When it comes to restaurant surcharges, language matters.
Restaurants across the country are adding surcharges to their bills for various reasons, but fundamentally to avoid raising menu prices. Some of these fees are optional and some are not. And how they are listed on guest checks can vary.
Many restaurants use the term “service charge,” but descriptors have also ranged from a “living wage fee” to an “economic adversity surcharge.”
At some restaurants, guests may not learn of a surcharge until they receive the bill.
Others restaurants, like Rye in Dallas, explain the fees at great length in an effort to be fully transparent but also to spark a conversation about working conditions in the industry.
Che Fico in San Francisco, for example, instituted a “10% dine-in charge,” which on its menu and website clearly states is not a gratuity. Tres Gatos Tapas Bar in Boston adds a 5% “administrative fee,” and in an open letter on the website explains why. Meanwhile, Founding Farmers in Washington, D.C., has instituted a 5% “wellness charge” to “ensure we stay in business and continue to employ and support our team members.”
“The most risk that we have seen, where operators have been subject to liability, or settlements, or these lawsuits, does result from disclosure.”
But surcharges can be a legal minefield, said attorney Riley Lagesen, chair of the restaurant industry group at law firm Greenberg Traurig. And those labels and disclosures are key factors in protecting a restaurant from potential liability.
“The most risk that we have seen, where operators have been subject to liability, or settlements, or these lawsuits, does result from disclosure,” he said.
The first risk is when a restaurant doesn’t disclose the surcharge at all, at least not until the guest sees it on the bill. That could lead to claims of unfair business practices.
“There are businesses around the country that are doing this and are really putting themselves at risk by not disclosing at all, and just having it come when the check comes,” Lagesen said. “Disclosure is the most important thing. It should be clear, it should be conspicuous and made to the customer in advance of purchase.”
And disclosure on the dining room menu may not be enough. “We’ve seen litigation where it was disclosed on menus for people dining in, but it wasn’t conspicuous enough at the bar,” he said.
When it comes to any communication about a surcharge, it’s best to keep it simple, and make sure it’s true, he added: “No one is ever sued for over-disclosing or being really honest about things.”
Regulations impacting such surcharges can vary by jurisdiction—so operators should always confer with local counsel, he notes. But broadly, if the language around any surcharge is false or misleading, it could be a lawsuit waiting to happen.
Using labels like “service charge,” “back-of-the-house fee,” or even “happy kitchen fee,” suggests that the surcharge is going to employees, for example. “If it’s not, that could be a serious problem for the operator,” Lagesen said.
In such a case, a restaurant could potentially see a claim on two fronts.
Most jurisdictions have consumer protection statutes, for example, and a guest could bring a deceptive trade practice claim. Workers could also bring an employer to court.
The parent of Los Angeles restaurant Jon & Vinny’s is the target of a lawsuit, for example, in which former servers claim that the 18% mandatory “service charge” added to checks leads guests to believe that they don’t have to tip because that extra fee will go to servers.
Prior to the lawsuit, Jon & Vinny’s stated on the menu that an “18% service charge is added to all checks to facilitate a higher living wage for all of our employees.”
The lawsuit argues that the fee appears to guests to be a tip. But a portion of those fees goes to managers and non-service staff, which—if indeed it is considered a gratuity—would violate California labor law.
Jon & Vinny's later amended the language on the menu, which now states that the 18% service charge "is not a tip or gratuity, and is an added fee controlled by the restaurant that helps facilitate a higher living base wage for all of our employees."
Lagesen noted that it’s not just communication with guests and employees that operators must navigate; the language surrounding surcharges could also be a factor to taxing authorities.
Lagesen is based in Portland, Ore., and he has seen surcharges used in restaurants on the West Coast in various ways for years. But he said many of those early adopters have since dropped the use of surcharges, instead deciding that they are better off increasing menu prices, or using tip pooling and phantom equity programs to better compensate workers.
“A lot of operators have decided those are preferable to surcharges, or service charges, that can be administratively costly, they can raise tax issues and a whole lot of legal issues,” said Lagesen. “And consumers don’t like to see them.”