A new California law may make it illegal for restaurants and bars to charge diners mandatory service fees on top of the prices listed on menus, which would mark a major sea change for both diners and business owners in the state.
Last week Gov. Gavin Newsom signed Senate Bill 478 into law, a bill that had been previously referred to as a ban on “junk fees,” those extra charges most often associated with hotel, car rental, and ticket sale companies. The law, which goes into effect on July 1, 2024, specifically prohibits “drip pricing,” or “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.” Restaurants aren’t addressed specifically in the legislation, but the law states businesses will be prohibited from “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges” other than government taxes and fees and shipping.
A spokesperson for Senator Nancy Skinner (D-Oakland), who introduced the bill along with Senator Bill Dodd (D-Napa), previously told Eater SF the bill would allow service fees so long as they were disclosed on restaurant menus. However, following that initial reporting, representatives from the Attorney General’s Office reached out to Eater SF, speaking on background on Wednesday, October 18, and suggested the law would indeed make such fees illegal. But in subsequent communications throughout the afternoon, the AG’s Office would not confirm that interpretation of the law.
“The Department of Justice will continue to meet with industry groups over the coming months to discuss implementation of the law,” a spokesperson wrote to Eater SF in an email late Wednesday afternoon. Attorney General Rob Bonta was a sponsor of the bill.
The news that mandatory restaurant service fees could be banned under the new law caught stakeholders by surprise. Laurie Thomas, the executive director of San Francisco’s restaurant lobby the Golden Gate Restaurant Association, expressed concern over a ban on service charges, which sometimes serve to provide workers with higher wages. “We are 100 percent supportive of all charges being clearly listed on all menus, paper or online, so the customer is clearly aware of any total charges prior to purchase,” Thomas wrote in an email to Eater SF on Wednesday. “We will continue to monitor this situation.”
A ban on mandatory service fees and charges would mean a drastic shift for business owners, who have increasingly used percentage-based fees to offset the costs of employee healthcare, assist in efforts to combat climate change, and provide service workers with more equitable wages. However, under the new law, restaurants may have to fold the costs of doing business previously covered by service fees into the advertised price of any items sold. Tips, which are, of course, not required, remain permissible under the new legislation.
Interestingly, the law includes an exception for “food delivery platform(s),” or companies such as UberEats and Doordash, which will not have to include delivery fees in the menu price shown to consumers. The exception for third-party delivery apps did not appear in the original version of the bill, which was introduced to the state senate in mid-February but appears to have been added later in the legislative process as the legislation moved through the state assembly.
In a press release, Bonta hailed the bill’s signing as a win for American consumers, who have been burdened and confused by an ever-increasing number of fees and charges — so much so that whole Reddit threads have sprung up across the country tracking the practice. The bill creates a level playing field for business owners, according to the AG, by requiring all businesses’ listed prices to reflect the final cost of a service or good. Still, the change promises to up-end the way most restaurants and bars have operated in recent years.