A fraction-of-a-cent mistake ran for eight years – and the penalty wages reached $5.3 million
A fraction-of-a-cent-per-hour payroll mistake went unchecked for eight years at Jack in the Box – and triggered a multimillion-dollar class action.
On April 20, 2026, the US Court of Appeals for the Ninth Circuit handed down an amended opinion that should give every HR team in the country a reason to audit their payroll systems this week. The three-judge panel reversed and remanded large portions of the case, sending the fast-food chain back to trial on claims involving overdeducted wages, unpaid meal breaks, and mandatory shoe purchases.
The case was brought by five former employees on behalf of a class of more than 5,100 workers at Jack in the Box restaurants in Oregon. The dispute traces back to 2003, when the company was using its Lawson payroll software to deduct 1.8 cents per hour from each employee's paycheck for the Oregon Workers' Benefit Fund, a state program funded by equal contributions from employers and employees. That rate was correct at the time. But over the following years, Oregon lowered the total assessment. Jack in the Box updated what it paid the state but never changed the employee deduction rate in its payroll system. From 2004 through 2011, employees overpaid – by as little as 0.1 cents and at most 0.4 cents per hour. The company discovered the error in February 2012. By then, it had already sold all its Oregon locations and had no employees left in the state.
The total overcharge across all employees came to roughly $22,000. No single worker lost more than $32. About half the class lost less than $2 over the entire eight-year period. But at trial, a jury awarded $5,307,589.60 in penalty wages. The penalty was calculated on $13,468.37 in overdeductions that fell within the statute of limitations – meaning the award was nearly 400 times the compensable harm. The Ninth Circuit flagged that ratio as a potential due process problem and told the district court to take a harder look at it if penalty wages come up again on remand.
The panel also reversed the district court's finding that the overdeductions were willful, which is a prerequisite for penalty wages under Oregon law. Jack in the Box testified through depositions that it did not know about the error until 2012, and the plaintiffs offered no testimony to the contrary. The court found that a reasonable jury could believe the company simply missed a tiny deduction managed by automated software and that relying on a payroll system to handle the math was not inherently careless. Still, the court did not let Jack in the Box off the hook entirely. Because the company admitted it received updated rates from the state each year and correctly adjusted the total amount it paid Oregon, a jury could reasonably wonder why it never did the same for its employees.
The meal break ruling may carry the broadest implications for HR professionals. Jack in the Box employees on shifts longer than six hours typically took unpaid 30-minute meal periods. When business was heavy, management would call workers back before their breaks ended. Company policy treated any break of at least 20 minutes as a full meal period and did not pay for it. So an employee whose break was cut from 30 to 25 minutes got paid for the five minutes of work but nothing for the 25 minutes of interrupted break time.
The district court had refused to certify a class on these claims, reasoning that each shortened break required an individualized look at why the employee came back – whether they were ordered to return or chose to on their own. The Ninth Circuit rejected that distinction. Under Oregon law, as interpreted by the state Court of Appeals in Maza v. Waterford Operations (2019), the reason does not matter. Employers are responsible for enforcing 30-minute meal breaks. If a break falls short, the employer owes wages for the entire 30 minutes, regardless of who cut it short.
Jack in the Box argued that this rule should only apply going forward from 2019, since it had no Oregon employees by then. The Ninth Circuit disagreed, holding that Maza interpreted existing regulatory language that was in place well before 2010. The court also relied on a 2025 Oregon Court of Appeals decision, Athena v. Pelican Brewing Co., which concluded that the 2010 amendment to Oregon's meal break regulation did not change the substance of the rule – it simply spelled out what was already required. Employees who did not receive a full 30-minute break were working for wage and hour purposes and were entitled to pay during that time.
That holding hits directly at a question many employers still struggle with: who is responsible when an employee cuts their own break short? Under this ruling, at least in Oregon and potentially in jurisdictions with similar meal break frameworks, the answer is the employer, every time.
The shoe deduction claims added another layer. Before 2003, Jack in the Box let employees wear any slip-resistant shoe. After finding that its workers suffered slip-and-fall injuries at a rate 25 percent above the industry average, costing the company more than $3 million a year, it decided to require shoes from a single vendor, Shoes for Crews. Internal records showed the company chose that vendor over a cheaper competitor – Footstar charged about $2 less per shoe – in part because Shoes for Crews offered Jack in the Box a $2-per-shoe rebate and agreed to indemnify the company for certain employee injuries. Employees paid through payroll deductions, and the company collected more than $1 million in rebates and $295,000 in indemnities.
The district court had ruled at summary judgment that the deductions were for the employees' benefit, which is required under Oregon law for an employer to deduct wages with written authorization. The Ninth Circuit reversed, finding that a reasonable jury could look at the rebate arrangement and conclude the shoe requirement was not ultimately for the employees' benefit at all. The court noted no record evidence that the more expensive shoes were better quality than the cheaper alternative, and no cited evidence supporting the district court's finding that employees received any discount.
On the minimum wage and overtime angle of the shoe claims, the court found a separate error. The district court had allowed Jack in the Box to count shoe costs toward minimum wage and overtime obligations because employees authorized the deductions in writing. The Ninth Circuit held that written authorization is not a defense under the applicable minimum wage statute, which only permits deductions for items furnished for the private benefit of the employee – a narrower standard.
The case now returns to the US District Court for the District of Oregon. The district court must conduct a new trial on whether the payroll overdeductions were willful, reconsider class certification on the meal break and shoe claims, retry the question of whether the shoe requirement benefited employees, and recalculate prejudgment interest. Each side bears its own costs on appeal.
For HR professionals, the takeaways from this case are not abstract. Automated payroll systems need regular audits, especially when tax rates or statutory deduction rates change. Meal break policies need enforcement mechanisms, not just written guidelines – and in jurisdictions with mandatory break laws, the employer bears the risk when breaks are interrupted, regardless of who initiated the interruption. And vendor arrangements that funnel rebates to the employer while employees foot the bill can undermine the legal basis for payroll deductions entirely. More than 15 years of litigation and a 400-to-1 penalty ratio should make the point clearly enough.
