Restaurants Face 'Junk Fees' Backlash Amid Inflation

Restaurants are facing increasing scrutiny over surcharges and fees as consumers struggle with inflation. While restaurants argue that these fees are necessary to keep their businesses afloat and compensate employees fairly, critics contend that they mislead customers and unfairly impact workers' tips.

The Rise of Restaurant Surcharges

Surcharges and fees on restaurant checks, covering costs like credit card processing, gratuities, and "inflation," have become increasingly common in recent years. This trend is fueled by rising operating costs for restaurants, including higher wages, food prices, and utilities.

• A 2023 National Restaurant Association survey found that 15% of restaurants added surcharges or fees due to increased costs.
• Square reported a significant increase in service fees added to restaurant transactions, with 3.7% of transactions including a service fee in the second quarter of 2024, more than double the beginning of 2022.

Consumers Fight Back Against 'Junk Fees'

Consumers are increasingly expressing their frustration with hidden fees and surcharges. Many feel misled by the charges, which can significantly increase the final bill. Social media platforms like Reddit have become venues for diners to share their experiences with restaurants that charge hidden fees.

• Diners have compiled spreadsheets of restaurants in major cities like Los Angeles, Chicago, and D.C. that charge hidden fees, highlighting the widespread nature of the practice.
• Even satirical publications like The Onion have taken aim at the trend, publishing a story about a restaurant charging a surcharge to provide its owner's sugar baby with a Birkin bag.

The Biden Administration Targets 'Junk Fees'

The Biden administration has launched a broader crackdown on so-called "junk fees," including undisclosed service charges for concert tickets and unexpected resort fees. This initiative reflects growing public concern over hidden fees and their impact on consumers' wallets.

• The Federal Trade Commission is expected to release a rule this fall banning businesses from charging hidden and misleading fees.

Restaurants Push Back Against 'Junk Fees' Crackdown

The restaurant industry is actively lobbying against the Biden administration's efforts to crack down on "junk fees." Restaurants argue that surcharges and fees are essential for their survival, particularly in a competitive industry with razor-thin profit margins.

• The National Restaurant Association argues that not all fees are "junk fees" and that customers are generally aware of what they are paying for when they encounter fees on a restaurant bill.
• Restaurants contend that these fees help them pay employees more and provide better benefits, especially in light of rising labor costs.

The Debate Over Service Fees and Tipping

The debate over service fees often centers around their impact on workers' tips. While federal law prohibits management from keeping employees' tips, mandatory service charges are the property of the restaurant. Some states, like New York, have laws that require service charges to be distributed to staff.

• Critics argue that service fees can lead to wage theft, as employers may claim that the money goes to workers but fail to distribute it properly.
• Moreover, customers who pay a service charge are less likely to tip on top of the check, potentially reducing workers' overall income.

Restaurants' Perspective on Service Fees

Restaurant operators emphasize that service fees and other surcharges allow them to provide higher wages and benefits to their employees. They argue that these fees are a more transparent and equitable way to compensate workers than relying solely on tips.

• Galit, a Middle Eastern restaurant in Chicago, uses service fees to cover healthcare costs for its employees and to ensure that back-of-house staff receive fair compensation.
• Kaliwa, a Southeast Asian restaurant in D.C., implemented an 8% surcharge to manage rising labor and operating costs, emphasizing transparency with its guests.
• Cambridge Street Hospitality Group, a restaurant company in Boston, utilizes service fees to pay cooks and dishwashers more and to offer more employees health insurance.

Lobbying Efforts by the Restaurant Industry

The restaurant industry has successfully lobbied against "junk fee" legislation in some states. Restaurants argue that eliminating fees will lead to higher prices, confusion for customers, and increased compliance costs.

• In California, last-minute legislation excluded restaurants, bars, grocery stores, and delivery services from a law that would have required businesses to list mandatory fees.
• The National Restaurant Association argues that the cost of complying with new regulations, including updating menus, would be substantial.

The Future of Restaurant Fees

The debate over "junk fees" and their impact on the restaurant industry is likely to continue. While restaurants argue that fees are necessary to survive in a challenging economic environment, critics contend that they are misleading and unfair to consumers and workers.

• The Federal Trade Commission's upcoming rule on hidden fees will have a significant impact on the restaurant industry, potentially requiring restaurants to be more transparent about their pricing practices.
• Restaurant operators must strike a balance between maintaining profitability and providing a fair and transparent experience for their customers.