Your company's mandatory employee purchase policies could be costing you millions
A federal appeals court has clarified how mandatory wage deductions for employee purchases impact employer liability, reversing Jack in the Box on payroll practices.
The Ninth Circuit's decision in November settles a class action lawsuit that began in 2010 and involved roughly 5,105 former employees. The case challenged three workplace practices: deductions for Oregon's Workers' Benefit Fund, unpaid interrupted meal periods, and mandatory non-slip shoe purchases. The appeals court ruled against the company on the payroll deduction practices while upholding the dismissal of the meal break claims, sending two issues back for new trials.
The shoe deduction claim offers perhaps the most instructive lesson for HR leaders. Jack in the Box required employees to purchase non-slip shoes from Shoes for Crews to reduce slip-and-fall injuries, a workplace safety goal that sounds entirely reasonable. The problem emerged in the financial structure. The company negotiated rebates of two dollars per shoe and secured indemnity agreements protecting itself from liability. Over the relevant period, this arrangement generated more than one million dollars in rebates and nearly three hundred thousand dollars in indemnities for Jack in the Box.
The lower court approved these deductions because they allegedly benefited employees. The Ninth Circuit disagreed, finding that a jury could reasonably conclude employees overpaid for shoes primarily to enrich the company rather than protect their safety. A competitor charged two dollars less per shoe with no apparent quality difference, making it difficult to defend the arrangement as employee-focused. Oregon law permits wage deductions only for the employee's ultimate benefit, not schemes that primarily serve the employer's financial interests.
The Workers' Benefit Fund deductions present a similar problem with different mechanics. For nearly a decade, Jack in the Box deducted the same amount from paychecks even as Oregon reduced the assessment rate multiple times. The company correctly paid the reduced amounts to the state but never adjusted employee deductions. The result was approximately twenty-two thousand dollars in total overdeductions, though individual amounts were modest. About half of employees lost less than two dollars over eight years.
The lower court found this practice willful. The Ninth Circuit reversed, noting that a jury question exists. The company testified it discovered the error in 2012 and relied on payroll software to process deductions. Without evidence showing the company should have known to manually update rates, the court found that technical compliance failures, even with legitimate explanations, typically require jury resolution rather than summary dismissal.
One claim did not survive appellate review. The meal break dispute hinged on when Oregon began requiring payment for interrupted breaks. Before 2010, state law did not mandate such payment. Since all named plaintiffs had left the company before that regulatory change, they could not sustain claims for pre-2010 violations. The court affirmed the lower court's dismissal on this issue.
For HR leaders, these rulings carry a clear message. Wage compliance demands attention not just to regulatory changes but to the substance behind deduction policies. A program that appears protective on paper but generates revenue for the company invites litigation. Similarly, payroll systems require active management. When regulations change, employers cannot assume software will automatically adapt. Understanding what manual adjustments become necessary when rules change separates compliant companies from vulnerable ones.
The case now returns to trial on two central questions: whether the WBF overdeductions were truly willful and whether the shoe requirement actually benefited employees. Jack in the Box faces potential penalty damages on the WBF claims that will be recalculated based on that new willfulness determination. It is a costly reminder of why getting these decisions right matters.
