Last-minute bill aims to protect California restaurants from surcharge ban

Just weeks before the July 1 start of a statewide ban on so-called “hidden fees,” State Sen. Bill Dodd (D-Napa) has proposed a new law to clarify how it applies to the restaurant industry.

If passed, urgency measure Senate Bill 1524 would allow restaurants to continue charging mandatory gratuities, service charges, or other fees, as long as those fees are conspicuously displayed on restaurant menus.

“This will enable restaurants to continue to support increased pay equity and to make contributions to worker health care and other employee benefits,” said Matthew Sutton, senior vice president at the California Restaurant Association. SB 1524 was co-authored by state Sen. Scott Wiener (D-San Francisco) and Assemblymember Jesse Gabriel (D-Encino) and is supported by the California Restaurant Association and Unite Here labor union, according to a press statement.

Dodd is also behind California’s Senate Bill 478, which he co-authored with Sen. Nancy Skinner (D-Berkeley) and which Gov. Gavin Newsom signed last year. Starting July 1, it aims to eliminate “junk fees” — hidden costs imposed on customers that raise a bill higher than what was advertised. Concert ticket vendors, hotels and restaurants are among the intended industries. The goal of the legislation is simple, its authors say: The price people see should be the one they pay.

“Restaurant customers shouldn’t be surprised when they get their checks by a slew of extra charges they were not expecting,” Sen. Dodd said in a statement announcing the introduction of SB 1524. “Many restaurants are up-front with their business practices but too many aren’t, necessitating action. This proposal will level the playing field for all restaurants and address confusion and disagreement about what is permissible under state law.”

In the months leading up to the rollout of SB 478, confusion emerged about how it would be implemented. When details about the new policy were released last month in a California Department of Justice FAQ, it triggered alarms around the restaurant community, because it stipulated that no extra restaurant fees — including mandatory tips for large parties (a widespread industry practice), as well as various surcharges, many of which were clearly shown on restaurant menus — would be permitted. That would leave restaurants to try to recoup that income by rolling those costs into the overall price per item on each menu.

And that, in turn, could trigger even more severe sticker shock among restaurant customers, said Darren Matte, owner and managing partner at a number of Bay Area restaurants, including Per Diem in San Francisco, Harvest and Cocina Hermanas in Danville and Los Gatos Parkside.

“There’s an art and a science to menu pricing,” he said. Efforts that restaurants make to, for instance, keep burgers under a ceiling of $20 or entrées under $30, would be in vain if there aren’t other ways to cover the costs of running the restaurant, he said. Without those restaurant fees and required tips from large groups, he said he wasn’t sure what would happen.

“Will people just absorb it? Or will it be the proverbial straw that breaks the back, along with all the other price increases we’ve had?” he said.

In response to learning about the SB 1524 proposal, Matte said, “I think this would be amazing. Hopefully, it goes through.”

Legislation co-author Sen. Wiener added, “Restaurants are vital to the fabric of life in California, and they should be able to cover costs as long as they do so transparently,” he said. “The bill strikes the right balance between supporting restaurants and delivering transparency for consumers, and I’m proud to support it.”

SB 1524 could be adopted within the next month, according to the press statement.