In a move that champions consumer rights, California is set to implement a law banning service fees in various sectors, including restaurants, hotels, and concert venues. The law, which comes into effect in July, is causing a stir in the restaurant industry, which had been using these fees to cover labor and food costs without directly raising menu prices.
The law, aimed at enhancing price transparency, stipulates that businesses cannot advertise or list a price that does not include any additional charges that customers must pay. "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. "The law is simple: the price you see is the price you pay."
The ban on service fees, however, has left some restaurants in a quandary. They argue that the law could force them to increase their prices, potentially driving away customers and threatening their survival. "It could put people out of business immediately," warned Laurie Thomas, President of the Golden Gate Restaurant Association.
The service fee issue is not confined to California. In Washington D.C., the practice of adding extra charges beyond stated menu prices and standard tips has divided restaurant staff, frustrated customers, and prompted lawsuits by advocacy groups. The fees, introduced by some restaurants during the height of the pandemic, have since become a contentious issue.
The law does not affect tips, which are technically voluntary. However, it does challenge the restaurant industry's practice of adding service fees to cover costs like healthcare and paid time off, and to supplement unpredictable tips without raising menu prices. Ryan Cole, owner of the San Francisco restaurant 7 Adams, said, "You can't pay that high of an hourly rate unless you charge a service charge."
While the restaurant industry awaits clearer guidelines, some owners have already indicated that they may have to raise their menu prices significantly. Caroline Styne, the restaurateur behind the Lucques Group in Los Angeles, said, "At this point, we are going to have to raise our prices a big chunk."
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