El Pollo Loco 2016 Annual Report Download - page 22

We depend upon our board of directors, executive officers, and key employees.
Werelyupontheaccumulatedknowledge,skills,andexperienceofthemembersofourboardofdirectors,ourexecutiveofficers,andourkeyemployees.Ifthey
weretoleaveusorbecomeincapacitated,wemightsufferinourplanningandexecutionofbusinessstrategyandoperations,impactingourbrandandfinancial
results.Wealsodonotmaintainanykeymanlifeinsurancepoliciesforanyofouremployees.
Matters relating to employment and labor law may adversely affect our business.
Variousfederal,stateandlocallaborlawsgovernourrelationshipswithouremployeesandaffectoperatingcosts.Theselawsincludeemployeeclassificationsas
exemptornon-exempt,minimumwagerequirements,unemploymenttaxrates,workers’compensationrates,citizenshiprequirements,andotherwageandbenefit
requirementsforemployeesclassifiedasnon-exempt.Significantadditionalgovernmentregulationsandnewlawsmandatingincreasesinminimumwagesor
benefitssuchashealthinsurancecouldmateriallyaffectourbusiness,financialcondition,operatingresults,andcashflow.Furthermore,theunionizationofour
employeesandoftheemployeesofourfranchiseescouldmateriallyaffectourbusiness,financialcondition,operatingresults,andcashflow.
Wearealsosubjectintheordinarycourseofbusinesstoemployeeclaimsagainstusbased,amongotherthings,ondiscrimination,harassment,wrongful
termination,orviolationofwageandlaborlaws.Suchclaimscouldalsobeassertedagainstusbyemployeesofourfranchisees.Theseclaimsmaydivertour
financialandmanagementresourcesthatwouldotherwisebeusedtobenefitouroperations.Theon-goingexpenseofanyresultinglawsuits,andanysubstantial
settlementpaymentordamageawardagainstus,couldadverselyaffectourbusiness,brandimage,employeerecruitment,financialcondition,operatingresults,or
cashflows.
Restaurant companies have been the targets of class action lawsuits and other proceedings alleging, among other things, violations of federal and state
workplace and employment laws. Proceedings of this nature are costly, divert management attention, and, if successful, can result in payment of substantial
damages or settlement costs.
Ourbusinessissubjecttotheriskoflitigationbyemployees,consumers,suppliers,stockholders,andothersthroughprivateactions,classactions,administrative
proceedings,regulatoryactions,andotherlitigation.Theoutcomeoflitigations,particularlyclassandregulatoryactions,isdifficulttoassessorquantify.Inrecent
years,restaurantcompanies,includingus,havebeensubjecttolawsuits,includingclassactionlawsuits,allegingviolationsoffederalandstatelawsregarding
workplaceandemploymentconditions,discrimination,andsimilarmatters.Anumberoftheselawsuitshaveresultedinpaymentsofsubstantialdamagesbythe
defendants.Similarlawsuitshavebeeninstitutedfromtimetotimeallegingviolationsofvariousfederalandstatewageandhourlawsregarding,amongother
things,employeemealdeductions,overtimeeligibilityofmanagers,andfailuretopayforallhoursworked.Inthepast,wehavebeenapartytowageandhour
classactionlawsuitsandarecurrentlyapartytosuchalawsuitonbehalfofapurportedclass.SeeItem3,“LegalProceedings.”
Occasionally,ourcustomersfilecomplaintsorlawsuitsagainstusallegingthatweareresponsibleforsomeillnessesorinjuriesthattheysufferedatorafteravisit
tooneofourrestaurants,includingactionsseekingdamagesresultingfromfood-borneillnessesoraccidentsinourrestaurants.Wearealsosubjecttoavarietyof
otherclaimsfromthirdpartiesarisingintheordinarycourseofourbusiness,includingcontractclaims.Therestaurantindustryhasalsobeensubjecttoagrowing
numberofclaimsthatthemenusandactionsofrestaurantchainshaveledtotheobesityofcertainoftheircustomers.Wemayalsobesubjecttolawsuitsfromour
employees,theU.S.EqualEmploymentOpportunityCommission,orothers,allegingviolationsoffederalorstatelawsregardingworkplaceandemployment
conditions,discrimination,andsimilarmatters.
Regardlessofwhetheranyclaimsagainstusarevalidandwhetherweareliable,claimsmaybeexpensivetodefendagainstanddiverttimeandmoneyawayfrom
operations.Inaddition,claimsmaygeneratenegativepublicity,whichcouldreducecustomertrafficandsales.Althoughwemaintainwhatwebelievetobe
adequatelevelsofinsurance,insurancemaynotbeavailableatallorinsufficientamountstocoveranyliabilitieswithrespecttotheseorothermatters.Ajudgment
orotherliabilityinexcessofourinsurancecoverageforanyclaims,oranyadversepublicityresultingfromclaims,couldadverselyaffectourbusinessandresults
ofoperations.
If we or our franchisees face labor shortages or increased labor costs, our results of operations and growth could be adversely affected.
Laborisaprimarycomponentinthecostofoperatingourcompany-operatedandfranchisedrestaurants.Ifweorourfranchiseesfacelaborshortagesorincreased
laborcosts,becauseofincreasedcompetitionforemployees,higheremployee-turnoverrates,unionizationofrestaurantworkers,orincreasesinfederal,state,or
localminimumwagesorinotheremployeebenefitscosts(includingcostsassociatedwithhealthinsurancecoverageorworkers’compensationinsurance),ourand
ourfranchisees’operatingexpensescouldincrease,andourgrowthcouldbeadverselyaffected.
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