California’s SB 1524 Seeks to Exempt Restaurants from Forthcoming Hidden Fee Ban

06/26/2024|3 minute read

Key Takeaways:

• California lawmakers are currently considering an urgency measure that would exempt restaurants and other food service providers from regulations on the display of fees and menu prices, which will become effective on July 1.
• The bill seeks to address the restaurant industry's concerns relating to potential decreased wages for staff and higher prices for consumers.
• The measure passed unanimously in the California Assembly on June 24, bringing it one step closer to final approval by Gov. Gavin Newsom.

On July 1, California Senate Bill 478 (SB 478) will take effect. Enacted to augment the Consumer Legal Remedies Act's ban on certain deceptive advertising practices, this measure seeks to address the growing prevalence of "junk fees," or charges tacked onto bills at the final stages of a transaction to the dismay of the consumers who may have been initially enticed by a lower advertised price. The legislation prohibits businesses from advertising, offering or displaying prices for goods or services that do not include all mandatory fees, such as service charges or automatic gratuities. This "hidden fee ban" means the first price Californians see must be the total, "all-in" price they will pay, apart from any government-imposed taxes or optional add-on charges.

The bill is wide in scope, covering a variety of sectors of the California economy. Initially, many involved in the restaurant industry believed that food service providers would be exempt from the strict requirements of SB 478 due to the industry's known reliance on service charges, kitchen fees and automatic gratuities to compensate staff. However, the Office of the Attorney General (OAG) recently issued guidance on the application of SB 478 in the form of answers to FAQ. There, the OAG clarified that no exception would be made for restaurants; prices displayed on menus must include all mandatory fees.

In response to concerns about the bill's potential negative impacts on the restaurant industry, Sen. Bill Dodd has introduced an urgency measure, Senate Bill 1524 (SB 1524). The California Constitution provides for the expedited review of certain legislation, known as an urgency measure, when it is deemed "necessary for immediate preservation of the public peace, health, or safety."

The proposal seeks to create an exemption for any food or beverage items sold by a "restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services" that would otherwise fall under the scope of SB 478. If enacted, the statute would require that all mandatory fees - and a description of their purpose - be displayed "clearly and conspicuously" on restaurant menus, advertisements or displays, as opposed to such fees being factored into menu prices.

Specifically, SB 1524 seeks to amend SB 478 in the following ways:

• Clarifying that the prohibition on advertising, displaying or offering a price for a good or service that does not include all mandatory fees or charges does not apply to restaurants, bars and other food service providers, as long as these providers clearly and conspicuously display such fees with explanations of their purpose on any advertisements, menus or displays that contain the price of the item
• Asserting that the exemption above applies to food and beverage items sold directly to a customer by a restaurant, bar, concession or grocery store delivery service or by means of a menu or contract for banquet or catering services
• Providing for delayed implementation of the "clear and conspicuous" language requirement, as defined by California Civil Code § 1791(u), until July 1, 2025

The bill aims to strike a balance between cost transparency for consumers and equity for restaurant employees, who have previously voiced concerns that SB 478 would result in decreased compensation as restaurateurs opt to eliminate automatic gratuities and service charges rather than display inflated menu prices.

The measure makes clear that food delivery platforms are not covered by this exemption and thus will remain subject to the all-in pricing requirements of SB 478.

The California Assembly unanimously approved the bill on June 24. Next, the legislation will return to the California Senate for a concurrence vote, finalizing any changes to the measure. Once this exemption is approved by the Senate, Gov. Gavin Newsom will have the final say on whether it will be enacted before SB 478's July 1 effective date.

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