Surge in Service Fees
A significant uptick in service fees has been recorded, with a report from Square indicating that 3.7% of restaurant transactions now include a service fee, more than doubling since early 2022.
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This indicates a growing reliance on these charges within the restaurant industry.
Customer Backlash Against Hidden Fees
Opponents of these fees argue that they often surprise customers, leading to higher overall costs for dining out.
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This has prompted diners in major cities like Los Angeles, Chicago, and D.C. to compile spreadsheets to track and share information about restaurants that impose these hidden fees.
Media Coverage and Public Sentiment
Media outlets have also picked up on this trend, with satirical takes such as one by The Onion, which published a story with the headline “Restaurant Check Includes 3% Surcharge To Provide Owner’s Sugar Baby With Birkin.”
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This reflects a broader public scrutiny and humor regarding the surcharge practice.
Governmental Intervention on Junk Fees
The Biden administration is focusing broadly on eliminating so-called junk fees across various sectors.
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The Federal Trade Commission (FTC) is expected to publish a rule this fall aimed at banning businesses from “charging hidden and misleading fees,” targeting practices that can financially impact consumers unexpectedly.
Restaurants’ Response to Regulation
Restaurants are trying to navigate the increasing regulatory attention. They argue that not all fees are unjust, with some necessary to sustain business operations and ensure fair employee compensation.
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“The challenge for the restaurants is that not all fees are junk fees … People know what they’re paying for when it comes to most fees that are on a restaurant bill,” said Sean Kennedy, executive vice president of public affairs for the National Restaurant Association.
The Complexity of Service Charges
While federal law prohibits management from keeping workers’ tips, mandatory service charges are considered the property of the restaurant.
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However, the distribution of these fees can be contentious, as evidenced by a Denver-based restaurant worker who noted, “the business keeps 30% of the proceeds.”
Clarity and Transparency in Fee Disclosure
Some restaurants, like Galit in Chicago, have taken steps towards transparency by clearly stating their fees on menus and online platforms.
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These fees help cover health care and other benefits for employees, and the restaurant ensures customers are aware of these charges upfront.
Reevaluating Tipping and Service Charges
Service charges are increasingly being seen as a way to address inequities associated with traditional tipping practices, which have been linked to issues like racial discrimination and sexual harassment.
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Restaurants are rethinking how best to compensate their staff while maintaining customer satisfaction.
Adapting to New Legislation
In D.C., following the approval of Initiative 82, which will phase out the tipped wage by 2027, many restaurants have adopted service charges.
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This change was solidified when the city passed a bill that protected service fees of up to 20%.
The Debate Over Fee Legitimacy
With state-level legislative successes, restaurants have been able to exempt themselves from broader laws targeting junk fees.
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This allows them to maintain practices that they argue are essential for their financial stability and ability to provide employee benefits.
Advocacy for Necessary Fees
The National Restaurant Association is actively working to differentiate between essential fees and those that could be considered exploitative.
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They advocate for the protection of fees like large party, delivery, and credit card processing charges, essential for maintaining the narrow profit margins typical in the restaurant industry.