SB478, a law aimed at prohibiting junk fees, is making all of us in the California restaurant industry crazy with its ambiguity. We are anxiously awaiting FAQs that were meant to be released May 1st by the attorney general’s office. The law is scheduled to go into effect on July 1st (the same day that a San Francisco minimum wage increase is due to go into effect) and as of now we don’t know how restaurants and bars will be impacted. Delivery companies have had an exception made for them, which gives us reason to hope that legislators will make exceptions for restaurants and bars as well, something the GGRA is actively lobbying for on our behalf.
The legislation, which prohibits businesses from adding separate line item service and surcharges to bills, could pose an existential risk to our industry when combined with the minimum wage hike. We are hoping that these charges will be allowed to remain if they are stated clearly on menus, but if not then the prices we’re going to have to charge for menu items will be very high in order to survive. We may find ourselves needing to revert back to tip models instead.
The lack of clarity on the enforcement of the law has us unsure of how to proceed. All we can do at this point is wait for clarity and hope that industry stakeholders will collaborate to find a solution that permits restaurants to continue using service fees in some capacity. The Golden Gate Restaurant Association is advocating for an industry carve-out, similar to the exceptions already granted to third-party delivery apps. Until there is clarity on the implementation of the law, restaurant owners are advised to refrain from making drastic changes to their pricing or service models.
UPDATE: The FAQs have been released and you can see the exact details here.
UPDATE June 6th: A new bill (SB 1524) to clarify SB 478 is being drafted, which the GGRA is optimistic will allow restaurants, bars, and food service providers to continue using service charges and surcharges on their menus.
UPDATE June 27th: SB 1524, introduced by California Senators Dodd and Wiener, aims to clarify the language and requirements of SB 478, which bans service charges and surcharges unless they are clearly disclosed. This bill, which passed the Senate today and is now to be signed by the governor, stipulates that any mandatory gratuity or service charge must be prominently displayed on menus, advertisements, or other displays.
Transparency in billing is crucial for maintaining trust with customers. Many restaurants and bars have used auto gratuity and service charges to support pay equity and offset costs like health care mandates. The passage of SB 1524 will allow these practices to continue, provided they are clearly communicated to customers. This helps restaurants support their employees fairly while ensuring customers are not surprised by their final bill.
