Gov. Newsom signs law allowing California restaurants to keep surcharges

Restaurants must display mandatory fees and charges with an explanation of their purpose.

After an 11th-hour intervention by Gov. Gavin Newsom, California restaurants will be allowed to continue adding surcharges onto patrons’ bills to help cover the skyrocketing cost of doing business in the Golden State.

In its original form, Senate Bill 478, authored in June by Sen. Bill Dodd (D-Napa) and Sen. Nancy Skinner (D-Berkeley), would have prohibited purported junk fees from a host of businesses including bars, delivery apps, travel, ticket sales, hotels and restaurants.

The law intended to ban the “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction, as specified.”

Restaurateurs and labor organizations rebuked the nascent version of the bill earlier this year, echoing concerns about having to raise menu prices in order to cover fees that help offset higher wages and healthcare.

SEE ALSO: California restaurants shouldn’t be shocked law banning ‘junk fees’ applies to them

“Service charges have been increasingly common tools aimed at keeping restaurants afloat and able to pay the higher minimum wages, amid rapidly rising state and local minimum wage requirements,” the Employment Policies Institute, a nonprofit research organization studying employment growth, said in a statement. “Since the state began annual wage hikes up to $16.50 per hour starting in 2017, and localities raised wages even higher, California restaurants have suffered significant losses. Now this tool will be taken away from restaurants, causing further damage to the industry and its employees.”

After receiving backlash for the bill — prompted, in part, by measure sponsor Attorney General Rob Bonta  emphasizing that restaurants and bars would be included in the effort to stamp out “junk fees” — Sen. Dodd introduced an emergency, late-session addendum, Senate Bill 1524, that would exempt eateries and drinking establishments from his original bill. Instead, the new law now requires food and drink venues to disclose additional fees “clearly and conspicuously” with an explanation of surcharges on “an advertisement, menu or other display.”

Gov. Newsom signed the last-minute legislation on Saturday, June 29.

“This last-minute change is significant for restaurants, who are constantly peppered with challenges. This shift has the potential to save many in the industry from losing their jobs,” said Pam Waitt, president of the Orange County Restaurant Association.

SEE ALSO: Some OC restaurants are tacking on surcharges. Here’s what diners did about it

With Saturday’s signing “we can uphold the principle of providing consumers with up-front price transparency without inadvertently harming food service workers or small businesses,” wrote Sen. Dodd shortly after Gov. Newsom’s approval, in a June 29 press release. “Now we can ensure restaurant customers are not shocked when they get their checks.”

“Restaurants are vital to the fabric of life in California, and they should be able to cover costs as long as they do so transparently,” Sen. Scott Wiener (D-San Francisco), co-author of the new bill, added said in the same release. “SB-1524 clarifies portions of the law that pose a serious threat to restaurants. The bill strikes the right balance between supporting restaurants and delivering transparency for consumers, and I’m proud to support it.”

Under the new law, which went into effect immediately on Monday, July 1, if a restaurant adds a service fee to the bill, it must be clearly stated on the menu and, according to Sen. Dodd, “cannot be a surprise that only shows up when the bill arrives.”

Surcharges have been a conflict for California diners, pro and con: Some see the fees as a way to help keep service-industry workers and business owners afloat in one of the county’s most expensive states, while others view such fees as a so-called bait-and-switch practice.

In August 2023, Los Angeles and Orange County diners created publicly available spreadsheets detailing restaurants charging fees.