whether the program truly benefits employees or instead shifts costs onto the workforce.
The case further illustrates how statutory penalty provisions can generate damages far exceeding the underlying economic harm. Courts remain willing to review large penalty awards under constitutional due-process principles when the ratio between statutory penalties and actual damages becomes extreme.
For franchisors and other operators of branded systems, the ruling serves as a reminder that operational policies affecting franchise-level employees—such as required equipment purchases, payroll deduction practices, or vendor relationships—can become focal points in wage-and-hour litigation. Even policies designed to improve safety or operational consistency may invite scrutiny if they produce indirect financial benefits to the brand owner or system operator.
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 Shareholder 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.
