California restaurants get a last-minute reprieve from service fee ban

The state Senate passed a bill that exempts the industry from an anti-surcharge law that takes effect Monday. Gov. Newsom is expected to sign it.
Restaurant service fees will still be legal after Monday. | Photo: Shutterstock

Restaurants in California have been given a reprieve from a state law that would have banned most service fees and other surcharges as of Monday.

Legislation exempting restaurants from a bill outlawing so-called junk fees was approved Thursday morning by the state Senate. The exemption measure now moves to the desk of Gov. Gavin Newsom, who is expected to sign it into law.

The bill, SB1524, was championed by state Sen. Bill Dodd, who was also the main author of the anti-junk-fees legislation, SB478. He co-introduced and pushed SB1524 after California Attorney General Rob Bonta said he interpreted SB478 to apply to all fees that are added to a consumer’s charges after he or she makes a purchasing decision. In an FAQ explainer, Bonta indicated that restaurant service fees, tips automatically levied on large parties and surcharges imposed on customers who pay by credit card would in effect be banned as of July 1, even though such add-ons were not mentioned in the legislation. His stated objective was to have any surcharge baked into the price presented on menus or menu boards for a particular item.

Bonta issued his FAQs in mid-May. His office declined press inquiries beforehand about whether restaurant service fees would be covered.

The delays came as the U.S. Federal Trade Commission was contemplating a nationwide ban on service fees and other restaurant surcharges. A federal regulation would have pre-empted the need for a ban specific to California.

Dodd introduced SB1524 in the wake of Bonta’s FAQs, noting that clarification was needed. The measure expressly exempts restaurant service fees from the ban if customers are alerted to the surcharges before they order and the purpose of the tacked-on charge is conveyed. The information must be provided in ads for menu items as well as on menus and menu boards.

The restaurant industry had griped that rolling all charges into one stated menu fee would all but ensure sticker shock on the part of customers, who have already seen restaurant prices soar as the result of food and labor inflation. Operators also noted that the logistics of repricing items and issuing new menus would be a significant cost.

The carve-out applies to bars, caterers and other providers of prepared meals, including supermarkets and grocery delivery services.

“We believe that allowing the many restaurants who for decades have used auto gratuity instead of tips, and more recently who have added service charges to help offset things like the SF Health Care Security Ordinance, will make it possible for restaurants to continue to support pay equity and contribute to worker health care,”  San Francisco’s Golden Gate Restaurant Association said in a statement.

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