WaPo (“As California bans service fees, restaurants brace for impact“):
Diners really dislike fees at restaurants, those amounts that go by various names that are tacked onto end-of-meal bills. The phenomenon has been proliferating in the last few years. In California, though, they are about to go away.
The state this week issued guidance for a law, which takes effect in July, that bans such fees in a wide range of settings, including hotels, concert venues and restaurants. The measure, which is aimed at making it clearer up front to consumers what things cost, is particularly unsettling to restaurants, some of which had thought they might be exempt.
“Our price transparency law is about clear and honest communication with consumers, so consumers can make the financial choices that are best for them and their families,” California Attorney General Rob Bonta said this week in a news release. “The law is simple: the price you see is the price you pay.”
Once the law takes effect July 1, it will be illegal for businesses to advertise or list a price that does not reflect any fees or additional charges that customers must pay. That means restaurants will not be able to impose the kinds of separate, mandatory add-ons that have been cropping up under different monikers — a “service fee,” perhaps, or a “health and wellness fee” — that they have been using to cover labor or food costs without directly raising their menu prices. The law does not affect tips, which aren’t covered since they are technically voluntary.
“If a restaurant charges a mandatory fee, it must be included in the displayed price,” the guidance states. “Under the law, a restaurant cannot charge an additional surcharge on top of the price listed.”
And while lawmakers have insisted that the law does not dictate prices, some restaurants are saying they will now have to charge more — and some say their businesses might not survive. “It could put people out of business immediately,” Golden Gate Restaurant Association President Laurie Thomas told Eater San Francisco.
And, no, it’s not just California. The link early in the article is to a February report titled “Service fees are roiling D.C. restaurants. Here’s what you need to know.”
In early 2024, a single issue has roiled the D.C. dining scene: service fees. The practice of tacking on extra charges — beyond stated menu prices and standard, voluntary tips — has divided restaurant staff, frustrated customers and prompted lawsuits by an advocacy group that’s intent on stamping out a business method it says can be deceptive.
But restaurateurs who’ve introduced the fees say they did so to stay afloat in an industry with notoriously thin margins. Some assert the funds are used to offset the cost of higher wages they must pay workers as a result of Initiative 82, which was enacted last year to increase the paychecks of D.C.’s tipped restaurant employees. Other owners say the fees are used to help pay for workers’ health care. And some restaurants introduced service fees during the height of the pandemic. Since then, the fees stuck around.
Customers, meanwhile, are left surprised by bills that can be 10 to 15 percent higher than what they were expecting, with charges they don’t understand. Employees are split on the issue, and sometimes confused about whether the fees are helping their personal bottom lines. The issue has proved exceedingly complicated, even for policy professionals tasked with helping to regulate the industry.
The notion that a business can impose a fee on customers after the service has been delivered is simply bizarre. Even if the fee is mentioned somewhere on the menu, most customers wouldn’t notice. Restauranteurs are essentially committing fraud here and are somehow shocked that they’ll have to stop.
The explanation given is risible:
Jason Berry, a co-owner of Knead Restaurant Group,which Travelers United sued, said his servers reported decreased tips after Knead implemented its Initiative 82 surcharge, and as a result, the group was already in the process of removing the surcharge when it was informed of the lawsuit.
Berry wants diners to know that it’s not just the servers who receive tips; it’s also the bartenders, hosts, bussers, barbacks and more. He estimated that between 65 percent and 70 percent of his staff receive tips. At the same time, he said, restaurant profit margins are notoriously slim, putting pressure on restaurateurs to figure out how to stay in the black.
“A good restaurant in America has a 10 percent profit margin,” Berry said. “People think that this restaurant is so busy, it makes so much money. … They’re busy when you’d expect them to be busy, and they’re slow when you’d expect them to be slow, but we’re paying rent and electric and gas and water all day every day.”
All businesses have to pay their workers as well as cover rent, utilities, supplies, and the like. That restaurants would somehow be exempt from that makes no sense. If customers won’t willingly pay what it costs to cover that and make a reasonable profit without subterfuge, then the restaurant should go out of business.
It’s already weird enough that restaurants have long been permitted to shift a significant part of the cost of paying their workers into an essentially compulsory “tipping” culture, with customers expected to add 20 percent to their bills to pay the waitstaff. While there are good arguments for this, owing to an inherent principal-agent problem unique to the service industry, it’s really a relic of a bygone era that has stuck around. But at least Americans are accustomed to this practice and can factor it into their dining decisions.
Regardless, this sort of regulation should be popular on a bipartisan basis. President Biden has been promising to end “junk fees” for a couple of years now and has made some small inroads. To the extent has has the ability to do so via executive order, it would be extremely good election year politics.
