Why The New 'Junk Fees' Ban Is Roiling The Restaurant World — And What It Means For Your Wallet

A new law that goes into effect on July 1 targets "junk fees" — you know, those fees that get added on for concert tickets, hotel stays, and car rentals and aren’t always "voluntary."

Consumers hate these fees because they are, in fact, mandatory.

It's been unclear whether restaurants were included in the law, but earlier this month, the California Attorney General's Office released an FAQ stating that restaurant service fees would be covered by the ban.

But while many may applaud the elimination of these fees, the law is upending the restaurant world. Some say it could force some restaurants to raise prices or even close — not exactly consumer-friendly.

We've been talking to chefs and restaurant industry experts to understand more about the law, SB 478. Here's what we know currently, as it's an unfolding topic. If you have additional questions, use the form below to ask them, and we may add those questions and answers to this story.

What is the point of the law? What is it trying to accomplish?

Essentially, the law is trying to achieve more transparency for customers who have had it with service fees for concert tickets, hotel stays and at restaurants. You typically see this in small print some place on the restaurant menu or bill. The new law will ban all restaurants from using service fees.

So what's the problem?

Critics say the new law won't necessarily save you money. Restaurants may take out the service fees but add it to the menu in the form of higher food prices. And they say it will actually make it harder for those restaurants to pay their employees fairly, and that workers could lose pay and benefits. Or, those restaurants could close for good.

Why do restaurants need service fees in the first place?

Supporters say the fees help address historical inequities within the food service industry, and benefit food service workers who rely on tips. Restaurants are known for razor-thin profit margins and are often heavily regulated, adding to their overhead costs. In this current economic climate with high inflation, paying people more isn’t always an option. Hence, restaurants have started using service fees as a way to boost employees salaries and help defray certain employee costs, such as for health insurance.

Doesn't this incentivize restaurants to care less about their employees?

Not necessarily. One scenario is that restaurants will take steps to include the original extra percentage from the service fees in the existing menu price, meaning that customers will still end up paying a higher price for a meal out of pocket. The question is whether customers will be willing to pay for it. If not, and the higher menu prices turn customers away, it could undermine the business and eventually cause many restaurants to shut their doors.

Why do restaurants say they have to raise prices? Why should it be the diner's problem?

Like it or not, if you care about going out to eat then it is your problem. Restaurants are a challenging business, and they need to retain a reliable workforce. To do that, many restaurants charge extra to make sure their employees are compensated properly. It may not be a perfect solution, but many restaurant owners felt like it was the best option — a way to be transparent with diners while also rewarding employees.

How many restaurants use service fees?

It’s impossible to get an exact number — no one is charged with keeping track of such things. But a spreadsheet created by Redditor Brittany Gorin, whom we interviewed last year, listed 300 restaurants in Los Angeles that use some form of service fees.

What kinds of fees are we talking about?

Again, no one keeps track of this. But, according to the spreadsheet, service fees in Los Angeles typically range from 3% to 20%.

What about tipping? I already do my best to leave a good tip

Service fees aren’t tips. And while you may be good about leaving tips, not everyone does the same, which leaves some restaurant industry workers barely scraping by without a regular salary to rely upon. (BTW, tipping is increasingly seen as an antiquated system with ties to racism and historical roots dating back to the Civil War.)

What about mandatory gratuity for large parties?

The new bill also covers the mandatory gratuity that many restaurants charge for parties of six or more. So, those fees now go away, too.

What do restaurant chefs and owners have to say about it?

I spoke with Teresa Montaño, the chef-owner of Otoño in Highland Park, who says that the new law is “extremely tone-deaf and damaging for small restaurants.” At Otoño, Montaño charges a 3% kitchen fee, which goes directly to the staff.

She says the fees slapped on concert tickets and airplane tickets are not comparable to her efforts to incentivize — and keep — her employees.

“Small little restaurants like mine shouldn't be regulated in the same way," she said. "It's a completely different animal, and I wouldn't call my staff wages 'junk fees.' I just find that so offensive. And this is what we have to do to make ends meet for our staff and businesses.”

What do diners have to say?

Various comments on Reddit show that customers aren’t happy with service charges, which no doubt served as an impetus for the bill. “I don’t care whose pocket it goes into. If there is a 20% service charge, I’m not tipping. It's the end of the story,” said one user. Another added, “Was a waiter for years, I agree. Too many places are trying to capitalize on getting as much $ out of you as possible. I always leave 20%, but if you're hitting me with a 20% service charge, I assume that that's the tip.”

How are restaurant advocacy groups responding?

I talked to the California Restaurant Association, which is opposed to the bill and has said it will take legal action if the law goes into effect as planned this summer. It says there was never a public discussion on whether or not to include restaurant service fees in the bill. The CRA also notes that courts have previously concluded that service fees are permissible under the Consumer Legal Remedies Act as long as they are disclosed on restaurant menus.

I also spoke to Eddie Navarrette, the founder of FE Design & Consulting, a restaurant consulting firm, who also heads Independent Hospitality Coalition (IHC), an advocacy group that seeks to advocate for independent restaurants. Navarrette predicted that the bill would mean “death by thousand cuts” for some restaurants as well as open the floodgates for more potential lawsuits.

Navarrette also noted that the California restaurant industry is one of the most regulated of all small businesses, as they deal with health departments, supply chain issues, fire and police permits, building and safety, and ADA compliance demands. Navarrette would ultimately like to see restaurants excluded from implementation of the "junk fees" ban.