IHOP 2010 Annual Report Download - page 38

pursuant to which we and our franchisees may be subject to liability in connection with personal
injuries or property damages incurred in connection with wrongfully serving alcoholic beverages to an
intoxicated person. We may also initiate legal proceedings against franchisees for breach of the terms of
their franchise agreements. Such claims may reduce the profits generated by company-operated
restaurants and the ability of franchisees to make payments to us. These claims may also reduce the
ability of franchisees to enter into new franchise agreements with us. Although our franchise
agreements require our franchisees to defend and indemnify us, we may be named as a defendant and
sustain liability in legal proceedings against franchisees under the doctrines of vicarious liability, agency,
negligence or otherwise.
Ownership of real property exposes us to potential environmental liabilities. The ownership of real
property exposes us to potential environmental liabilities from United States federal, state and local
governmental authorities and private lawsuits by individuals or businesses. The potential environmental
liabilities in connection with the ownership of real estate are highly uncertain. We currently do not have
actual knowledge of any environmental liabilities that would have a material adverse effect on the
Company. From time to time, we have experienced some non-material environmental liabilities
resulting from environmental issues at our properties. While we are unaware of any material
environmental liabilities, it is possible that material environmental liabilities relating to our properties
may arise in the future.
Matters involving employees at certain company-operated restaurants expose us to potential liability.
We are subject to United States federal, state and local employment laws that expose us to potential
liability if we are determined to have violated such employment laws. Failure to comply with federal
and state labor laws pertaining to minimum wage, overtime pay, meal and rest breaks, unemployment
tax rates, workers’ compensation rates, citizenship or residency requirements, child labor requirements,
sales taxes and other employment-related matters may have a material adverse effect on our business
or operations. In addition, employee claims based on, among other things, discrimination, harassment
or wrongful termination may divert financial and management resources and adversely affect
operations. The losses that may be incurred as a result of any violation of such employment laws are
difficult to quantify.
Our failure or the failure of our franchisees to comply with federal, state and local governmental
regulations may subject us to losses and harm our brands. The restaurant industry is subject to extensive
federal, state and local governmental regulations, including those relating to the preparation and sale of
food and alcoholic beverages and those relating to building and zoning requirements and employment.
We are also subject to licensing and regulation by state and local departments relating to the service of
alcoholic beverages, health, sanitation, fire and safety standards, and to laws governing relationships
with employees, including minimum wage requirements, overtime, working conditions and citizenship
requirements. We are also subject to laws and regulations, which vary from jurisdiction to jurisdiction,
relating to nutritional content and menu labeling. Compliance with these laws and regulations may lead
to increased costs and operational complexity and may increase our exposure to governmental
investigations or litigation. In connection with the continued operation or remodeling of certain
restaurants, we or our franchisees may be required to expend funds to meet federal, state and local and
foreign regulations. The inability to obtain or maintain such licenses or publicity resulting from actual
or alleged violations of such laws could have an adverse effect on our results of operations. We are
subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many
state franchise laws contain provisions that supersede the terms of franchise agreements, including
provisions concerning the termination or non-renewal of a franchise. Some state franchise laws require
that certain materials be registered before franchises can be offered or sold in that state. The failure to
obtain or retain licenses or approvals to sell franchises could adversely affect us and the franchisees.
Changes in, and the cost of compliance with, government regulations could have a material effect on
operations.
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