SB 1524 Approved: California’s Restaurant Industry Can Keep Its Controversial Service Fees

California restaurant owners can now sigh with relief after Gov. Gavin Newsom signed a bill on Saturday, June 29, that allows restaurant surcharges to remain legal, the San Francisco Chronicle reports. Significantly, Senate Bill 1524 went into effect immediately, superseding the state’s “junk fee ban” that outlaws undisclosed fees from rental car dealers and ticket sellers — and until Saturday, restaurant service fees — and goes into effect Monday, July 1. The new bill keeps restaurant fees legal so long as they present additional fees “clearly and conspicuously.”

SB 1524 was a last-minute bid by lawmakers to extract restaurants from the junk fee ban known as Senate Bill 478, which Newsom approved in October 2023. That law prohibits “drip pricing,” or “advertising a price that is less than the actual price that a consumer will have to pay for a good or service” but it didn’t specifically address how restaurants were affected, if at all.

Restaurant service fees are typically added to a bill as a percentage of the total charges and are regularly used to cover various costs outside of ingredients and labor, such as offsetting employee healthcare costs. Reem’s, for instance, uses a worker resilience charge to replace tips.

A co-author of Senate Bill 478 initially told Eater SF that the bill allows restaurant service fees so long as it is disclosed on menus. But in October, officials speaking on background indicated that the law would make those fees illegal. The restaurant industry reacted strongly, given that a ban on service fees would necessitate a drastic shift for restaurants, requiring businesses to fold costs covered by service fees into the advertised pricing of items sold. “That’s a tough spot for us,” San Francisco chef Anya El-Wattar told Eater SF at the time. “It makes it almost impossible for a restaurant. It’s just one more weight for us to carry.”

Indeed, at the end of April 2024, Bonta confirmed that SB 478 would prohibit restaurants from tacking on any charges other than taxes to the final bill, releasing a list of Frequently Asked Questions about the new law. However, the California Restaurant Association pushed back aggressively against the rule, arguing that the legislation shouldn’t apply to restaurants and paving the way for a potential court battle over SB 478 ahead of its implementation on July 1. But in early June, Senator Bill Dodd (D-Napa) introduced Senate Bill 1524, a workaround for the initial SB 478 was approved last year, where it zipped through the necessary hoops and became law with Newsom’s signature on Saturday.

While many in the hospitality industry are likely relieved, customers are mostly not pleased with the carve-out granted to restaurants, the San Francisco Chronicle reports. Of 1,000 respondents to a recent Chronicle survey, the paper reports that more than 81 percent think restaurant surcharges should be illegal. Eater LA also reports that service fees have become a huge point of discussion between diners and restaurant owners, with Reddit users listing Los Angeles and Chicago restaurants that charge these fees. Meanwhile, two San Francisco residents started a petition to ban “drip-pricing,” the Chronicle further reports, potentially leading to an upcoming ballot measure.