California Restaurants Challenge the State’s Junk Fee Ban

California’s junk fee ban—SB 478—was set to kill restaurant surcharges on July 1, 2024. That 5% “SF Health Care Security Ordinance” line at the bottom of your check? Gone. Service fees replacing tips? Also gone.

San Francisco restaurants have been adding that health care surcharge for over 15 years. It covers the city-mandated health insurance for restaurant workers who hit minimum hours. The restaurants started it as a protest—“look what the city is making us pay”—then it became standard practice across the city.

The Panic

In May, SF restaurant owners were scrambling. Attorney General Rob Bonta said the law applies to restaurants. No surcharges allowed. Either bake it into menu prices or eat the cost. The California Restaurant Association argued restaurants aren’t selling “goods or services” under the law, so SB 478 shouldn’t apply. Weak argument.

Restaurants had options: raise menu prices 5% across the board, go back to tipping (which means lower wages for kitchen staff who don’t get tips), or absorb the cost and hope to survive. None of them good.

Last-Minute Save

June 29, 2024. Two days before the July 1 deadline. Governor Newsom signed SB 1542—an amendment carving out restaurants from the junk fee ban. Restaurants can keep their surcharges. One condition: clearly display them on menus with an explanation of what the fee covers.

So nothing changed. The 5% SF health care surcharge is still there. Service fees are still there. They just need better disclosure now.

[!NOTE] SB 1542 exempted restaurants from the junk fee ban. Surcharges are still legal if disclosed on menus.

What It Means

The whole fight was about transparency versus costs. Customers hate surprise fees. Restaurants hate absorbing mandatory city costs. SB 478 tried to force honest pricing. The restaurant lobby pushed back hard—same group that fought Berkeley’s gas stove ban.

The exemption means SF diners still see:

• $18 burger on the menu
• • 5% SF Mandate
• • 3% service fee
• • 8.625% sales tax
• = $21.49 actual cost

Multiply that across your whole bill. The advertised price isn’t the real price. That’s what SB 478 was supposed to fix. Restaurants won. Customers still do the math at the end.