Restaurant Surcharges: The Right Way to Pass the Buck?

If you’ve eaten in San Francisco recently, odds are that your restaurant bill had a charge below the sales tax, charging you up to 4% of your bill to cover healthcare costs for its employees. A recent trend in California and nationwide has seen the increasing use of surcharges, either in response to the passage of the Affordable Care Act, living wage ordinances or statewide increases to the minimum wage.

Earlier this year, an investigation was launched by the San Diego District Attorney’s Office of local restaurants that had recently implemented 3% surcharges in response to minimum wage increases. These restaurants are being investigated for violations under California’s Unfair Competition Laws, which are designed to protect consumers from unfair business practices and false advertising. Because of these broad consumer protections, customers must be made fully informed about these surcharges as soon as possible, not after they’ve eaten their food and received the bill, or worse yet, on the way home.

On the back end, restaurants must also be taken to ensure that the monies are separately accounted for and actually expended as charged. There is also specific guidance from the State Board of Equalization and the IRS on how these monies should be treated. Moreover, individual restaurants should be careful in pursuing these surcharges in concert with other business owners to avoid any antitrust allegations.

The bottom line is that although restaurant surcharges are not per se illegal in California, the legality of such surcharges are currently under scrutiny and thus, will require the attention of attorney to minimize the risks associated with their introduction.

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