Legal update coming soon.

We wanted to bring to your attention an important development regarding Senate Bill 478, California Attorney General’s new state law banning “junk fees.” Recently, the California Attorney General’s Office has posted FAQs shedding light on key aspects of this new legislation and its impact to the restaurant industry.

Key Highlights of SB 478:

Prohibition of Additional Service Fees: Starting July 1st, California restaurants will no longer be permitted to add service fees to bills, a practice many restaurants have become accustomed to using in lieu of traditional tipping.

Clarification of Tips and Gratuities: According to the FAQs provided by the Attorney General, this law will not affect traditional tips or gratuities left by customers since those are not mandatory. However, it will impact mandatory fees charged by restaurants.

Inclusive Pricing: Under the new law, restaurants cannot charge additional surcharges on top of the menu price. All mandatory fees must be included in the advertised price, including gratuity payments that are not voluntary.

Initial Enforcement Guidance: The Attorney General has announced that their initial enforcement of this law will not include existing fees that are paid directly and entirely by a restaurant to its workers, such as automatic gratuity.

Action Steps for Compliance:

  1. Review Your Current Practices: Assess your current billing practices to identify any mandatory fees that need to be included in the listed prices.
  2. Adjust Pricing Strategies: Ensure that all advertised prices reflect the total cost, including any mandatory gratuity or service fees.
  3. Educate Your Staff: Inform your team about these changes to ensure compliance and effectively communicate the new pricing structure to your customers.
  4. Seek Guidance: Our team is here to provide support and advice as you navigate these regulatory changes. Please reach out if you need assistance in adapting your business to comply with SB 478.

Legal Challenge:

The biggest opposition to Senate Bill 478 is Senate Bill 1524, which was drafted by two assembly committees last week. This bill will allow restaurants to exclude fees from their menu prices if their menus include “clear and conspicuous” notices that such fees exist. It is currently being fast tracked through the Capitol, but there is no guarantee it will pass before Senate Bill 478 on July 1st.

Similarly, the California Restaurant Association is currently taking legal action against the new legislation, arguing that restaurants should not be included in the Bill since restaurant menu items are neither goods nor services. This would not be the first time the California Restaurant Association has gone to court to appeal a law, as it was able to successfully throw out a new piece of legislation in April 2023.

However, this technicality is still being argued by lawyers from the Restaurant Association and may require a lengthy court process to reach an ultimate decision. We will provide necessary updates should anything change regarding this law in the future.

Resources and Support:

As your trusted CPA firm, we are committed to keeping you informed about important regulatory changes that affect your business. If you have any questions or need further assistance, please contact us. We will assist you every step of the way.