On Wednesday, May 8, the California Attorney General’s office finally answered the questions restaurants across the state have been waiting for: Yes, all restaurant fees and surcharges will be banned under SB 478, the Consumer Legal Remedies Act. The so-called ”junk fees” ban outlaws all businesses—including events, short-term rentals, hotels, food delivery and, yes, restaurants—from displaying prices that do not include all mandatory fees and charges, thereby misleading consumers.
For L.A.’s restaurant industry, this will almost certainly mean individual operators will have to raise listed menu prices and rethink worker compensation. Over the last decade, many restaurants have increasingly relied on service and health and wellness fees to help offset the rising cost of labor. Though businesses can technically still opt to have these sorts of fees in spirit, they must be factored into the advertised prices on a menu. Automatic gratuities, which have long been levied on larger parties, will also be banned under the new law, however the California Department of Justice doesn’t expect to focus on these in its initial enforcement efforts.
Infamously, some trendy L.A. restaurants like Jon & Vinny’s and, to a lesser extent Found Oyster and its sibling concepts, have caught flak after former employees brought class-action lawsuits against these hospitality groups for allegedly depriving them of gratuities. Legally, any mandatory service fee is not a gratuity and thus does not automatically go to workers. In theory, restaurant owners may use the fees any way they like, unlike voluntary tips, which are legally obligated to go directly into workers’ pockets.
While the California Department of Justice is still figuring out exactly how to enforce the new ban, restaurants who continue to implement service fees or automatic gratuities will be liable to lawsuits from private consumers, a.k.a diners. Unsurprisingly, the California Restaurant Association, which represents over 22,000 eateries statewide, released an official statement yesterday objecting to the new law.
“The FAQ released by the California Attorney General’s office today is a prime example of legislating through a press release. CRA strenuously disagrees with the AG’s expansive interpretation of the law to outlaw restaurant service fees,” said Matthew Sutton, the organization’s senior vice president of government affairs and public policy.
Sutton claims that the courts have “consistently concluded” that service fees are allowed under the new Consumer Legal Remedies Act as long as they are properly disclosed on restaurant menus. “Nothing in the plain language of the bill or legislative debate suggested an intent to change the pricing structure for every restaurant in this state,” he said. The California Restaurant Association is “considering all available options” to block this particular interpretation of SB 478.
Until we hear otherwise, consider those much-maligned fees to be a thing of the past starting this July.