L.A.'s Hottest Restaurants Accused Of Price Fixing
A class-action lawsuit has been filed against some of L.A.'s hottest restaurants like Mélisse and Trois Mec, accusing the owners of price-fixing in regards to a 3% health care surcharge tacked onto the final bills.
The lawsuit, which was filed on Tuesday, also names popular eateries like Rustic Canyon, Animal, AOC, The Hungry Cat, Lucques, and Son of a Gun, CBS Los Angeles reports. It accuses the owner of Rustic Canyon of getting together with the owners of these other restaurants over a year ago to start talks on adding the 3% surcharge that would go to paying for their employees' healthcare. The suit claims that conspiring to raise prices together violates antitrust laws.
"Under California law, competitors cannot get together and agree to increase the prices of the goods or services," Daniel Sterrett, the San Francisco attorney representing a lead plaintiff (and angry customer) in the case, told CBS Los Angeles.
The thing is, Sterrett isn't saying that the 3% isn't going to employee's health insurance, he's just saying that an increase is still an increase. "We’re not here to harm employees," he added. "We just want accountability here for these restaurants to be honest with their patrons."
It hasn't been a secret that these restaurants have been adding a surcharge. Other places like Bestia, République and Milo & Olive have also been tacking on the charge. The L.A. Times reports that these charges started popping up in late 2013, and that it was a way for restauranteurs to be able to pay for their employees' health insurance while keeping profits, which some owners argue aren't a lot to begin with.
"We want our staff to have healthcare," Josh Loeb, the co-owner of Milo & Olive and Rustic Canyon, told the Times last October. "It's not because we support Obama or don't support Obama, or are Democrats or are not Democrats."
Loeb was inspired by a law that passed in 2008 in San Francisco, one that required restaurants with more than 20 employees to set aside money to pay for their workers' health care. Many owners decided to add the surcharge instead of increasing the prices of their dishes, and explained this to their customers.
He emailed "like-minded" restauranteurs in Los Angeles to get together to discuss how they could implement a similar plan.
"We decided it would be a good thing to do it as a group," Josiah Citrin, the chef-owner of Mélisse, told the Times. "Usually when lots of people do things it's easier to make change."
Some of the restaurants involved sent out a press release last September about their plans to include the surcharge, according to LA Weekly:
The major point is that this is not a political statement or endorsement of any kind. Our desire to offer health benefits is not tied to the Affordable Care Act, which at this point wouldn’t require businesses to provide health benefits to their employees until January 2016 at the earliest, and where ultimately businesses of our size might not be required to provide health benefits at all. We are doing this because, quite frankly, we believe it’s the right thing to do, and that as a community of independent and family run restaurants we want to provide the best work environment we can so that we can provide long term jobs and careers for our staff instead of the usual transient employment that is associated with the restaurant business.
They addressed complaints that they should just raise the menu prices altogether instead of adding a surcharge:
The cost of offering these benefits is significant and the reality is that restaurants, particularly smaller restaurants like the ones many of us own, have a very high ratio of staff members to revenue and run on very slim profit margins. Successfully run restaurants generally make between 5-10% net profits so a health care benefit which eats away 3% of gross sales will take away anywhere from 30% to 50% of annual profits for a restaurant. We’ve discussed simply raising menu prices, but ultimately food prices are tied in many ways to the ingredients we purchase. Those ingredient costs have increased astronomically recently so we’re already struggling with working creatively to keep menu prices down and don’t feel it’s right to try to factor health care costs into menu prices as well. We’d rather keep our menu costs as an accurate refection of our ingredient prices so that customers know that if we have to raise them it’s because we can’t avoid passing on our increased costs.
Not everyone is on board with this. A patron complained on Yelp in December of 2013 about République's surcharge:
I would have given this restaurant 5 stars, but I am annoyed by the 3% Employee Health Care charge. This is going to eventually nip the owner in the rear. People will get sick of this really quick; especially considering that there are MANY more better places to eat in LA besides this place. It is not MY responsibility to take care of YOUR employee's healthcare. That is YOUR job. That's what tips are for. I work in a restaurant, and do not feel the customer should be responsible for that. So ridiculous.
A manager at the restaurant responded. She wrote that they would gladly refund the surcharge the customer paid and take it off of the customer's future visit if he was still upset after hearing her out about why they were doing it. She also explained that it was laid out on their menu and servers were instructed to also tell patrons about the charge, and that customers could adjust their gratuity based on that surcharge. For example, if they were planning on leaving a 20% tip, they could just do a 17% tip instead to make up for the difference.
There was also some controversy surrounding the San Francisco health care surcharges, though, when the San Francisco City Attorney discovered that some restaurant owners just pocketed the money collected from the surcharges. Some of the restaurants had to pay for their wrongdoings and all had to agree to comply with the law in the future.
One Los Angeles patron told CBS Los Angeles that he didn't mind the charge as long as the restaurants were up front about it, and another patron said she thought they were doing a good thing for their employees.
What's most bizarre is that a rep from Son of a Gun and Animal told CBS Los Angeles that they don't have the 3% surcharge on their checks, but they were included in the lawsuit because they reportedly encouraged the other restaurants to do it.