Steak n Shake in growing legal battle over overtime pay

Steak n Shake is on the hook for a $7.7 million judgment after a jury found the Indianapolis-based burger chain improperly failed to pay overtime to 286 restaurant managers in the St. Louis market.

But Steak n Shake’s legal battle regarding overtime isn’t over. The company could be facing an even bigger payout due to a related lawsuit that alleges Steak n Shake used the same approach involving overtime pay throughout the chain, affecting another 1,300 managers.

Steak n Shake officials and the attorneys who represent plaintiffs in both class-action cases are heading to mediation June 11 to see if they can resolve both cases without a prolonged legal fight, but there’s no guarantee that both sides will compromise.

Outside of mediation, the plaintiffs plan to turn up the heat on Steak n Shake by making the battle more personal. They’ve filed a motion to add Sardar Biglari, CEO of Steak n Shake parent Biglari Holdings, as an individual defendant in the case.

The legal fight got its start in September 2014 when two St. Louis-based managers alleged Steak n Shake wrongly classified them as exempt from overtime requirements, resulting in insufficient pay. The lawsuit eventually became a class-action suit that included the 286 managers. The managers said they had worked 50- to 70-hour weeks without extra pay despite handling duties typically performed by hourly workers.

In February, a jury awarded the managers about $3 million for lost overtime compensation. Then, on May 10, U.S. District Judge John A. Ross doubled the award. He also ordered the chain to pay the managers’ lawyers almost $1.6 million in fees and about $40,000 in costs.

Ross ruled that under the Fair Labor Standards Act, or FLSA, employers found liable for not properly paying overtime could be on the hook for double damages if they fail to act in good faith.

The judge said the restaurant’s “failure to pay overtime was not a good faith mistake,” because evidence showed it knowingly used managers to perform the work of non-managerial employees to avoid paying overtime.

Steak n Shake parent Biglari Holdings said in a May 3 Securities and Exchange filing that it plans to appeal the verdict.

Meanwhile, a second suit filed in Illinois in 2017 was transferred to the same court in Missouri that decided the first case. It was conditionally certified as a national class action and includes all Steak n Shake managers not previously included in the first lawsuit.

On May 14, plaintiff attorneys Brendan Donelon and Daniel Craig filed a motion to amend the second suit and add Biglari as an individual defendant.

The plaintiffs contend that Biglari could be found liable for damages under the Fair Labor Standards Act, or FLSA, because of his direct actions affecting the employees while acting in the interest of the employer.

The suit says Biglari established direct control over the work conditions of Steak n Shake managers by monitoring the restaurants via remote video camera, through phone conferences and in-person meetings. Biglari had phone conferences with management to discuss cutting hourly workers, reducing labor costs, and berating management regarding their performance, the suit says. He also provided direction regarding labor budget limitations through a software system for scheduling, according to the suit.

“Mr. Biglari also controls every aspect of policy and product at Steak N Shake restaurants,” the suit says.

Including Biglari in the suit could give the plaintiffs another source of funds to pursue should Steak n Shake prove insolvent. Biglari is one of the highest paid CEOs in the restaurant industry and owns major stakes in Cracker Barrel and other companies.

Steak n Shake, however, is struggling. The company lost $10.7 million last year and another $18.9 million in the first quarter. It also has a $184 million loan scheduled to be paid off in March 2021. The chain recently closed dozens of company-owned restaurants, but it said it plans to reopen most of them under franchise agreements.

Steak n Shake did not respond to a message seeking comment about the lawsuits.

In its quarterly report, issued May 3, the company said it “believes the claims in each case are without merit and intends to defend these cases vigorously.”