Senate Bill 1524
Gov. Newsom Signs Law Allowing Restaurants and Bars to Charge Service Fees with Prior Disclosure
In a significant move for California's hospitality industry, Governor Gavin Newsom signed Senate Bill 1524 into law on June 29, 2024. This new legislation permits restaurants and bars to continue charging service fees, provided these fees are clearly disclosed to customers. The law comes as a response to the impending enforcement of Senate Bill 478, which aimed to eliminate hidden fees across various industries, including dining establishments.
Background and Legislative Journey
Senate Bill 478, signed into law last October, was designed to protect consumers from unexpected charges by mandating that all advertised prices include any mandatory fees. This law, set to take effect on July 1, 2024, would have prohibited additional charges, such as service fees, unless they were included in the listed price. The bill was part of a broader effort to enhance price transparency and eliminate "drip pricing," where consumers are initially presented with a lower price only to face additional charges at the point of sale.
However, the restaurant industry raised significant concerns about the impact of this legislation. Many restaurants rely on service fees to balance wages between front-of-house and kitchen staff, cover healthcare costs, and provide other employee benefits. The potential elimination of these fees threatened to disrupt business models and reduce staff compensation.
In response to these concerns, Senators Bill Dodd and Scott Wiener introduced Senate Bill 1524 earlier this month. The bill sought to carve out an exemption for restaurants and bars from the stringent requirements of SB 478, allowing them to continue charging service fees as long as these fees were prominently disclosed on menus and other pricing materials. The bill passed unanimously through both the California Assembly and Senate before reaching Governor Newsom's desk.
Provisions of the New Law
Under SB 1524, restaurants and bars can impose service fees, but they must ensure that these fees are "clearly and conspicuously" displayed. This means that any mandatory gratuity or service fee must be prominently listed on menus, advertisements, or any other materials that contain pricing information. The law specifies that the disclosure must be in a larger or contrasting font than the surrounding text or set off in a manner that clearly calls attention to the language.
The law aims to strike a balance between consumer protection and the operational needs of the hospitality industry. While it maintains the transparency goals of SB 478, it acknowledges the unique financial structures of restaurants and bars, allowing them to continue practices that support equitable pay and employee benefits.
Reactions from the Industry
The signing of SB 1524 has elicited mixed reactions from various stakeholders. Many in the restaurant industry have expressed relief, viewing the law as a necessary measure to sustain their business operations and support their employees.
Laurie Thomas, executive director of the Golden Gate Restaurant Association, stated, "This doesn't feel like a step forward, but it's preventing a huge step backward. This is a big sigh of relief for restaurant workers." The association, which represents numerous independent restaurants in San Francisco, had lobbied for the exemption, arguing that service fees are crucial for providing employee benefits and ensuring pay equity.
Eddie Navarrette from the Independent Hospitality Coalition also welcomed the new law, highlighting the struggles faced by restaurants and the importance of service fees in maintaining fair compensation practices.
However, some consumer advocates have criticized the exemption, arguing that it undermines the transparency goals of SB 478. Jenn Engstrom, state director for the California Public Interest Research Group, expressed concerns that the law might not fully protect consumers from unexpected charges. "While the disclosure requirement is a step in the right direction, we believe that full upfront pricing would have been more beneficial for consumers," Engstrom said.
Future Implications
The passage of SB 1524 underscores the complexities of balancing consumer protection with the financial realities of the hospitality industry. As restaurants and bars adapt to the new requirements, the law's impact on pricing strategies and customer perceptions will become clearer.
For now, California's restaurant industry can breathe a sigh of relief, knowing that they can continue to use service fees to support their staff and cover operational costs, provided they maintain transparency with their customers. The ongoing dialogue between industry stakeholders and consumer advocates will likely shape future legislative efforts aimed at enhancing price transparency while supporting business viability.