The California Attorney General’s office yesterday 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. Under Senate Bill 478, effective starting July 1, 2024, California restaurants will be prohibited from adding service fees to bills—a practice that had been adopted by many eateries as a means to support higher wages in lieu of traditional tipping.

This legislation comes amid rising concerns over transparency in pricing. The intent, as outlined by a Department of Justice spokesperson, is to ensure that consumers understand the complete cost of services upfront, with all charges included in the listed prices. This approach aims to eliminate hidden costs that inflate the final bill unexpectedly, a tactic commonly seen in sectors like entertainment and hospitality.

However, this change is not without controversy and concern.

This legislative change also opens the door to potential legal challenges. Businesses that fail to comply could face lawsuits with damages starting at $1,000, mirroring the wave of litigation seen under laws like the Americans with Disabilities Act. The fear of such outcomes adds another layer of urgency for restaurants to adapt their pricing models swiftly.

Interestingly, the law exempts food delivery platforms like DoorDash from including service fees in the prices shown to consumers.

As the attorney general’s office prepares to release an FAQ to clarify further details, stakeholders from all sides are on edge. While the goal of SB478 is to promote transparency and fairness, its broad implications suggest a turbulent period ahead for California’s restaurant scene. The coming months will be crucial in determining whether this legislative change can indeed balance consumer protection with the economic viability of the restaurant industry.

For more information about service charges, tips, and tip pooling, see our prior article here.