Restaurant surcharges will soon be illegal in California

San FranciscoChronicle / April 30, 2024

The California attorney general’s office confirmed on Tuesday that a new California law that bans junk fees will apply to surcharges at restaurants, following months of anxiety and confusion in the food industry.

Starting July 1, under Senate Bill 478, California restaurants will no longer be able to charge service fees — which have become an increasingly common tool to sustain higher wages for workers as food businesses move away from tips — and must instead fold them into menu prices, the attorney general’s office said. The law applies to all fees other than taxes, the attorney general’s office said, including other surcharges restaurants use to offset costs, such as San Francisco’s ordinance requiring businesses to provide healthcare or credit card processing fees.

This will have dramatic consequences for California’s restaurant industry, owners said, including significant pay cuts for employees and price increases for diners. They’re worried it will unravel a movement toward more equitable pay structures in an industry that’s long struggled with wage disparities. The law could also spark a wave of lawsuits against restaurants, similar to the many disability lawsuits filed under the Americans with Disabilities Act. Some predicted that the disruption could be enough to convince some operators to close their restaurants entirely.

It feels like the state “lit the fuse to this bomb” and is “standing back to see what happens,” said Tim Stannard of Bacchus Management Group, which operates Bay Area restaurants including Spruce in San Francisco and the Village Pub in Woodside.

Link (paywall): https://www.sfchronicle.com/food/restaurants/article/junk-fees-restaurant-surcharges-19430871.php

Details (from the link):

• Prominent Bay Area restaurants have made waves in recent years for replacing tips with service charges, including San Francisco institution Zuni Cafe and Italian restaurant Che Fico.

• Without surcharges, restaurants will have to raise prices or absorb the cost of higher wages and local mandates

• SB478 applies to other business transactions too, like concert tickets or hotel rooms.

• SB478 was co-authored by the attorney general’s office and two Bay Area senators, Sen. Nancy Skinner (D-Berkeley) and Sen. Bill Dodd (D-Napa). Note: Dodd has since been termed out.

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I feel for restaurants. It's a tough, demanding business. But this is a good bill.