Question: I own a small, local restaurant. I recently heard that my business is now excluded from California’s “Hidden Fees Law” which required me to eliminate service charges or automatic gratuities and instead include the charge in the price of the goods and services. Is this true?
Answer: The short answer is yes, but the exception has a caveat. To understand the recent change, a brief overview of the original law is helpful.
In October 2023, Governor Newsome signed Senate Bill 478, which is commonly referred to as the “Hidden Fees Law.” This law went into effect July 1, 2024. In general, the law prohibits most businesses from advertising or listing a price for a good or service that does not include all fees or charges, other than certain government taxes and shipping costs. Before the law was passed, many assumed that it would not apply to the hospitality industry. However, after it passed, the Attorney General for California issued guidance that stated the law applied to the hospitality industry. Therefore, businesses like restaurants would be prohibited from continuing the practice of adding a 15 to 20% service charge or automatic gratuity to the bill even when the guest was notified of the automatic service charge on the menu (e.g., “18% gratuity added to all guest checks”). Instead, restaurants who wanted to continue to charge an automatic gratuity needed to include the charge to the price of the food or drink item so that the price that is shown on the menu is the total price that the guest is expected to pay.
The California lawmakers disagreed with the Attorney General’s guidance. Before the Hidden Fees Law went into effect, Governor Newson signed another law (Senate Bill 1524), which amended the law to exclude restaurants, bars, and other select food vendors, so long as the mandatory fee charged is “clearly and conspicuously” displayed wherever prices are shown. This is the caveat.
The amendment (as with the rest of the Hidden Fees Law) became effective on July 1, 2024. Under the law, “clearly and conspicuously” means there is an explanation of the purpose for the mandatory fee/charge, and that it written on any advertisement, menu, or other display that contains the price of the food or beverage item. And there is another caveat. On July 1, 2025, the definition of “clearly and conspicuously” will change. “Clearly and conspicuously” will mean that any disclosure, advertisement, or notice must have text as defined by Civil Code section 1971(u), as follows:
[A] larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. For an audio disclosure, “clear and conspicuous” and “clearly and conspicuously” means in a volume and cadence sufficient to be readily audible and understandable.
Therefore, although restaurants are now excluded from the Hidden Fees Law, restaurants should review their menus, advertisements and any display that lists their food and beverage prices to ensure compliance with the clear and conscious requirement. Restaurants should also consider implementing now the required text that will be required in July of next year.