Thousands of California restaurants and businesses will no longer be able to add on service charges, resort fees, surcharges, or “junk fees.”
Restaurants will now be required to incorporate any fee they would have imposed into their menu prices on food, drinks, or other things being sold. Only fees that are optional, such as tipping, can be left out of the posted price. The new mandate will go into effect July 1.
“The law is simple: the price you see is the price you pay,” California Attorney General Rob Bonta said in a statement.
If businesses are found in violation of the new mandate, customers may be entitled to “actual damages of at least $1,000.” Customer advocates are in favor of the new rule, while some restaurants and businesses aren’t looking forward to it.
“People deserve to know the true price of products upfront so that they can do good comparison shopping and so that there’s just good competition in the marketplace,” Jenn Engstrom, state director for the California Public Interest Research Group, a Los Angeles-based nonprofit organization, told NPR. She said she thinks the new rule will be “great” for customers.
Some restaurant owners believe any increase in menu prices as a result of the new mandate will cause some customers to eat out less, which could bring in less revenue for the restaurant and cut workers’ hours. Laurie Thomas, who heads the Golden Gate Restaurant Association, warned that customers could experience “sticker shock” from the new rule.
“If it’s in the core price of the menu, there will be a pullback,” she said. “There are some people, I think, that are hoping that the restaurants will just absorb that cost because we’ve seen people say, ‘Oh, it’s too expensive with the service charge.'”
If the food is being delivered, restaurants can still charge a higher price than what’s listed. Delivery fees, however, must now be a flat rate and cannot be a percentage to avoid surprising a customer at the end of his or her order.
It’s unclear what the effect of the new rule could be in the Golden State. Dozens of states have enacted similar legislation as part of a larger initiative from the Biden administration. Some restaurants in Washington, D.C., are being sued over deceptive pricing.
The new rule could end up being a double-edged sword as customers and restaurants alike are still feeling the effects of inflation.
“You know, folks understand that inflation affects everyone, right? But feeling like you had fees added on to already increasing prices across the economy sort of felt like a double punch for consumers,” said Erin Witte, the director of consumer protection for the Consumer Federation of America.
Witte said the lack of transparency about where exactly service fees are going can grow frustrating to customers.
“Someone feels like, well, I’m already paying a tip in the form of a 20% service fee, why would I also have to pay a tip to the server if they’re already getting it?” she said. “That disconnect and that lack of transparency makes consumers feel angry. It makes them feel deceived, and it can harm people who rely on that income.”
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The legislation first passed the California Senate last May and the Assembly in September. Gov. Gavin Newsom (D-CA) signed it into law last year. State Sen. Bill Dodd, who co-sponsored the legislation, said it is a win for customers in California.
“Now we can put the consumer first and create a level playing field for those businesses that advertise the real price up front,” Dodd said.
