A new state law is coming this summer that prohibits unadvertised service fees, surcharges and other additional costs from being added to the bottom of a bill for dining or delivery service.
1st of July, Senate Bill 478which Gov. Gavin Newsom signed into law in October, will ban “junk fees” across a wide range of businesses, including online ticket sales, hotels, restaurants, bars and delivery apps.
Sens. Bill Dodd (D-Napa) and Nancy Skinner (D-Berkeley), co-authors of the bill, say it will offer greater protections to consumers.
“These misleading rates prevent us from knowing how much we will be charged up front,” the prosecutor said. Gen. Rob Bonta, who co-sponsored the measure, said in a statement the day it was signed. “They are bad for consumers and bad for competition. …With the signing of SB478, California now has the most effective legislation in the country to address this problem. The price Californians will see will be the price they will pay.”
Many restaurant and bar owners rely on now-ubiquitous surcharges to offer employee benefits, such as healthcare and higher wages, and often include surcharges on menus; some are listed as “optional,” and are left to the discretion of the diner. As implementation of the law looms, some now say the consequences could be disastrous and “disrupt” the industry.
Restaurants will have to include the surcharges in menu prices, rather than simply announcing them at the bottom of the bill, state officials said.
“At this point, we're going to have to raise our prices significantly,” said James Beard Award-winning restaurateur Caroline Styne, co-owner and wine director of the Lucques restaurant group and wine director of Hollywood Bowl Food & Wine. .
For example, the famous Ode to the Zuni roast chicken with fennel panzanella at AOC is currently priced at $39 and will likely increase to $49 once the law takes effect, he said.
“Restaurants are in a very difficult situation right now,” Styne added. “We've really been under tremendous pressure…most restaurants are losing money.”
Although most of the new laws in California go into effect on January 1, the delay in implementation was intentional, giving restaurants, bars and other businesses more time to adapt accordingly, according to a representative from the state's office. attorney general. The state is also expected to release clarifying materials on the new law by July 1.
“SB478 is about greater transparency for consumers and clear communication about the true cost of goods and services,” a spokesperson told The Times in a statement.
Previous statements from the attorney general's office said SB478 would not “prevent restaurants from charging service fees,” the San Francisco Chronicle reported last fall. “Those fees, however, should be disclosed (so they are no longer hidden) in the prices advertised by restaurants.”
Now, according to the attorney general's office, restaurants and bars will still be able to advertise surcharges and other fees on the menu, but they will have to be included in menu prices from the beginning. A representative for the office declined to address how or if elective fees would be addressed in the new law.
For customers, that might come as a surprise when a $35 menu item could, in theory, now be listed at $42; For many restaurants, the consequences could be decreased business. Incorporating surcharges or fees of 1% to 20% or more into the menu price could also incur other business costs.
Styne said the new law will only precipitate the closure of more restaurants, which are still recovering from the pandemic and summer strikes.
FTC cracks down on junk fees
The California law could have national implications. Days after Newsom signed SB478, the Biden administration announced “new efforts to end junk tariffs and reduce costs for American consumers” in collaboration with the Federal Trade Commission. The new FTC regulation would prohibit “omitting” and “misrepresenting” fees from the total cost of goods.
“It's a very similar approach at the federal level,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association. “If the playing field is leveled across the United States, will it hurt restaurants?
“I think that in areas like San Francisco, which have stricter laws that impose costs on small restaurants — the extra spending on health care, the extra sick pay, the extra paid family leave — all the things that we pay for and that the people are not even aware. will have to force us to raise prices.”
His organization represents approximately 800 restaurants in San Francisco and has been trying to advise and prepare restaurant owners on how to comply with the new legislation. Thomas said he has been seeking clarity on California's rule since October, with few directives from the state on how restaurants should proceed.
“A lot of people are asking for clarity,” he said. “There is a lot of frustration. It's not going to lower the price of dining out. What you could do is close more restaurants. But maybe people don't care about that anymore.”
Service charge controversy
Service fees have become a point of contention for diners, food workers and restaurant owners. In June, former servers at Jon & Vinny's, a popular Italian-American restaurant, filed a class-action lawsuit in Los Angeles Superior Court against its owners, Jon Shook and Vinny Dotolo, alleging that their company denied tips to servers, resulting in in a take-home pay reduction, due to diner confusion regarding an 18% service fee.
The restaurant owners later changed the text at the bottom of customers' bills regarding the fee: “The service charge is not a tip or gratuity, and is an additional fee controlled by the restaurant that helps facilitate a higher base salary for all our employees. . Scan the QR code at the top of the receipt for additional information or speak to a manager.”
Last month, a former Found Oyster bartender launched a class-action lawsuit against parent company Last Word Hospitality. alleging that the company improperly withheld tips in the form of service fees. The complaint was filed in Los Angeles County Superior Court.
Kato restaurateur Ryan Bailey is aware of the scrutiny and said some operators may be “misusing the service charge.” But he believes most distribute them correctly and rely on them to keep their businesses and employee benefits running smoothly.
“Every restaurateur I know who cares about this industry is using it in such an immensely appropriate, responsible and forward-thinking way that if it went away, it would be really crippling for everyone,” Bailey said.
“We have people who have moved from entry-level positions to management positions because they felt that we are taking care of them and we care about their financial stability. It has allowed us to make the work week a 40-hour work week,” rather than the industry norm of a patchwork of hours or part-time shifts for servers and administrative employees, he added.
In Kato, the city's No. 1 restaurant, according to the Times' 101 Best Restaurants of 2023 listBailey said the 18% surcharge helps pay for an employee benefits package that includes mental, medical, dental and vision insurance. It also balances pay on slow nights; If staff are cut, they will continue to receive full pay for their shift.
Food delivery apps will work differently under the new law.
According to the attorney general's office, these applications must indicate the price of shipping costs and all other charges; Services like delivery may not be advertised as free or for a set amount, and additional miscellaneous fees are added at the end of the transaction. However, unlike restaurants, the surcharges or service fees listed above cannot be included in the price of the item. Assembly Bill 2149, also known as the Fair Food Delivery Act of 2020, states that menu prices are set by participating restaurants on the platforms and cannot be inflated by delivery services.
A representative for Postmates and Uber Eats, both owned by Uber, said the price list already complies with the new law and that the company worked directly with lawmakers to ensure compliance. Last year, a statement from DoorDash said: “There are no hidden fees, junk fees, or surprises at checkout. “We are honest about prices.”
For some apps like Postmates, applicable fees are detailed by pressing the small “i” or “info” button next to “shipping fee” or “taxes and other fees” in the checkout cart. DoorDash uses this same payment format and breaks down potential charges using a small “prices and rates” button near the top of each restaurant's listing.
When asked if this is an acceptable procedure as it stands, as well as how the practice differs from restaurants and bars including surcharges and fees on menus, a representative for the attorney general said: “We cannot provide advice or analysis legal”.
“Fees help us operate the DoorDash platform, ensure Dashers are paid fairly, and offer merchants tools to grow their businesses,” a DoorDash spokesperson wrote in a statement to The Times. “That said, we are always working to make our platform more transparent and affordable and we never surprise consumers with hidden fees or junk fees. “Consumers always see what they will pay (multiple times) before making the payment on our platform.”
For restaurants, the law will also prohibit an 18% common service charge on groups of six or more people. Styne called the change unfair, since additional manpower has to be provided to such large parties. The restaurant shouldn't have to absorb that extra cost, she argued. A Senate official told The Times that they were waiting for clarification from the attorney general's office about the law's inclusion of large-party surcharges.
Rising labor costs, high taxes and strict regulations, along with low profits, have made California a difficult place for restaurants to stay open, Styne said. “There are a lot of businesses that will be affected by this.”
Cindy Cárcamo contributed to this report.
