As reported last week, the California Attorney General’s office announced that the new state law banning “junk fees” will extend to surcharges at restaurants, marking a significant shift in billing practices in the food industry. Today, the Attorney General finally released the FAQs which were promised last week. Under this interpretation of the Attorney General of Senate Bill 478, which does not mention restaurants or restaurant surcharges, California restaurants will be prohibited from adding service fees to bills starting July 1, 2024—a practice that had been adopted by many eateries as a means to support higher wages in lieu of traditional tipping.
The FAQs state the following regarding restaurants:
What about tips or gratuities left voluntarily by customers?
This law does not affect tips or gratuities left by customers, since they are not mandatory. These voluntary payments to workers are governed by other laws, including Labor Code section 350. For more information see this FAQ from the California Labor Commissioner.
What about mandatory fees charged by restaurants?
If a restaurant charges a mandatory fee, it must be included in the displayed price. Under the law, a restaurant cannot charge an additional surcharge on top of the price listed. Gratuity payments that are not voluntary must be included in the list price.
Does DOJ expect that its initial enforcement of this law will focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity?
No. There are many factors that we consider when making enforcement decisions, but we do not expect that our initial enforcement efforts will focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity. However, businesses may be liable in private actions.
The California Restaurant Association came out against the FAQs published by the Attorney General’s Office, calling the FAQs a “prime example of legislating through a press release.” The CRA is considering options to potentially block implementation of the law as interpreted by the Attorney General’s Office. We will continue to report on any developments regarding SB 478.