6 June 2024
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Pricing transparency without hidden mandatory junk fees. Does this apply to restaurants too? New California proposed law (SB 1524 ) says “No!” Can this be right?
by
Mark S. Adams
Hotel Dispute Lawyer, Partner & Senior Member
JMBM’s Global Hospitality Group
For more than 20 years consumers have complained about hidden mandatory fees, junk fees, resort fees, destination fees, service fees, administration fees, health fees, surcharges, connection fees, and similar charges, whatever they are called.
California’s new “Honest Pricing Law,” SB 478, cracks down on hidden fees, requiring businesses to advertise and list a price that includes all mandatory charges. This applies to most goods and services, but a new bill, SB 1524, proposes an exception for restaurants.
SB 478: Transparent Pricing and the End of Junk Fees
SB 478, taking effect July 1, 2024, prohibits businesses from advertising a misleadingly low price and then tacking on hidden mandatory fees at checkout. This includes service charges, resort fees, and other surprise surcharges. Consumers have long complained about these “junk fees,” and SB 478 aims to create price transparency. California’s Civil Code Section 1770(a)(29), amended by SB 478, prohibits unfair business practices like misrepresenting product qualities. Importantly, it requires businesses to advertise prices that include all mandatory fees, excluding only government taxes and reasonable shipping costs. This transparency aims to protect consumers from unexpected charges. Certain industries, like those complying with FCC regulations for internet access or those already subject to federal and state disclosure laws for financial services, are exempt from this specific provision.
SB 1524: A Special Exception for Restaurants?
Introduced on June 6, 2024, SB 1524 would allow restaurants to continue adding mandatory service charges, gratuities, and other fees on top of their advertised prices, as long as these fees are clearly disclosed on menus or advertisements. The proposed amendment to Civil Code 1770, would add a new subsection 29(D) to exempt restaurants from the transparent pricing mandate of in that section by adding this language:
(D) For purposes of this paragraph, “advertising, displaying, or offering a price for a good or service” does not include advertising or displaying the price of individual food or beverage items sold by a restaurant, bar, or other food service provider, or sold pursuant to a contract for banquet or catering services, provided that any service charge, mandatory gratuity, or other mandatory fee or charge is clearly and conspicuously displayed on the advertisement, menu, or other display.
The Debate: Transparency vs. Industry Flexibility
This exemption has raised concerns about consumer protection and a level playing field for businesses. SB 1524’s proponents, including the restaurant industry and the labor union UNITE HERE, argue that it allows restaurants flexibility in covering costs like employee benefits. Opponents argue that this exemption undermines the core purpose of SB 478 – price transparency for consumers. They question why restaurants should be treated differently from other businesses and point out the Federal Trade Commission’s stance that hidden fees are deceptive practices.
The Future: Will Restaurants Get a Pass on Hidden Fees?
Whether SB 1524 passes remains to be seen. It faces opposition from consumer advocates who prioritize transparency. The coming months will reveal if the logic of SB 478 – honest pricing for all – prevails, or if restaurants win this special exemption.
Potential Outcomes of SB 1524
Note that SB 478 is a law effective July 1st, requiring businesses to advertise all-inclusive prices for goods and services, excluding only government taxes and reasonable shipping costs. SB 1524, on the other hand, is a potential carve out of SB 478 for restaurants, but to be effective, SB 1524 needs to be passed.
So is SB 1524 the Beginning of even more SB 478 carve outs?
Who knows? The debate surrounding SB 1524 extends beyond the restaurant industry. It raises questions about exemptions for other industries. If restaurants win a carve-out, could hotels, ticket sellers, or other businesses seek similar exemptions from the transparent pricing requirements? The outcome of SB 1524 might also influence the Federal Trade Commission’s role in regulating hidden fees. The FTC’s existing stance against hidden fees could inform future regulations aimed at creating a level playing field across industries. Ultimately, this case could be a turning point in establishing clear and consistent pricing practices nationwide.
But keep in mind, SB 478 stands on a long-standing and well-supported platform against Junk Fees. Since 2012, the FTC has issued reports and proposed rules suggesting that the use of deceptively attractive low prices to catch consumer attention is bait-and-switch, consumer fraud when there are other mandatory fees or charges (junk fees) that will be added to the cost. See:
- California bans Junk Fees as of July 1, 2024. Good bye to junk fees, resort fees, mandatory service charges, and drip pricing. Hello to – the fruits of SB 478.
- FTC’s proposed rule will end drip pricing and junk fees for hotels, restaurants, and many other businesses. Goodbye to resort fees, destination fees, service charges and other miscellaneous fees?
- Disclosing Mandatory Resort Fees – What Hoteliers Need to Know
Conclusion
SB 1524 presents a significant challenge to California’s push for transparent pricing. The outcome will impact not just restaurants and consumers, but potentially set a precedent for businesses nationwide. The question remains whether the focus will prioritize consumer protection through clear pricing or industry flexibility with carve-outs.
Mark S. Adams, Hotel Dispute Lawyer, is an experienced trial lawyer and a senior member of JMBM’s Global Hospitality Group®. A primary focus of Mark’s practice is devoted to representing clients on hundreds of matters involving Hospitality Litigation, Arbitration & Dispute Resolution – from avoiding litigation to conducting complex, multi-state litigation, arbitration, and mediation.
Mark’s expertise is in business litigation involving contracts, corporate and partnership disputes, and hospitality disputes and litigation. On behalf of hotel and resort owners, Mark has successfully litigated the termination of long-term, no-cut, hotel management agreements, franchise agreements, fiduciary duty issues, investor-owner disputes, TOT assessments, and more. He has wide-ranging trial experience in various commercial disputes, including complex multi-party litigation and class actions. He has tried numerous cases in state courts, federal courts, and domestic and international arbitrations and is a frequent author and speaker on trial practice. Forbes, Reuters, and other publications have covered Mark’s trial wins. He obtained two of California’s 50 largest jury verdicts in the same year.
Mark has taken or defended nearly 1,000 depositions throughout North America, Europe, and the Middle East. The Wall Street Journal has quoted him as an expert on noncompete agreements. For more information, contact Mark at 949.623.7230 or markadams@jmbm.com.
For more recent articles written by Mark S. Adams, please see the following links:
Junk Fee Law: Exception for California restaurants moves forward
New Federal Junk Fee Law – The No Hidden FEES Act of 2023 (HR 6543)
Disclosing Mandatory Resort Fees – What Hoteliers Need to Know
The better way to resolve hotel contract disputes: Judicial Reference or Arbitration?
Should New York law govern your hospitality contract? How about Texas, California or Florida law?
Meet Mark S. Adams, Hotel Dispute Lawyer – Hospitality Litigation, Arbitration & Dispute Resolution
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This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators, and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.
JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.
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