After keeping the industry in the dark for weeks, California’s attorney general has decided to prohibit all restaurants in the state from charging any price higher other than what’s listed on their menus or menu boards, in effect outlawing most service fees or other surcharges.
The measure goes into effect July 1.
The only exceptions, at least initially, will be surcharges whose proceeds go entirely to a restaurant’s employees, such as a gratuity automatically tacked onto the tab for a large party. Under the language of the bill that was the foundation for the decision by Attorney General Rob Bonta, a service fee could continue to be charged if all the generated funds are distributed to the staff.
However, a series of FAQs issued as guidance on the new restrictions indicates that the state may disallow those exceptions down the road.
The FAQs specify that restaurants can charge a different price than what’s posted on their menus, but only if it’s lower than what’s displayed.
In addition, restaurants can continue to charge a fee above and beyond the listed price for an item if that selection is delivered. The guidelines explain that the additional fee covers the service of transporting the food and beverage to the customer’s home, and is not technically an add-on to the price listed on a digital menu.
However, the language suggests that the delivery charge must be a fixed amount, not a percentage, so consumers will know exactly how much they’ll be paying ahead of ordering.
A separate set of rules applies to third-party delivery services. There, too, customers must know the fee they’ll be charged before the order is confirmed.
Sales taxes and other government assessments will continue to be calculated and added to restaurant tabs when the customer settles his or her charges.
In an apparent effort to soften the impact for restaurants, an establishment can break down its fee to show how much of the charge is for food or beverage and how much is a levy for the staff or other expenses. But one all-inclusive price must be presented to the customer.
Bonta did not say how the rules will be enforced. If the measure is policed right from July 1, presumably thousands of restaurants in the state will have to reprint their menus in roughly the next seven weeks if they wish to continue protecting margins by charging more than what's currently listed as their menu prices. All of those charges would have to be recalibrated to incorporate what establishments are now collecting as an added percentage of the total bill.
Virtually no guidance other than the FAQs has been released by the state about the ban, a point the California Restaurant Association noted in responding to the release. Matthew Sutton, SVP of government affairs and public policy for the trade group, blasted the move as "a prime example of legislating through a press release."
He accused Bonta of adopting "an interpretation of this new law that was never presented or debated in the legislature, which we believe is clearly inconsistent with the Legislature’s intent.”
The new pricing complications are based on AB 478, a truth-in-advertising law passed last year. Initially, it was unclear if the prohibitions against add-on charges, usually disparaged as “junk fees,” would pertain to restaurant service fees and surcharges. At the time, Bonta specifically said they would not.
But a suggestion that he’d changed his mind initially came to light several months ago, when the Los Angeles Times reported that restaurant surcharges would indeed be covered. Its source was identified as an anonymous figure from the attorney general’s office.
Requests for confirmation from Bonta went unanswered, as many media reported at the time. Restaurant Business was among the information channels that asked for clarification to no avail.
About 10 days ago, the San Francisco Chronicle echoed the Times’ story, also citing an anonymous figure close to the governor as its source. Dozens of media picked up the story, but the attorney general’s office did not respond to another wave of requests for confirmation.
The California Restaurant Association and the National Restaurant Association similarly acknowledged that they were unaware if restaurant surcharges would be covered.
In the meantime, service fees became a routine way for restaurants to counter soaring coasts. Because of unprecedented inflation levels, many restaurants, and full-service places in particular, have been routinely adding the surcharges, usually as a percentage of a customer's total tab.
Operators contend that the add-ons spare them from having to ratchet up menu prices to levels that will scare patrons a way, while still generating the additional revenues they need to cover their soaring food and labor expenses.
Update: This version of the story contains a response to the attorney general's FAQs from the California Restaurant Association.
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