Sorry, those extra fees are staying on your restaurant bill

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TFW we see our final restaurant bill. Graphic by Gabby Quarante.

Surcharges at the bottom of restaurant bills are almost universally hated by consumers. Regardless of age, race, gender, class, or political affiliation, most people dislike these additional charges, often referred to as "junk fees."

So earlier this year, when the state legislature passed a law — SB478: Consumers Legal Remedies Act — banning restaurants, hotels, concert venues, etc. from adding these charges onto your bill and requiring these businesses to show you the "all in" price upfront, Californians let out a collective cheer. That joy was short-lived.

Days before the law was slated to take effect on July 1, California lawmakers passed and Governor Gavin Newsom signed a last-minute billSB1524 — exempting restaurants from the law's fundamental provisions.

How did this end up happening? Why was one provision of a law with broad support from consumers gutted? The short answer: Because of hard lobbying and pressure from the restaurant industry.

What even are these restaurant surcharges?

If you've eaten at restaurants in California in the last couple of years, you've probably received at least one bill with an extra charge tacked onto your meal. That fee might be as low as 3% or it might be as high as 20%.

What was the goal of the original "junk fees" law?

To give consumers more transparency in pricing. When you buy a concert ticket or book a hotel room or sit down to a meal and see the cost of a dish on the menu, that should be the price you pay, right? (Well, not including federal, state, and local taxes.) But if you've ever done any of these things, you know that a $50 concert ticket can easily become an $80 one after venue fees and ticket surcharges are tacked on. Hotels often tack on "resort fees" while Airbnbs often add cleaning and other fees.

What did SB478,  the "junk fees" law, mean for diners?

It meant that restaurants couldn't add fees onto their bills, even if they clearly listed them on the menu. I also meant that restaurants that relied on these fees would've probably raised the prices of their food to compensate for the loss in surcharges. In the end, diners would have probably ended up paying the same amount but you would have had a better idea upfront of how much your meal cost.

So what services does the junk fee ban still apply to?

Hotels. Vacation rentals. Concert tickets. All of these businesses are now required to list the "all-in" price of whatever goods or services you're paying for. Hotels typically charge "resort fees" while Airbnb hosts often tack on cleaning fees, service fees and, in at least one case, an "air-conditioning" fee. Now, even if you don't live in California, if you reserve a hotel room or rent a vacation home in California, business owners have to tell you the true cost upfront. To compensate, they'll likely just raise the cost of whatever good or service you're getting, but at least you'll know how much you'll be paying.

Back in the day, you could get a cup of coffee for under $5 and we all wore an onion on our belts. Photo via Shutterstock

How do consumers feel about these restaurant surcharges and about the junk fees law?

Anecdotally, most customers hate these restaurant surcharges and they strongly supported the original "junk fees" law.

Elena Kadvany, who has reported on restaurant surcharges for the San Francisco Chronicle, told Good Food, "One reader, in a letter to the editor to the Chronicle, recently called it a 'psychological ploy.' I've heard from a lot of diners who say they'd prefer if everything was folded into the menu price and they just want full transparency from restaurants."

Plus, many consumers have tipping fatigue. They're aggravated by being asked for a tip not just at sit-down restaurants but at fast casual restaurants, cafes, bagel shops, movie theaters, vape shops, tow truck companies, etc. 

How did restaurant owners feel about the junk fees law?

Many of them were wary of the law and supported SB1524.

"I've talked to some restaurant owners who feel like diners say [they want full menu transparency] but they're still going to feel the sticker shock," Kadvany says. "People are already saying they're dining out less because it's become more expensive, so owners are worried about that when rubber hits the road."

When did restaurant surcharges become a thing?

Some surcharges (like adding an automatic gratuity for large groups) are a long-standing practice. And a handful of restaurants in the United States rely on an automatic service charge (typically 20%) rather than asking diners for tips. But in most cases, the recent wave of restaurant surcharges seems to have sprung up during or after the pandemic. The restaurant business is brutal and restaurant owners often operate on exceedingly thin margins. Inflation has likely given the trend a big push as restaurants feel the pinch.

That's one way to inform customers about a surcharge. This menu comes from Silver Lake restaurant Pijja Palace, circa March 2023. Photo by Elina Shatkin

How much are these surcharges? And what do restaurants say they're for?

The fees are all over the place. They can be as low as 3% and as high as 20%. Restaurants say the surcharges are for all sorts of things. Health care for employees. "To ensure competitive industry compensation." "To help offset increased labor costs." "To support equitable earnings, medical and retirement benefits for staff." "Local surcharge." "Surcharge for kitchen and staff." At one DTLA restaurant, it's for "security." 

The Reddit restaurant fees spreadsheet is a good source for tracking surcharges at Los Angeles restaurants.

Are these surcharges going where restaurants claim they're going? Is there any way to know? 

No, there's no way to know. Kadvany believes that in most cases, these surcharges are going where restaurateurs say they're going. 

"Most restaurants work really hard to communicate clearly to diners how it all works and where the money is going. I've talked to so many owners who care really deeply about this model and what it represents for the future of the industry and for workers in the restaurant industry who are historically underpaid. But there are, of course, counter examples, and maybe the bad apples or the bad actors sort of stick in people's minds as examples or their perception of how this all works," she says.

In 2023, former servers at Jon & Vinny’s filed a class-action lawsuit alleging that the restaurant violated California gratuity laws with its 18% service fee. Initially, customers' receipts didn't state that the service fee was not a gratuity. As a response to the suit, Jon & Vinny’s changed the language on bills making it clear that the service charge is an added fee rather than a tip or gratuity.

When restaurants add these fees, do I still have to pay taxes? Do I still have to tip?

Yes and yes. The junk fees bill never affected sales tax. And unless a restaurant has chosen a tipless business model, tipping remains a thing.

Does the original junk fees law apply to food delivery platforms such as DoorDash and Uber Eats?

No, it doesn't. Food delivery apps are exempt from these rules. The bill states that they do not have to include the fees that they charge for providing their services in the menu price.

Why do food delivery platforms get an exception?

We have no idea. "I know a lot of restaurant owners are very frustrated by that," Kadvany says.