Shake Shack 2016 Annual Report Download - page 29

Table of Contents
Restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert management attention and, if successful, could
result in our payment of substantial damages or settlement costs.
Our business is subject to the risk of litigation by employees, guests, suppliers, licensees, stockholders or others through private actions, class actions,
administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or
quantify. In recent years, restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding
workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment 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 assistant managers and failure to pay for all hours worked. We were recently the subject of such an
employment-related claim and there can be no assurance that we will not be named in any such lawsuit in the future or that we would not be required to pay
substantial expenses and/or damages.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of
our Shacks, including actions seeking damages resulting from food-borne illness or accidents in our Shacks. 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.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our
operations. In addition, they may generate negative publicity, which could reduce guest traffic and Shack 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.
Our business is subject to risks related to our sale of alcoholic beverages.
We serve beer and wine at most of our Shacks. Alcoholic beverage control regulations generally require our Shacks to apply to a state authority and, in certain
locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage
control regulations relate to numerous aspects of daily operations of our Shacks, including minimum age of patrons and employees, hours of operation, advertising,
trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and
dispensing of alcoholic beverages. Any future failure to comply with these regulations and obtain or retain licenses could adversely affect our business, financial
condition and results of operations.
We are also subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from
an establishment that wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive
general liability insurance. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. Because these
cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, results of operations or
financial condition. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and
resources away from operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage or not covered by insurance
could have a material adverse effect on our business, results of operations or financial condition.
27 | Shake Shack Inc. Form 10-K