Manager Misclassification Costs Steak 'n Shake $7.7 Million

Author: Robert S. Teachout, XpertHR Legal Editor

May 28, 2019

A federal judge has ordered Steak 'n Shake to pay $7.7 million in back pay and liquidated damages for misclassifying store managers as exempt employees and failing to pay overtime. To be exempt from overtime pay under the Fair Labor Standards Act (FLSA), an employee's primary duties must involve tasks related to managing the business and directing the work of other employees. The managers claimed that they worked 50- to 70-hour weeks, often performing duties typically assigned to hourly workers, but did not receive any overtime pay.

In September 2014, two managers in the St. Louis area filed a lawsuit under the FLSA and the Missouri Minimum Wage Law claiming that the Steak 'n Shake restaurant chain had improperly classified them as exempt employees and failed to pay them overtime. The lawsuit was certified as a class action that eventually included 275 managers under the state claims and 11 managers covered by the FLSA.

After a six-day trial in February 2019, a jury awarded the managers more than $3 million in state and federal damages for lost overtime compensation. Then, a federal district judge doubled the award in May, rejecting Steak 'n Shake's claim that its failure to pay overtime was a good faith mistake.

The court found that the company's primary solution for understaffed stores was to use salaried managers working overtime, and stated that Steak 'n Shake must have known that "managers were simply too busy performing production and service duties to meet the definitions for exempt employees."

The judge also ordered the company to pay nearly $1.6 million in attorney fees and $40,000 in costs.

The Indianapolis-based chain is struggling financially, having reported a loss of $10.7 million last year and $19 million in the first quarter of 2019, according to Securities and Exchange Commission filings. The company is a wholly owned subsidiary of Biglari Holdings, which has said it will appeal the ruling.