The Consumers Legal Remedies Act makes unlawful certain unfair methods of competition and certain unfair or deceptive acts or practices undertaken by a person in a transaction intended to result or that results in the sale or lease of goods or services to a consumer, including advertising goods or services with intent not to sell them as advertised. Existing law authorizes a consumer who suffers damage as a result of the use or employment by a person of a method, act, or practice declared to be unlawful by that provision to bring an action against that person to recover or obtain certain relief, including actual damages of at least $1,000.

Existing law, beginning on July 1, 2024, with certain exceptions, additionally makes unlawful advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction, as specified.

This bill would specify that the above provision does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service, subject to certain exclusions and conditions. These conditions would include that a mandatory fee or charge be clearly and conspicuously displayed with an explanation of its purpose on an advertisement, menu, or other display and, as of July 1, 2025, meet certain text requirements, as prescribed.

This bill would declare that it is to take effect immediately as an urgency statute.

The Consumers Legal Remedies Act makes unlawful certain unfair methods of competition and certain unfair or deceptive acts or practices undertaken by a person in a transaction intended to result or that results in the sale or lease of goods or services to a consumer, including advertising goods or services with intent not to sell them as advertised. Existing law authorizes a consumer who suffers damage as a result of the use or employment by a person of a method, act, or practice declared to be unlawful by that provision to bring an action against that person to recover or obtain certain relief, including actual damages of at least $1,000.

Existing law, beginning on July 1, 2024, with certain exceptions, additionally makes unlawful advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction, as specified.

This bill would specify that the above provision does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service, subject to certain exclusions and conditions. These conditions would include that a mandatory fee or charge be clearly and conspicuously displayed with an explanation of its purpose on an advertisement, menu, or other display and, as of July 1, 2025, meet certain text requirements, as prescribed.

This bill would declare that it is to take effect immediately as an urgency statute.

The Consumers Legal Remedies Act makes unlawful certain unfair methods of competition and certain unfair or deceptive acts or practices undertaken by a person in a transaction intended to result or that results in the sale or lease of goods or services to a consumer, including advertising goods or services with intent not to sell them as advertised. Existing law authorizes a consumer who suffers damage as a result of the use or employment by a person of a method, act, or practice declared to be unlawful by that provision to bring an action against that person to recover or obtain certain relief, including actual damages of at least $1,000.

Existing law, beginning on July 1, 2024, with certain exceptions, additionally makes unlawful advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction, as specified.

This bill would specify that advertising, displaying, or offering a price for a good or service, as described above, the above provision does not include advertising or displaying the price of apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, or other food service provider, concession, grocery store, or grocery delivery service, or pursuant to a by means of a menu or 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 bill would further specify that these changes are intended to clarify, and do not constitute a change in, existing law. services that fully discloses the terms of service, subject to certain exclusions and conditions. These conditions would include that a mandatory fee or charge be clearly and conspicuously displayed with an explanation of its purpose on an advertisement, menu, or other display and, as of July 1, 2025, meet certain text requirements, as prescribed.

Existing law, the Gambling Control Act, establishes the California Gambling Control Commission, which is responsible for licensing and regulating various gambling activities and establishments. Existing law requires the Department of Justice to investigate any violations of, and to enforce, the act. Under existing law, the commission is composed of 5 members who are appointed by the Governor, subject to confirmation by the Senate. Existing law requires the Governor to fill any vacancies on the commission, subject to confirmation by the Senate, within 60 days of the date of the vacancy.

This bill would reduce the time to fill a vacancy to within 45 days of the date of the vacancy.

 UNFINISHED BUSINESS  

Bill No: SB 1524

Author: Dodd (D) and Wiener (D), et al.

Amended: 6/20/24

Vote: 27 - Urgency

PRIOR VOTES NOT RELEVANT

SENATE JUDICIARY COMMITTEE: 6-0, 6/25/24

AYES: Umberg, Allen, Caballero, Durazo, Niello, Stern

NO VOTE RECORDED: Wilk, Ashby, Laird, Roth, Wahab

ASSEMBLY FLOOR: 73-0, 6/24/24 - See last page for vote

SUBJECT: Consumers Legal Remedies Act: advertisements: restaurant, bar, and other food services

SOURCE: Lieutenant Governor Eleni Kounalakis

DIGEST:

This bill exempts mandatory fees and charges for individual food or beverage items sold directly to a customer by specified entities, but requires such fees to be clearly and conspicuously displayed on any advertisement, menu, or other display of the price.

Assembly Amendments

gutted the previous version of the bill and inserted the current contents.

ANALYSIS:

Existing law:

1. Establishes the Consumer Legal Remedies Act (CLRA), which prohibits unfair methods of competition and unfair or deceptive acts or practices undertaken in a transaction intended to result or which results in the sale or lease of goods or services to any consumer. (Civ. Code § 1750 et seq.)
2. Provides that any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 of the Civil Code may bring an action against that person to recover or obtain specified damages and other relief. (Civ. Code § 1780(a), (e).)
3. Lists the unfair methods of competition and unfair or deceptive acts or practices that undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer are unlawful. (Civ. Code § 1770(a).)
4. Makes it an unlawful business practice, as of July 1, 2024, to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer. (Civ. Code § 1770(a)(29)(A).)
5. Provides a number of exemptions to the preceding provision and declares various fees and assessments are taxes or fees imposed by a government for purposes of the statute. (Civ. Code § 1770(a)(29).)
6. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Bus. & Prof. Code § 17200 et seq.)

This bill:

1. Exempts from the provision above a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service. This exemption does not apply to a third-party food delivery platform, as defined.
2. Requires the above mandatory fees and charges to be clearly and conspicuously displayed, with an explanation of their purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.
3. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store or distributor to a consumer.
4. Includes severability and urgency clauses.
5. Clarifies that any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined, starting July 1, 2025.

Comment

Pricing transparency. The issue of “junk” fees and other pricing schemes gained more prominence nationally when President Joe Biden took aim at them in his State of the Union address in February 2023. There are various types of pricing schemes generally deemed unfair or unlawful business practices. When merchants include hidden or “junk” fees in the purchase price of goods and services after putting out a much lower advertised price (“the bait”), consumers are often misled and kept from properly assessing the best prices, thereby hindering the market, especially online.

Junk fees artificially disrupt the balance of the market, resulting in “significant market misallocations.” “Because in a price-obscuring transaction consumers initiate purchasing decisions without knowing the actual cost, ‘[t]ickets will not necessarily go to the consumers who value them the most.’”^[1]

This troubling practice is particularly well-suited for government regulation as market participants are not best situated to refrain from such pricing practices if competitors are not held to account. The FTC conducted a workshop that “highlighted the inability of market participants to correct this course without intervention.” Case in point: “After a market leader took unilateral action to phase out hidden fees, the platform ‘lost significant market share and abandoned the policy after a year because consumers perceived the platform’s advertised prices to be higher than its competitors’ displayed prices.’”^[2]

In response, last year, SB 478 (Dodd, Chapter 400, Statutes of 2023) amended the CLRA making it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges. This excluded taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

Addressing implementation concerns. According to the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and certain food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner with a description of its purpose. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections. SB 1524 codifies best practices by restaurants and certain food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making any purchase.

This bill exempts from SB 478 mandatory fees or charges for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service.

To mitigate the impact of this exemption, this bill requires mandatory fees or charges to be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

The federal and state constitutions guarantee equal protection under the law.^[3] Where discrimination is not based on a protected class, however, the classification is upheld so long as “there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.”^[4] The bill’s author explains that the charges being exempted here are unique in the food service industry and therefore warrant different treatment under the law.

The law also clarifies where required disclosures, advertisements, and notices are required to be “clearly and conspicuously” made, as that term is defined.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/24/24)

Lieutenant Governor Eleni Kounalakis (source)
Arrow Up Training

Barra Santos

Bavel restaurant

Bestia

Botanica Restaurant & Market

California Airports Council

California Attractions and Parks Association

California Restaurant Association

California Travel Association

Citrin Hospitality

Golden Gate Restaurant Association

Independent Hospitality Coalition

Jeff Manno Consulting, LLC

Jolie Limited Partnership

Kismet

Kismet Rotisserie

Last Word Hospitality

Saffys

San Diego County Regional Airport Authority

San Francisco International Airport

Sprout LA

State Bird Provisions, LLC

The Anchovy Bar

The Copper Room

The Lucques Group

The Progress

The Red Dog Saloon

Torrance Area Chamber of Commerce

Tri-County Chamber Alliance

UNITE HERE, AFL-CIO

UNITE HERE Local 11

Valley Industry and Commerce Association

Wine Down SF

OPPOSITION: (Verified 6/24/24)

Consumer Federation of California

ARGUMENTS IN SUPPORT: Writing in support, the sponsor of this bill, Lieutenant Governor Eleni Kounalakis states:

In the restaurant industry, questions and concerns have been raised regarding the applicability of SB 478, as many have turned to service fees to cover costs, including benefits to employees. For example, many restaurants have moved away from a tipping model to a service fee model to create greater equity between front- and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge.

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

ARGUMENTS IN OPPOSITION: The Consumer Federation of California writes in opposition:

CFC is sympathetic to the notion of the mandatory tip and how it helps many struggling workers in the always-challenging restaurant industry. In fact, many labor unions actually collectively bargain on such matters, and those negotiations ought to be respected by the Legislature when contemplating the approach taken by this bill. Many a restaurant server has been economically disadvantaged by serving a table of 6, 8 or more diners and losing out on adequate voluntary tips at that table and also by not being able to serve other smaller tables. We urge the Legislature to seriously contemplate the needs of all union workers who may be in the scope of SB 1524 (which we again urge the authors to narrow by clarifying the issue of who is within the scope of “other food service provider[s].”

At the core of last year’s SB 478, much of CFC’s junk and hidden-fee work, and many of the initiatives of the Biden Administration is the simple concept that consumers should know with as much specificity as possible what something will actually cost before they choose whether to buy it or not. This guiding principle of being aggressively open and honest w ith consumers should help narrow the scope of SB 1524.

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

6/26/24 13:53:51

**** END ****

1. Federal Register, Unfair or Deceptive Fees Trade Regulation Rule Commission Matter No. R207011 (November 8, 2022) FTC, https://www.govinfo.gov/content/pkg/FR-2022-11-08/pdf/2022-24326.pdf. Internet citations are current as of June 23, 2024. ↑

2. Ibid. ↑

3. U.S. Const., 14th Amend.; Cal. Const., art. I, § 7(a). ↑

4. Heller v. Doe (1993) 509 U.S. 312, 320. ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 1524 (Author:Dodd)

Version: June 20, 2024

Hearing Date: June 25, 2024

Fiscal: No

Urgency: Yes

Consultant: CK

PURSUANT TO SENATE RULE 29.10(d)

SUBJECT

Consumers Legal Remedies Act: advertisements: restaurant, bar, and other food services

DIGEST

This bill exempts mandatory fees and charges for individual food or beverage items sold directly to a customer by specified entities, but requires such fees to be clearly and conspicuously displayed on any advertisement, menu, or other display of the price.

EXECUTIVE SUMMARY

The issue of “junk” fees and other pricing schemes gained more prominence nationally when President Joe Biden took aim at them in his State of the Union address in February 2023. There are various types of pricing schemes generally deemed unfair or unlawful business practices. When merchants include hidden or “junk” fees in the purchase price of goods and services after putting out a much lower advertised price (“the bait”), consumers are often misled and kept from properly assessing the best prices, thereby hindering the market, especially online.

Last year, SB 478 (Dodd, Ch. 400, Stats. 2023) took aim at such fees and made it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges, except as provided or exempted. Implementation concerns have arisen regarding application of this law to restaurants, bars, and certain food service providers and the various mandatory fees and charges that are used for myriad reasons. This bill addresses those concerns by exempting out such fees and charges and instead requiring them to be clearly and conspicuously disclosed wherever the food or beverage price is listed.

The bill is sponsored by Lieutenant Governor Eleni Kounalakis. It is supported by a variety of groups, including the California Restaurant Association and UNITE HERE. The bill is opposed by the Consumer Federation of California.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the Consumer Legal Remedies Act (CLRA), which prohibits unfair methods of competition and unfair or deceptive acts or practices undertaken in a transaction intended to result or which results in the sale or lease of goods or services to any consumer. (Civ. Code § 1750 et seq.)
2. Provides that any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 of the Civil Code may bring an action against that person to recover or obtain specified damages and other relief. (Civ. Code § 1780(a), (e).)
3. Lists the unfair methods of competition and unfair or deceptive acts or practices that undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer are unlawful. (Civ. Code § 1770(a).)
4. Makes it an unlawful business practice, as of July 1, 2024, to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer. (Civ. Code § 1770(a)(29)(A).)
5. Provides a number of exemptions to the preceding provision and declares various fees and assessments are taxes or fees imposed by a government for purposes of the statute. (Civ. Code § 1770(a)(29).)
6. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Bus. & Prof. Code § 17200 et seq.)

This bill:

1. Exempts from the provision above a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service. This exemption does not apply to a third-party food delivery platform, as defined.
2. Requires the above mandatory fees and charges to be clearly and conspicuously displayed, with an explanation of their purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.
3. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store or distributor to a consumer.
4. Includes severability and urgency clauses.
5. Clarifies that any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined, starting July 1, 2025.

COMMENTS

1. Pricing transparency

Junk fees artificially disrupt the balance of the market, resulting in “significant market misallocations.” “Because in a price-obscuring transaction consumers initiate purchasing decisions without knowing the actual cost, ‘[t]ickets will not necessarily go to the consumers who value them the most.’”^[1]

This troubling practice is particularly well-suited for government regulation as market participants are not best situated to refrain from such pricing practices if competitors are not held to account. The FTC conducted a workshop that “highlighted the inability of market participants to correct this course without intervention.” Case in point: “After a market leader took unilateral action to phase out hidden fees, the platform ‘lost significant market share and abandoned the policy after a year because consumers perceived the platform’s advertised prices to be higher than its competitors’ displayed prices.’”^[2]

In response, SB 478 amended the CLRA making it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges. This excluded taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

1. Addressing concerns

According to the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and certain food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner with a description of its purpose. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections. SB 1524 codifies best practices by restaurants and certain food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making any purchase.

This bill exempts from SB 478 mandatory fees or charges for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service.

To mitigate the impact of this exemption, the bill requires mandatory fees or charges to be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

The federal and state constitutions guarantee equal protection under the law.^[3] Where discrimination is not based on a protected class, however, the classification is upheld so long as “there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.”^[4] The bill’s author explains that the charges being exempted here are unique in the food service industry and therefore warrant different treatment under the law.

The law also clarifies where required disclosures, advertisements, and notices are required to be “clearly and conspicuously” made, as that term is defined.

Writing in support, the sponsor of this bill, Lieutenant Governor Eleni Kounalakis states:

In the restaurant industry, questions and concerns have been raised regarding the applicability of SB 478, as many have turned to service fees to cover costs, including benefits to employees. For example, many restaurants have moved away from a tipping model to a service fee model to create greater equity between front- and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge.

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

The Consumer Federation of California writes in opposition:

CFC is sympathetic to the notion of the mandatory tip and how it helps many struggling workers in the always-challenging restaurant industry. In fact, many labor unions actually collectively bargain on such matters, and those negotiations ought to be respected by the Legislature when contemplating the approach taken by this bill. Many a restaurant server has been economically disadvantaged by serving a table of 6, 8 or more diners and losing out on adequate voluntary tips at that table and also by not being able to serve other smaller tables. We urge the Legislature to seriously contemplate the needs of all union workers who may be in the scope of SB 1524 (which we again urge the authors to narrow by clarifying the issue of who is within the scope of “other food service provider[s].”

At the core of last year’s SB 478, much of CFC’s junk and hidden-fee work, and many of the initiatives of the Biden Administration is the simple concept that consumers should know with as much specificity as possible what something will actually cost before they choose whether to buy it or not. This guiding principle of being aggressively open and honest with consumers should help narrow the scope of SB 1524.

SUPPORT

Lieutenant Governor Eleni Kounalakis (sponsor)
Arrow Up Training

Barra Santos

Bavel restaurant

Bestia

Botanica Restaurant & Market

California Airports Council

California Attractions and Parks Association

California Restaurant Association

California Travel Association

Citrin Hospitality

Golden Gate Restaurant Association

Independent Hospitality Coalition

Jeff Manno Consulting, LLC

Jolie Limited Partnership

Kismet

Kismet Rotisserie

Last Word Hospitality

Saffys

San Diego County Regional Airport Authority

San Francisco International Airport

Sprout LA

State Bird Provisions, LLC

The Anchovy Bar

The Copper Room

The Lucques Group

The Progress

The Red Dog Saloon

Torrance Area Chamber of Commerce

Tri-County Chamber Alliance

UNITE HERE, AFL-CIO

UNITE HERE Local 11

Valley Industry and Commerce Association

Wine Down SF

OPPOSITION

Consumer Federation of California

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

SB 478 (Dodd, Ch. 400, Stats. 2023) See Executive Summary and Comment 1.

SB 537 (Becker, Ch. 805, Stats. 2023) prohibited a place of short-term lodging or an internet website, application, or other similar centralized online platform whereby rental of a place of short-term lodging is advertised or offered from advertising, displaying, or offering a room rate that does not include all required fees or charges, as provided.

AB 1904 (Grayson, Ch. 324, Stats. 2022) required financial service and product providers to clearly disclose in solicitations that the material is an advertisement and to include their name and contact information.

AB 790 (Quirk-Silva, Ch. 589, Stats. 2021) made clear that the Consumer Legal Remedies Act’s prohibition on certain home solicitations of senior citizens applies to Property Assessed Clean Energy (PACE) assessments that are part of a pattern or practice in violation of PACE regulations.

AB 1556 (Friedman, Ch. 180, Stats. 2021) required, for cancelled events, that a refund be made within 30 calendar days of the cancellation; and required a ticket price at any event which is postponed, rescheduled, or replaced with another event at the same date and time be fully refunded to the purchaser by the ticket seller upon request within 30 calendar days of the refund request.

PRIOR VOTES:

Assembly Privacy and Consumer Protection Committee (Ayes 11, Noes 0)

Assembly Judiciary Committee (Ayes 12, Noes 0)

Senate votes are from a prior version of the bill.

Senate Floor (Ayes 37, Noes 0)

Senate Governmental Organization Committee (Ayes 16, Noes 0)

**************

1. Federal Register, Unfair or Deceptive Fees Trade Regulation Rule Commission Matter No. R207011 (November 8, 2022) FTC, https://www.govinfo.gov/content/pkg/FR-2022-11-08/pdf/2022-24326.pdf. Internet citations are current as of June 23, 2024. ↑

2. Ibid. ↑

3. U.S. Const., 14th Amend.; Cal. Const., art. I, § 7(a). ↑

4. Heller v. Doe (1993) 509 U.S. 312, 320. ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 1524 (Author:Dodd)

Version: June 20, 2024

Hearing Date: June 25, 2024

Fiscal: No

Urgency: Yes

Consultant: CK

PURSUANT TO SENATE RULE 29.10(d)

SUBJECT

Consumers Legal Remedies Act: advertisements: restaurant, bar, and other food services

DIGEST

This bill exempts mandatory fees and charges for individual food or beverage items sold directly to a customer by specified entities, but requires such fees to be clearly and conspicuously displayed on any advertisement, menu, or other display of the price.

EXECUTIVE SUMMARY

The issue of “junk” fees and other pricing schemes gained more prominence nationally when President Joe Biden took aim at them in his State of the Union address in February 2023. There are various types of pricing schemes generally deemed unfair or unlawful business practices. When merchants include hidden or “junk” fees in the purchase price of goods and services after putting out a much lower advertised price (“the bait”), consumers are often misled and kept from properly assessing the best prices, thereby hindering the market, especially online.

Last year, SB 478 (Dodd, Ch. 400, Stats. 2023) took aim at such fees and made it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges, except as provided or exempted. Implementation concerns have arisen regarding application of this law to restaurants, bars, and certain food service providers and the various mandatory fees and charges that are used for myriad reasons. This bill addresses those concerns by exempting out such fees and charges and instead requiring them to be clearly and conspicuously disclosed wherever the food or beverage price is listed.

The bill is sponsored by Lieutenant Governor Eleni Kounalakis. It is supported by a variety of groups, including the California Restaurant Association and UNITE HERE. No timely opposition has been received by the Committee.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the Consumer Legal Remedies Act (CLRA), which prohibits unfair methods of competition and unfair or deceptive acts or practices undertaken in a transaction intended to result or which results in the sale or lease of goods or services to any consumer. (Civ. Code § 1750 et seq.)
2. Provides that any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 of the Civil Code may bring an action against that person to recover or obtain specified damages and other relief. (Civ. Code § 1780(a), (e).)
3. Lists the unfair methods of competition and unfair or deceptive acts or practices that undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer are unlawful. (Civ. Code § 1770(a).)
4. Makes it an unlawful business practice, as of July 1, 2024, to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer. (Civ. Code § 1770(a)(29)(A).)
5. Provides a number of exemptions to the preceding provision and declares various fees and assessments are taxes or fees imposed by a government for purposes of the statute. (Civ. Code § 1770(a)(29).)
6. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Bus. & Prof. Code § 17200 et seq.)

This bill:

1. Exempts from the provision above a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service. This exemption does not apply to a third-party food delivery platform, as defined.
2. Requires the above mandatory fees and charges to be clearly and conspicuously displayed, with an explanation of their purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.
3. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store or distributor to a consumer.
4. Includes severability and urgency clauses.
5. Clarifies that any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined, starting July 1, 2025.

COMMENTS

1. Pricing transparency

Junk fees artificially disrupt the balance of the market, resulting in “significant market misallocations.” “Because in a price-obscuring transaction consumers initiate purchasing decisions without knowing the actual cost, ‘[t]ickets will not necessarily go to the consumers who value them the most.’”^[1]

This troubling practice is particularly well-suited for government regulation as market participants are not best situated to refrain from such pricing practices if competitors are not held to account. The FTC conducted a workshop that “highlighted the inability of market participants to correct this course without intervention.” Case in point: “After a market leader took unilateral action to phase out hidden fees, the platform ‘lost significant market share and abandoned the policy after a year because consumers perceived the platform’s advertised prices to be higher than its competitors’ displayed prices.’”^[2]

In response, SB 478 amended the CLRA making it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges. This excluded taxes or fees imposed by a government and postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

1. Addressing concerns

According to the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and certain food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner with a description of its purpose. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections. SB 1524 codifies best practices by restaurants and certain food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making any purchase.

This bill exempts from SB 478 mandatory fees or charges for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service.

To mitigate the impact of this exemption, the bill requires mandatory fees or charges to be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

The federal and state constitutions guarantee equal protection under the law.^[3] Where discrimination is not based on a protected class, however, the classification is upheld so long as “there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.”^[4] The bill’s author explains that the charges being exempted here are unique in the food service industry and therefore warrant different treatment under the law.

The law also clarifies where required disclosures, advertisements, and notices are required to be “clearly and conspicuously” made, as that term is defined.

Writing in support, the sponsor of this bill, Lieutenant Governor Eleni Kounalakis states:

In the restaurant industry, questions and concerns have been raised regarding the applicability of SB 478, as many have turned to service fees to cover costs, including benefits to employees. For example, many restaurants have moved away from a tipping model to a service fee model to create greater equity between front- and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge.

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

SUPPORT

Lieutenant Governor Eleni Kounalakis (sponsor)
Arrow Up Training

Barra Santos

Bavel restaurant

Bestia

Botanica Restaurant & Market

California Airports Council

California Attractions and Parks Association

California Restaurant Association

California Travel Association

Citrin Hospitality

Golden Gate Restaurant Association

Independent Hospitality Coalition

Jeff Manno Consulting, LLC

Jolie Limited Partnership

Kismet

Kismet Rotisserie

Last Word Hospitality

Saffys

San Diego County Regional Airport Authority

San Francisco International Airport

Sprout LA

State Bird Provisions, LLC

The Anchovy Bar

The Copper Room

The Lucques Group

The Progress

The Red Dog Saloon

Torrance Area Chamber of Commerce

Tri-County Chamber Alliance

UNITE HERE, AFL-CIO

UNITE HERE Local 11

Valley Industry and Commerce Association

Wine Down SF

OPPOSITION

None received

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

SB 478 (Dodd, Ch. 400, Stats. 2023) See Executive Summary and Comment 1.

SB 537 (Becker, Ch. 805, Stats. 2023) prohibited a place of short-term lodging or an internet website, application, or other similar centralized online platform whereby rental of a place of short-term lodging is advertised or offered from advertising, displaying, or offering a room rate that does not include all required fees or charges, as provided.

AB 1904 (Grayson, Ch. 324, Stats. 2022) required financial service and product providers to clearly disclose in solicitations that the material is an advertisement and to include their name and contact information.

AB 790 (Quirk-Silva, Ch. 589, Stats. 2021) made clear that the Consumer Legal Remedies Act’s prohibition on certain home solicitations of senior citizens applies to Property Assessed Clean Energy (PACE) assessments that are part of a pattern or practice in violation of PACE regulations.

AB 1556 (Friedman, Ch. 180, Stats. 2021) required, for cancelled events, that a refund be made within 30 calendar days of the cancellation; and required a ticket price at any event which is postponed, rescheduled, or replaced with another event at the same date and time be fully refunded to the purchaser by the ticket seller upon request within 30 calendar days of the refund request.

PRIOR VOTES:

Assembly Privacy and Consumer Protection Committee (Ayes 11, Noes 0)

Assembly Judiciary Committee (Ayes 12, Noes 0)

Senate votes are from a prior version of the bill.

Senate Floor (Ayes 37, Noes 0)

Senate Governmental Organization Committee (Ayes 16, Noes 0)

**************

1. Federal Register, Unfair or Deceptive Fees Trade Regulation Rule Commission Matter No. R207011 (November 8, 2022) FTC, https://www.govinfo.gov/content/pkg/FR-2022-11-08/pdf/2022-24326.pdf. Internet citations are current as of June 23, 2024. ↑

2. Ibid. ↑

3. U.S. Const., 14th Amend.; Cal. Const., art. I, § 7(a). ↑

4. Heller v. Doe (1993) 509 U.S. 312, 320. ↑

(Without Reference to File)

SENATE THIRD READING

STR Bill Id:SB 1524

Author:(Dodd and Wiener)

As Amended Ver:June 20, 2024

2/3 vote. Urgency

SUMMARY

Clarifies that a mandatory fee or charge imposed by restaurants and certain food service providers do not need to be included in the advertised "all-in" price, provided that any such mandatory fee or charge is clearly and conspicuously displayed.

Major Provisions

1. Clarifies that the prohibition on advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges does not apply to restaurants, bars, and other food service providers, as provided.
2. Establishes that 1), above, applies provided that a mandatory fee or charge is clearly and conspicuously displayed with an explanation of its purpose.
3. Establishes that 1), above, applies provided that the clear and conspicuous display of a mandatory fee or charge appears on any advertisement, menu, or other display that contains the price of the food or beverage item.
4. Provides that 1), above, applies only to individual food or beverage items sold directly to a customer by a restaurant, bar, concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering service that fully discloses the terms of service.
5. Defines "grocery delivery service" as a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer.
6. Clarifies that a third-party food delivery platform, as defined, or food delivery platform is not a grocery delivery service, and therefore falls outside the scope of this measure.
7. Establishes that any disclosure, advertisement, or notice that is required to be "clearly and conspicuously" made must have text that is "clear and conspicuous," as defined.
8. Provides for delayed implementation of 7), above, until July 1, 2025.
9. Establishes that the provisions of the Consumer Legal Remedies Act (CLRA) are severable.
10. Provides that in order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.
11. Adopts an urgency clause.

COMMENTS

Last year, the Legislature passed landmark legislation to specifically confront the deceptive advertising practice in which a seller uses an artificially low headline price to attract a customer and only discloses additional required fees in smaller print, or reveals additional charges later in the buying process. That measure, which is scheduled to go into effect on July 1, adds to the Consumer Legal Remedies Act's long list of unfair or deceptive acts, the "advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction." SB 478, (Dodd), Chapter 400, Statutes of 2023.

SB 478, according to the bill's author (who is also authoring this measure), was intended to "address the bait and switch advertising practice where 'drip pricing' or 'hidden fees' are not advertised to a consumer before they purchase any goods or services and instead, are revealed later in the transaction or upon receiving a final bill."

It was not intended, however, according to the author, to harm workers "in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry." This measure seeks to address that unintended consequence by exempting bars, restaurants, and certain food providers from including fees and charges specifically targeted at helping workers from its "all-in" price advertisement mandate, provided that any fees and charges are "clearly and conspicuously disclosed" to the consumer.

The measure aims to further the goals of SB 478 and enhance consumer protection, by requiring that certain food providers disclose full and complete information about what additional mandatory charges are being charged—and an explanation of their purpose—any time the price is disclosed to the customer.

This bill clarifies that SB 478's mandate to disclose all mandatory fees and charges when advertising a price for a good or service does not apply to the sale of individual food or beverage items by "a restaurant, bar, or other food service providers or sold pursuant to a contract for banquet or catering services," provided that such fees are clearly and conspicuously disclosed. Specifically, this measure clarifies who and what is covered, and provides a specific framework for compliance as follows:

1. A restaurant, bar, food concession, grocery store, grocery delivery service, or caterer that sells individual food or beverage items directly to a consumer does not need to include a mandatory fee or charge in their "all-in" advertised price. (The bill specifies the categories of food providers that fall within its scope; third-party food delivery platforms, such as DoorDash and UberEats, for example, are expressly excluded, and therefore must include all mandatory fees or charges in their "all-in" pricing, pursuant to SB 478.)
2. But, restaurants, etc. must disclose any mandatory fee or charge anywhere they disclose a price for a given item. (So for example, if a menu item is advertised for $20, and the restaurant adds any additional healthcare fees, service charges, etc, those do not need to be included in the $20 price, but must be disclosed anywhere the $20 item is displayed).
3. The mandatory fee or charge must include an explanation of its purpose, and must be clearly and conspicuously disclosed. (The text of the additional fee or charge must be in larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size.)

The author and sponsors of this bill explain the need for this measure by pointing to the recent changes in the restaurant industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge, which disclose the purpose of the charge. Other union-bargained benefits, such as pension and other health and welfare benefits, are often included in these charges.

This measure is intended to preserve these bargained-for benefits, especially at a time when many restaurants are still struggling to survive the aftermath of the COVID-19 pandemic and changing work patterns in high-cost urban centers. SB 1524 balances that interest with consumer protection, by establishing mandates that any such additional fees—and their purpose—are clearly disclosed any time the price for an item appears. In other words, any mandatory fees or charges must also appear on the menu, not just on the receipt after the customer has already incurred the charges.

According to the Author

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional "hidden fees" during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. In addition to automatic gratuities, unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections.SB 1524 codifies best practices by restaurants and other food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making their purchase.

Arguments in Support

The Office of the Lieutenant Governor, a co-sponsor of this measure, explains the need for this bill:

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

Another co-sponsor of this measure, the California Restaurants Association, explains that SB 1524 brings clarity on how certain food service establishments and restaurants must communicate their pricing models to guests prior to any purchase:

SB 1524 builds upon SB 478 from 2023 which was aimed at preventing "drip pricing," where consumers see an advertised price, but are subject to additional, undisclosed charges at purchase.

SB 1524 requires restaurants and other food service establishments to properly disclose to guests any service charges, surcharges, auto-gratuities and other similar charges in advance of customer purchase.

Additionally, SB 1524 provides strong protections against "drip" or "bait and switch" pricing by requiring restaurants to clearly disclose the existence or amount of a mandatory service charge, auto-gratuity, or surcharge on the menu. This transparency in pricing allows guests to be presented with the price of various menu items and the amount of the surcharge at the same point in time, when they are deciding what to order, and before they are charged for the meal.

Finally, SB 1524 acknowledges the increasing trend among restaurants to establish and disclose "service charge" models to help finance non-mandatory benefits to team-members and staff. For example, in recent years many restaurants have shifted to a service fee model giving the establishment greater ability to disburse those dollars to create greater equity between front and back-of-the-house employees.

Without SB 1524- and its required disclosure to guests ahead of purchase- a host of unintended consequences for restaurant operators, patrons, and workers will rapidly take place.

Arguments in Opposition

The Consumer Federation of California (CFC), which supported SB 478, is opposed unless amended to this measure:

Consumers deserve to know up front what something will truly cost, be it a concert or sporting ticket, rental housing, new or used vehicle, rental car, hotel room or house rental, account with a credit union or bank, mobile phone plan, cable or streaming service, and a restaurant meal or takeout delivery. Almost all of these industries were included in the scope of SB 478 (auto dealers and car rentals were two of the exclusions that CFC finds lamentable. Simply put, there is no justifiable public policy reason why the restaurant industry should be excluded from the new law that hasn't even fully gone into effect yet.

CFC must note that what is currently happening in the restaurant industry generally is infuriating consumers of all income levels, but particularly those of low and moderate incomes. Many mandatory fees are actually misleadingly labeled to create the false impression in the consumer's mind that some or all of these fees are actually government pass-throughs when they are not, or fees that will help the workers at the restaurant, when their either do not at all or only a small percentage of said fee helps the workers. This directly leads to two outcomes - first the consumer gets frustrated and then leaves a smaller optional tip, which hurts employees (especially in the context of consumer frustration with now being asked to tip for products and services that never previously seemed to warrant a tip), and then the consumer converts this frustration upon seeing the bill by choosing not to dine in the future at that particular establishment. Neither outcome is good for consumers or workers.

FISCAL COMMENTS

None.

VOTES

SENATE FLOOR: 37-0-3

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Newman, Nguyen, Niello, Ochoa Bogh, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Grove, Min, Padilla

ASM PRIVACY AND CONSUMER PROTECTION: 11-0-0

YES: Bauer-Kahan, Joe Patterson, Bryan, Dixon, Hoover, Irwin, Lowenthal, Ortega, Ward, Wicks, Wilson

ASM JUDICIARY: 12-0-0

YES: Kalra, Dixon, Bauer-Kahan, Bryan, Connolly, Haney, Maienschein, McKinnor, Pacheco, Joe Patterson, Reyes, Sanchez

UPDATED

VERSION: June 20, 2024

CONSULTANT: Shiran Zohar / JUD. / (916) 319-2334 FN: 0003566

Date of Hearing: June 18, 2024

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

SBPCA Bill Id:SB 1524

Author:(Dodd) – As Amended Ver:June 5, 2024

As Proposed to be Amended

SENATE VOTE: Not relevant

SUBJECT: Consumers Legal Remedies Act: advertisements: restaurant, bar, food service provider, or banquet or catering services

KEY ISSUE: SHOULD THE PROHIBITION ON ADVERTISING THE PRICE OF A GOOD OR SERVICE THAT DOES NOT INCLUDE ALL MANDATORY FEES AND CHARGES BE CLARIFIED SO THAT MANDATORY FEES OR CHARGES IMPOSED BY A BAR, RESTAURANT OR CERTAIN FOOD SERVICE PROVIDERS ARE EXCLUDED, PROVIDED THAT THAT THEY ARE “CLEARLY AND CONSPICIOUSLY” DISPLAYED?

SYNOPSIS

Last year, the Legislature passed landmark legislation to specifically confront the deceptive advertising practice in which a seller uses an artificially low headline price to attract a customer and only discloses additional required fees in smaller print, or reveals additional charges later in the buying process. That measure, which is scheduled to go into effect on July 1, adds to the Consumer Legal Remedies Act’s (CLRA) long list of unfair or deceptive acts, the “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction.” (SB 478, Dodd, Chap. 400, Stats. 2023.) As explained by the author, “questions have been raised about potential unintended consequences of the transparency requirements in this law on food service workers and industry. Questions have also been raised as to whether the advertising requirements in SB 478 apply to restaurant menus altogether.” The author brings SB 1524 to answer those questions.

As proposed to be amended, mandatory fees or charges for individual food or beverage items sold directly to a customer in a restaurant or bar do not need to be included in the “all-in” advertised price required by SB 478, provided that such a fee—with an explanation of its purpose—is clearly and conspicuously disclosed on any advertisement, menu, or other display that contains the price of the food or beverage item. The author’s proposed amendments, which are discussed throughout the analysis and reflected in the SUMMARY, clarifies who and what is covered, and provides a specific framework for compliance.

This bill is co-sponsored by the Office of the Lieutenant Governor, the California Restaurant Association, and UNITE Here. It is supported by a broad coalition of restaurants and hospitality associations. SEIU and UFCW support the bill, if amended, and their concerns appear to have been mostly resolved by the author’s proposed amendments. The Consumer Federation of California is opposed, unless amended, to the bill in print, and many of their concerns also appear to have been addressed by the proposed amendments. In the event of its successful passage out of this Committee, SB 1524 will be immediately heard by the Committee on Privacy and Consumer Protection (on the same day it is heard by this Committee). To accommodate this tight schedule, the amendments described here will be processed in the next committee. In order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, the bill, as proposed to be amended, will take effect immediately.

SUMMARY: Clarifies that a mandatory fee or charge imposed by restaurants and certain food service providers do not need to be included in the advertised “all-in” price, provided that any such mandatory fee or charge is clearly and conspicuously displayed. Specifically, this bill:

1. Clarifies that the prohibition on advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges does not apply to restaurants, bars, and other food service providers, as provided.
2. Establishes that 1) applies provided that a mandatory fee or charge is clearly and conspicuously displayed with an explanation of its purpose.
3. Establishes that 1) applies provided that the clear and conspicuous display of a mandatory fee or charge appears on any advertisement, menu, or other display that contains the price of the food or beverage item.
4. Provides that 1) applies only to individual food or beverage items sold directly to a customer by a restaurant, bar, concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering service that fully discloses the terms of service.
5. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer.
6. Clarifies that a third-party food delivery platform, as defined, or food delivery platform is not a grocery delivery service, and therefore falls outside the scope of this measure.
7. Establishes that any disclosure, advertisement, or notice that is required to be “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined.
8. Provides for delayed implementation of 7) until July 1, 2025.
9. Establishes that the provisions of the CLRA are severable.
10. Provides that in order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

EXISTING LAW:

1. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Business and Professions Code Section 17200 et seq.)
2. Establishes the False Advertising Law (FAL), which proscribes making or disseminating any statement that is known or should be known to be untrue or misleading with the intent to directly or indirectly dispose of real or personal property. (Business and Professions Code Section 17500 et seq.)
3. Establishes the Consumers Legal Remedies Act (CLRA), which proscribes certain unfair methods of competition and certain unfair or deceptive acts or practices undertaken by a person in a transaction intended to result or that results in the sale or lease of goods or services to a consumer, including advertising goods or services with intent not to sell them as advertised. (Civil Code Section 1770 et seq.)
4. Defines “goods” as “tangible chattels bought or leased for use primarily for personal, family, or household purposes, including certificates or coupons exchangeable for these goods, and including goods that, at the time of the sale or subsequently, are to be so affixed to real property as to become a part of real property, whether or not they are severable from the real property.” (Civil Code Section 1761 (a).)
5. Defines “services” as work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods. (Civil Code Section 1761 (b).)
6. Prohibits, commencing July 1, 2024, the advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges, as provided. (Civil Code Section 1770 (a)(29).) 
7. Defines “third-party food delivery platform” as a business engaged in the service of online food ordering and delivery from a food facility to a consumer. (Health and Safety Code Section 113930.5.)
8. Defines “clear and conspicuous” as a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. (Civil Code Section 1791 (u).)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: Last year, the Legislature passed landmark legislation to specifically confront the deceptive advertising practice in which a seller uses an artificially low headline price to attract a customer and only discloses additional required fees in smaller print, or reveals additional charges later in the buying process. That measure, which is scheduled to go into effect on July 1, adds to the Consumer Legal Remedies Act’s long list of unfair or deceptive acts, the “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction.” (SB 478, Dodd, Chap. 400, Stats. 2023.)

Why is this bill necessary? SB 478, according to the bill’s author (who is also authoring this measure), was intended to “address the bait and switch advertising practice where ‘drip pricing’ or ‘hidden fees’ are not advertised to a consumer before they purchase any goods or services and instead, are revealed later in the transaction or upon receiving a final bill.”

It was not intended, however, according to the author, to harm workers “in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry.” This measure seeks to address that unintended consequence by exempting bars, restaurants and certain food providers from including fees and charges specifically targeted at helping workers from its “all-in” price advertisement mandate, provided that any fees and charges are “clearly and conspicuously disclosed” to the consumer.

This measure aims to further the goals of SB 478 and enhance consumer protection, by requiring that certain food providers disclose full and complete information about what additional mandatory charges are being charged—and an explanation of their purpose—any time the price is disclosed to the customer.

As explained by the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. In addition to automatic gratuities, unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections.SB 1524 codifies best practices by restaurants and other food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making their purchase.

What does this bill do? The bill in print establishes that SB 478’s mandate to disclose all mandatory fees and charges when advertising a price for a good or service does not apply to the sale of individual food or beverage items by “a restaurant, bar, or other food service providers or sold pursuant to a contract for banquet or catering services,” provided that such fees are clearly and conspicuously disclosed. As proposed to be amended, the measure clarifies who and what is covered, and provides a specific framework for compliance:

1. A restaurant, bar, food concession, grocery store, grocery delivery service or caterer that sells individual food or beverage items directly to a consumer does not need to include a mandatory fee or charge in their “all-in” advertised price. (The bill specifies the categories of food providers that fall within its scope; third-party food delivery platforms, such as DoorDash and UberEats, for example, are expressly excluded, and therefore must include all mandatory fees or charges in their “all-in” pricing, pursuant to SB 478.)
2. But, restaurants, etc. must disclose any mandatory fee or charge anywhere they disclose a price for a given item. (So for example, if a menu item is advertised for $20, and the restaurant adds any additional healthcare fees, service charges, etc, those do not need to be included in the $20 price, but must be disclosed anywhere the $20 item is displayed).
3. The mandatory fee or charge must include an explanation of its purpose, and must be clearly and conspicuously disclosed. (The text of the additional fee or charge must be in larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size.)

Why shouldn’t mandatory fees or charges by restaurants be included in the advertised all-in price? The author and sponsors of this bill explain the need for this measure by pointing to the recent changes in the restaurant industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge, which disclose the purpose of the charge. Other union-bargained benefits, such as pension and other health and welfare benefits, are often included in these charges.

This measure is intended to preserve these bargained-for benefits, especially at a time when many restaurants are still struggling to survive the aftermath of the COVID-19 pandemic and changing work patterns in high-cost urban centers. SB 1524 balances that interest with consumer protection, by establishing mandates that any such additional fees—and their purpose—are clearly disclosed any time the price for an item appears. In other words, any mandatory fees or charges must also appear on the menu, not just on the receipt after the customer has already incurred the charges.

Author’s amendments. The author has taken several amendments to clarify the scope and intent of the measure, and establish clear guidelines for compliance.

Section 1770(a)(29)(D)(i) 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  Subject to (ii), this paragraph does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, or other food service provider, concession, grocery store, grocery delivery service, or sold pursuant to a by means of a menu or contract for banquet or catering services that fully discloses the terms of service. ,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.

(ii) A mandatory fee or charge under subparagraph (i) shall be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

(iii) “Grocery delivery service” means a company owned by, or under contract with, a grocery store or distributor that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store or distributor to a consumer.

(iv) The exemption in this subparagraph does not apply to a “third-party food delivery platform,” as defined in Health and Safety Code Section 113930.5 or any other food delivery platform.

Additional amendments clarify the meaning of “clear and conspicuous” disclosure. Recognizing the time it will take for all restaurants and food providers that fall within the scope of this bill to update their menus and displays to conform with the text and font requirements cross-referenced in this bill, the “clear and conspicuous” definition, for purposes of this measure, will only go into effect next year, on July 1, 2025.

1770(c) As of July 1, 2025, any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous” as defined in subdivision (u) of Section 1791 of the Civil Code.

(c) (d)This section shall become operative on July 1, 2024.

Further amendments add uncodified severability and urgency clauses to the bill, and delete intent language in the bill in print.

SEC. 2. The changes made in subparagraph (D) of paragraph (29) of subdivision (a) of Section 1770 of the Civil Code in Section 1 of this act are intended to clarify, and do not constitute a change in, existing law.

SEC. 2. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 3. In order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

ARGUMENTS IN SUPPORT: The Office of the Lieutenant Governor, a co-sponsor of this measure, explains the need for this bill:

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

Another co-sponsor of this measure, the California Restaurants Association, explains that SB 1524 brings clarity on how certain food service establishments and restaurants must communicate their pricing models to guests prior to any purchase:

SB 1524 builds upon SB 478 from 2023 which was aimed at preventing “drip pricing,” where consumers see an advertised price, but are subject to additional, undisclosed charges at purchase.

SB 1524 requires restaurants and other food service establishments to properly disclose to guests any service charges, surcharges, auto-gratuities and other similar charges in advance of customer purchase.

Additionally, SB 1524 provides strong protections against “drip” or “bait and switch” pricing by requiring restaurants to clearly disclose the existence or amount of a mandatory service charge, auto-gratuity, or surcharge on the menu. This transparency in pricing allows guests to be presented with the price of various menu items and the amount of the surcharge at the same point in time, when they are deciding what to order, and before they are charged for the meal.

Finally, SB 1524 acknowledges the increasing trend among restaurants to establish and disclose “service charge” models to help finance non-mandatory benefits to team-members and staff. For example, in recent years many restaurants have shifted to a service fee model giving the establishment greater ability to disburse those dollars to create greater equity between front and back-of-the-house employees.

Without SB 1524- and its required disclosure to guests ahead of purchase- a host of unintended consequences for restaurant operators, patrons, and workers will rapidly take place.

ARGUMENTS IN OPPOSITION: The Consumer Federation of California (CFC), which supported SB 478, opposes the bill in print for several reasons, many of which appear to have been addressed by the author’s proposed amendments. It is unclear whether the proposed amendments resolve all of their concerns, including the broader issue CFC identifies with this measure:

Consumers deserve to know up front what something will truly cost, be it a concert or sporting ticket, rental housing, new or used vehicle, rental car, hotel room or house rental, account with a credit union or bank, mobile phone plan, cable or streaming service, and a restaurant meal or takeout delivery. Almost all of these industries were included in the scope of SB 478 (auto dealers and car rentals were two of the exclusions that CFC finds lamentable. Simply put, there is no justifiable public policy reason why the restaurant industry should be excluded from the new law that hasn’t even fully gone into effect yet.

…

CFC must note that what is currently happening in the restaurant industry generally is infuriating consumers of all income levels, but particularly those of low and moderate incomes. Many mandatory fees are actually misleadingly labeled to create the false impression in the consumer’s mind that some or all of these fees are actually government pass-throughs when they are not, or fees that will help the workers at the restaurant, when their either do not at all or only a small percentage of said fee helps the workers. This directly leads to two outcomes - first the consumer gets frustrated and then leaves a smaller optional tip, which hurts employees (especially in the context of consumer frustration with now being asked to tip for products and services that never previously seemed to warrant a tip), and then the consumer converts this frustration upon seeing the bill by choosing not to dine in the future at that particular establishment. Neither outcome is good for consumers or workers.

REGISTERED SUPPORT / OPPOSITION:

Support

Support If Amended (to the bill in print)

Opposition Unless Amended (to the bill in print)

Consumer Federation of California

Analysis Prepared by: Shiran Zohar / JUD. / (916) 319-2334

Date of Hearing: June 18, 2024

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Rebecca Bauer-Kahan, Chair

SBPCA Bill Id:SB 1524

Author:(Dodd) – As Amended Ver:June 5, 2024

AS PROPOSED TO BE AMENDED

SENATE VOTE: Not relevant

SUBJECT: Consumers Legal Remedies Act: advertisements: restaurant, bar, food service provider, or banquet or catering services

SYNOPSIS

Last year, the Legislature enacted SB 478 (Dodd; Ch.400, Stats. 2023) to address the scourge of “junk fees”—unexpected fees or surprise charges in transactions for good and services—by making it explicitly unlawful under the state’s Consumers Legal Remedies Act to advertise, display, or offer a price for a good or service unless that price includes all mandatory fees or charges. SB 478’s “all-in” pricing requirements become operative July 1, 2024.

While the discussion regarding SB 478 centered on hidden costs in transactions for hotels, air travel, car rentals, telecoms, and tickets for live events, the bill was cast broadly to apply across the various sectors of the economy. Nevertheless, it came as a surprise to many when the Attorney General, who co-sponsored the bill, issued guidance that, among other things, concluded that mandatory fees charged by restaurants are subject to pricing transparency under SB 478.

The author of both this bill and its predecessor states that SB 478 “sought to address bait and switch practices in which a business advertising a lower price only to add additional ‘hidden fees’ during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry.”

This bill would exempt from SB 478’s all-in pricing requirements mandatory fees or charges for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service. Such mandatory fees must be clearly and conspicuously displayed, with an explanation of its purposes, on any advertisement, menu, or other display that contains the price of the food or beverage item.

To enact this change before SB 478’s July 1 operative date, the bill includes an urgency clause and is being expedited through the process: it is set to be heard in Assembly Judiciary immediately before it is heard in this Committee. Due to timing constraints, the amendments that are anticipated to be taken in the Assembly Judiciary Committee will be processed in this Committee. The amendments are set forth in full in Comment 6.

The bill is co-sponsored by the Office of the Lieutenant Governor, the California Restaurant Association, and UNITE Here. The bill is supported by a broad coalition of restaurants and hospitality associations. The Consumer Federation of California opposes the bill.

SUMMARY: Provides that a mandatory fee or charge imposed by restaurants and certain food service providers do not need to be included in the advertised “all-in” price, provided that any such mandatory fee or charge is clearly and conspicuously displayed. Specifically, this bill:

1. Provides that the prohibition on advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges does not apply to restaurants, bars, and other food service providers, as provided.
2. Establishes that 1) applies provided that a mandatory fee or charge is clearly and conspicuously displayed with an explanation of its purpose.
3. Establishes that 1) applies provided that the clear and conspicuous display of a mandatory fee or charge appears on any advertisement, menu, or other display that contains the price of the food or beverage item.
4. Provides that 1) applies only to individual food or beverage items sold directly to a customer by a restaurant, bar, concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering service that fully discloses the terms of service.
5. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer.
6. States that a third-party food delivery platform, as defined, or food delivery platform is not a grocery delivery service, and therefore falls outside the scope of this measure.
7. Establishes that any disclosure, advertisement, or notice that is required to be “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined.
8. Provides for delayed implementation of 7) until July 1, 2025.
9. Establishes that the provisions of the Consumers Legal Remedies Act (CLRA) are severable.
10. Provides that in order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

EXISTING LAW:

1. Establishes CLRA, which prohibits certain enumerated unfair methods of competition, and unfair or deceptive acts or practices, in connection with a transaction intended to result, or that does result, in the sale or lease of goods or services. (Civil Code §§ 1750-1784.)^[1]
2. Defines the following terms under the CLRA:
   1. “Goods” means tangible chattels bought or leased for use primarily for personal, family, or household purposes. (§ 1761(a).)
   2. “Services” means work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods. (§ 1761(b).)
3. Provides that the CLRA’s underlying purposes are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection. (§ 1760.)
4. Provides that any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful under CLRA may bring an action against that person to recover or obtain any of the following:
   1. Actual damages, but in no case shall the total award of damages in a class action be less than $1,000.
   2. An order enjoining the methods, acts, or practices.
   3. Restitution of property.
   4. Punitive damages.
   5. Any other relief that the court deems proper. (§ 1780(a).)
5. Beginning July 1, 2024, prohibits advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than either of the following:
   1. Taxes or fees imposed by a government on the transaction.
   2. Postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer. (§ 1770(a)(29).)
6. Defines “clear and conspicuous” as a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. (§ 1791(u).)
7. Defines “third-party food delivery platform” as a business engaged in the service of online food ordering and delivery from a food facility to a consumer.

FISCAL EFFECT: As currently in print, this bill is keyed nonfiscal.

COMMENTS:

1) Background. The underlying purpose of the CLRA is “to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.”^[2] The CLRA “shall be liberally construed and applied to promote its underlying purpose.”^[3] Section 1770 lists unlawful practices under the CLRA.^[4] For example, “[a]dvertising goods or services with intent not to sell them as advertised” is an unlawful practice.^[5] Also, “[a]dvertising that a product is being offered at a specific price plus a specific percentage of that price unless (A) the total price is set forth in the advertisement . . . in a size larger than any other price in that advertisement” is an unlawful practice.^[6]

SB 478 (Dodd, 2023). Co-sponsored by Attorney General Rob Bonta and the California Low-Income Consumer Coalition, SB 478 added “junk fees” to CLRA’s list of unlawful practices. Beginning July 1, 2024, CLRA will prohibit “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges” except for government taxes, fees, and shipping costs.^[7] SB 478 was “intended to specifically prohibit drip pricing, which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service.” SB 478 does not prohibit any particular method of determining pricing; rather it “is intended to regulate how prices are advertised, displayed, or offered.”

Mandatory fees charged at restaurants. Many restaurants charge additional fees on top of the bill in order to benefit their workers. Such charges include automatic gratuities, fees to supplement healthcare coverage, and other benefits. Some restaurants are moving away from the tradition of tipping and are instead imposing service charges that are pooled and distributed equitably between servers and kitchen workers.^[8]

Other types of mandatory charges do not directly benefit workers but instead offset the cost of doing business, such as “security charges,”^[9] fees to cover inflation, credit card transactions, or even tap water.^[10] These types of fees have generated more backlash from consumers.

Attorney General’s Guidance. On May 8, 2024, the Attorney General’s office released a list of frequently asked questions to give guidance on the enforcement of SB 478. To the surprise and consternation of some, the guidance expressly concludes that the food service industry is covered by SB 478. Relevant here:

How can a food-delivery platform advertise its delivery price?

Food delivery platforms are subject to special requirements under Business and Professions Code section 22598 et seq. when they list the prices charged by a restaurant from which they deliver food, and this law does not change those requirements. But when the food delivery platform advertises the price of the delivery service that it provides, it must advertise the full, all-in price of the delivery service.

Are fees associated with delivery of food and other items ordered directly from a restaurant considered to be “mandatory fees or charges,” such that those fees would need to be included in the advertised or displayed price of the food and other items?

No, fees for the delivery of food ordered directly from a restaurant do not need to be included in the advertised price of the food or other items ordered because those fees are for the separate service of delivery. The price of delivery must be the full, all-in price of the delivery service.

Can a business exclude from the advertised or listed price mandatory charges that will be used to pay business costs, such as security, rent, or salary, healthcare insurance or benefits to employees (e.g., “Healthy SF mandate”)?

No. The listed or advertised price must include all mandatory charges except for reasonable shipping costs for physical goods and taxes and/or fees that the government imposes on the transaction, such as sales tax. A business is free to provide a subsequent breakdown of the business’s intended use of the various fees.

What about tips or gratuities left voluntarily by customers?

This law does not affect tips or gratuities left by customers, since they are not mandatory. These voluntary payments to workers are governed by other laws, including Labor Code section 350. [. . .]

What about mandatory fees charged by restaurants?

If a restaurant charges a mandatory fee, it must be included in the displayed price. Under the law, a restaurant cannot charge an additional surcharge on top of the price listed. Gratuity payments that are not voluntary must be included in the list price.

Does DOJ expect that its initial enforcement of this law will focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity?

No. There are many factors that we consider when making enforcement decisions, but we do not expect that our initial enforcement efforts will focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity. However, businesses may be liable in private actions.^[11]

2) Author’s statement. According to the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner. SB 478 (Dodd; Ch. 400, Stat. 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. In addition to automatic gratuities, unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections. SB 1524 codifies best practices by restaurants and other food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making their purchase.

3) SB 478 applies to restaurants. If a court finds statutory language unambiguous, “then the Legislature is presumed to have meant what it said, and the plain meaning of the language governs.”^[12]

A handful of California trial court and Federal District Court cases that predate SB 478 have concluded that menus do not constitute “advertising” under CLRA. Although these cases are not binding precedents in California, their reasoning is persuasive. A menu differs from a traditional advertisement in a number of ways: “Restaurant menus are not public announcements which are published or disseminated to the general public in an effort to arouse a desire to buy or patronize; rather, they are lists of offerings of items available at a restaurant.”^[13] Less persuasive, however, is a trial court case that concluded a “taco” is not a “good” for purposes of CLRA.^[14] The CLRA defines “goods,” in relevant part, as “tangible chattels bought or leased for use primarily for personal, family, or household purposes.”^[15] Black’s Law Dictionary, in turn, defines “chattel” as “personal property; esp. a physical object capable of manual delivery and not the subject matter of real property.” Black’s cites to a legal dictionary from 1690 that offered as an example of a “real” chattel “Apples upon a Tree.”^[16] Still, although not entirely settled, it appears that, pre-SB 478, restaurant mandatory charges generally were not understood to fall under CLRA.

But SB 478 applies not just to advertising but also to “displaying” and “offering a price” for any “good or service,” terms that readily embrace menus, which, according to one of the cases discussed above, are “lists of offerings of items available at a restaurant.” Thus, SB 478 plainly encompasses the food services industry and menus. In this regard, the CLRA “shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.”^[17]

The legislative history of SB 478 bolsters this conclusion. This Committee’s analysis stated that “the bill would seek to bring price transparency to all sectors of the state’s economy simultaneously, rather than through piecemeal litigation or lawmaking.” (Emphasis added.) The author’s statement quoted in the analysis stated SB 478 would “require honest price advertising and full disclosure in pricing across the board for the protection of California consumers and businesses who are up-front about their prices.” (Emphasis added.) Attorney General Bonta’s sponsorship letter, also quoted in this Committee’s analysis, stated “the practice of hiding required fees is deceptive and unfair to consumers wherever it occurs—not just in certain industries. Accordingly, SB 478 would prohibit this deceptive advertising practice across the board in California, and allow broad civil enforcement of violations under the CLRA.” (Emphasis added.) More to the point, the Senate Judiciary Committee’s analysis of the bill quoted Attorney General Bonta’s argument that “Hidden required fees are now charged for a variety of goods and services, such as lodging, tickets for live events, restaurants and food delivery, telecom and internet service, and car rentals and purchases. . . .” (Emphasis added.)

Despite the fact that the bill was cast broadly to apply economy-wide, however, discussions of SB 478 centered on hidden costs in transactions for hotels, air travel, car rentals, telecoms, and tickets for live events. Given that some case law indicated CLRA does not apply in to restaurants, it is understandable that the Attorney General’s guidance, though correct, caught the restaurant industry by surprise.

4) What this bill does. This bill would exempt from SB 478’s all-in pricing requirements mandatory fees or charges for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service. Such mandatory fees must be clearly and conspicuously displayed, with an explanation of its purposes, on any advertisement, menu, or other display that contains the price of the food or beverage item. The bill would go into effect immediately as an urgency measure. Proponents hope to send the bill to the Governor before SB 478’s looming operative date of July 1.

Absent such a change, SB 478, as applied to restaurants, would require prices listed in menus, advertisements, and displays to include all costs charged by the restaurant. Instead of listing a price of, say, $25 for spaghetti and adding a 10% mandatory gratuity on the final bill, the restaurant would have to list the price of the spaghetti as $27.50. “Some restaurant owners said raising menu prices that way without providing the context could hurt their business. And if they dropped the charges without raising listed prices, in an effort to stay competitive, that would mean reducing their already slim profit margins, or even laying off staff …”^[18] However, nothing in SB 478 prohibits the restaurant from providing context: the $27.50 price could be accompanied by a footnote stating that 10% of the cost of the dish goes to workers.

5) Equal protection considerations. The federal and state constitutions guarantee equal protection under the law.^[19] Where discrimination is not based on a protected class, however, the classification is upheld so long as “there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.”^[20] “[E]conomic protectionism for its own sake, regardless of its relation to the common good, cannot be said to be in furtherance of a legitimate governmental interest.”^[21]

The restaurant industry is arguably unique in that it has traditionally added service charges to base prices in a way that aligns with consumer expectations. As a notoriously low-margin industry, an apparent sudden spike in menu prices could, in theory, make consumers mistakenly believe that the overall prices have shot up, which could lead to layoffs and even closures. Preventing such a result would serve a common good beyond economic protectionism.

As amended by the Judiciary Committee, the bill contains a severability clause so as to avoid jeopardizing the larger scheme established by SB 478.

6) Amendments taken in the Judiciary Committee. Immediately before it is heard in this Committee, the bill is set to be heard in the Judiciary Committee, where it is anticipated that the bill will be amended. The amendments, which will be processed in this Committee due to timing constraints, are as follows:

Section 1770(a)(29)(D)(i) 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  Subject to subparagraph (ii), this paragraph does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, or other food service provider, concession, grocery store, grocery delivery service, or sold pursuant to a by means of a menu or contract for banquet or catering services that fully discloses the terms of service. ,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.

(ii) A mandatory fee or charge under subparagraph (i) shall be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

(iii) “Grocery delivery service” means a company owned by a grocery store that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer.

(iv) The exemption in this subparagraph does not apply to a “third-party food delivery platform,” as defined in Health and Safety Code Section 113930.5, or any other food delivery platform.

Additional amendments clarify the meaning of “clear and conspicuous” disclosure. Recognizing the time it will take for all restaurants and food providers that fall within the scope of this bill to update their menus and displays to conform with the text and font requirements cross-referenced in this bill, the “clear and conspicuous” definition, for purposes of this measure, will only go into effect next year, on July 1, 2025.

1770(c) As of July 1, 2025, any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous” as defined in subdivision (u) of Section 1791 of the Civil Code.

(c) (d)This section shall become operative on July 1, 2024.

Further amendments add uncodified severability and urgency clauses to the bill, and delete intent language in the bill in print.

SEC. 2. The changes made in subparagraph (D) of paragraph (29) of subdivision (a) of Section 1770 of the Civil Code in Section 1 of this act are intended to clarify, and do not constitute a change in, existing law.

SEC. 2. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 3. In order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

ARGUMENTS IN SUPPORT: UNITE HERE writes:

An unintended consequence of last year’s SB 478 is that legitimate service fees charged by restaurants will no longer be allowed after July 1 of this year. Many of those service fees go to workers either through service charges that are distributed to both front and back of the house staff in restaurants. Other service charges go to supplement health and pension benefits of food service workers at restaurants, bars, banquet operators, airports, stadiums, and many other places where consumers are fed. Much of this has been negotiated through collective bargaining between our union and employers. Without SB 1524, all of this would be upended, and these workers would see unnecessary pay and benefit cuts.

The California Restaurant Association, California Travel Association, and California Attractions and Parks Association jointly write:

SB 1524 builds upon SB 478 from 2023 which was aimed at preventing “drip pricing,” where consumers see an advertised price, but are subject to additional, undisclosed charges at purchase.

SB 1524 requires restaurants and other food service establishments to properly disclose to guests any service charges, surcharges, auto-gratuities and other similar charges in advance of customer purchase.

Additionally, SB 1524 provides strong protections against “drip” or “bait and switch” pricing by requiring restaurants to clearly disclose the existence or amount of a mandatory service charge, auto-gratuity, or surcharge on the menu. This transparency in pricing allows guests to be presented with the price of various menu items and the amount of the surcharge at the same point in time, when they are deciding what to order, and before they are charged for the meal.

Finally, SB 1524 acknowledges the increasing trend among restaurants to establish and disclose “service charge” models to help finance non-mandatory benefits to team-members and staff. For example, in recent years many restaurants have shifted to a service fee model giving the establishment greater ability to disburse those dollars to create greater equity between front and back-of-the-house employees.

Without SB 1524- and its required disclosure to guests ahead of purchase- a host of unintended consequences for restaurant operators, patrons, and workers will rapidly take place.

ARGUMENTS IN OPPOSITION: Consumer Federation of California (CFC) writes:

Consumers deserve to know up front what something will truly cost, be it a concert or sporting ticket, rental housing, new or used vehicle, rental car, hotel room or house rental, account with a credit union or bank, mobile phone plan, cable or streaming service, and a restaurant meal or takeout delivery. Almost all of these industries were included in the scope of SB 478 (auto dealers and car rentals were two of the exclusions that CFC finds lamentable. Simply put, there is no justifiable public policy reason why the restaurant industry should be excluded from the new law that hasn’t even fully gone into effect yet.

Despite SB 1524 stating that the language in the bill is “intended to clarify, and do[es] not constitute a change in, existing law” the bill absolutely changes existing law and narrows the scope of the bill to generally exclude the restaurant industry. In fact, the language of the current June 5th version of the bill is overly broad and creates loopholes to compliance that, if not fixed, will keep consumers in the dark.

For example, at the end of the language the exemption requires that there must be a clear and conspicuous display “on the advertisement, menu, or other display.” The most obvious concern with this language is “or other display,” as that would lead to restaurants and bars picking the most opaque “other display” to note any additional mandatory fees and charges not displayed in the menu price of an item, for example. CFC recommends that this language be tightened up.

Additionally, the scope of the bill’s exemption broadly encompasses restaurants, bars, “other food service provider[s]” and the catering/banquet industry. This is overly broad and we fear will also lead to other loopholes due to the language about “other food service provider[s].”

Furthermore, CFC must note that what is currently happening in the restaurant industry generally is infuriating consumers of all income levels, but particularly those of low and moderate incomes. Many mandatory fees are actually misleadingly labeled to create the false impression in the consumer’s mind that some or all of these fees are actually government pass-throughs when they are not, or fees that will help the workers at the restaurant, when their either do not at all or only a small percentage of said fee helps the workers. This directly leads to two outcomes - first the consumer gets frustrated and then leaves a smaller optional tip, which hurts employees (especially in the context of consumer frustration with now being asked to tip for products and services that never previously seemed to warrant a tip), and then the consumer converts this frustration upon seeing the bill by choosing not to dine in the future at that particular establishment. Neither outcome is good for consumers or workers.

CFC is sympathetic to the notion of the mandatory tip and how it helps many struggling workers in the always-challenging restaurant industry. In fact, many labor unions actually collectively bargain on such matters, and those negotiations ought to be respected by the Legislature when contemplating the approach taken by this bill. Many a restaurant server has been economically disadvantaged by serving a table of 6, 8 or more diners and losing out on adequate voluntary tips at that table and also by not being able to serve other smaller tables. We urge the Legislature to seriously contemplate the needs of all union workers who may be in the scope of SB 1524 (which we again urge the authors to narrow by clarifying the issue of who is within the scope of “other food service provider[s].”

At the core of last year’s SB 478, much of CFC’s junk and hidden-fee work, and many of the initiatives of the Biden Administration is the simple concept that consumers should know with as much specificity as possible what something will actually cost before they choose whether to buy it or not. This guiding principle of being aggressively open and honest with consumers should help narrow the scope of SB 1524. To that end CFC stands ready to participate in any process to help determine that scope. But as currently in print CFC must respectfully Oppose Unless Amended SB 1524.

REGISTERED SUPPORT / OPPOSITION:

Support

Office of Lieutenant Governor, Eleni Kounalakis (co-sponsor)

California Restaurant Association (co-sponsor)

UNITE HERE (co-sponsor)

Bavel Restaurant
Bestia Restaurant
California Airports Council
Jeff Manno Consulting, LLC
Saffy's
San Diego County Regional Airport Authority
San Francisco International Airport
Torrance Area Chamber of Commerce

Support If Amended

California State Council of Service Employees International Union (SEIU California)
UFCW - Western States Council

Oppose Unless Amended

Consumer Federation of California

Analysis Prepared by: Josh Tosney / P. & C.P. / (916) 319-2200

1. Subsequent statutory references are to the Civil Code unless otherwise noted. ↑

2. § 1760. ↑

3. Ibid. ↑

4. See § 1770. ↑

5. § 1770(a)(9). ↑

6. § 1770(a)(20). ↑

7. § 1770(a)(29). ↑

8. Elena Kadvany, “It’s not just Zuni: Many Bay Area restaurateurs are ending tipping as they reopen” (Jun. 6, 2021), https://www.sfchronicle.com/food/article/It-s-not-just-Zuni-Many-Bay-Area-restaurateurs-16226352.php. ↑

9. Summer Lin, “Perch charges diners ‘security’ fee at downtown L.A. rooftop spot, sparking outrage” (Apr. 9, 2024), https://www.latimes.com/california/story/2024-04-09/restaurant-security-surcharge-new-junk-fee-law ↑

10. Jessica Dickler, “Forget ‘tipflation:’ Restaurant surcharges for inflation, health care, water are consumers’ latest pet peeve” (Jul. 24, 2023), https://www.cnbc.com/2023/07/17/diners-push-back-against-restaurants-adding-surcharges-to-the-bill.html. ↑

11. California Department of Justice, “SB 478: Frequently Asked Questions,” https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf. ↑

12. Kirzhner v. Mercedes-Benz USA, LLC (2020) 9 Cal.5th 966, 972 (citations omitted). ↑

13. Holt v. Noble House Hotels & Resort, Ltd (S.D.Cal. 2019) 370 F. Supp. 3d 1158, 1166. ↑

14. Livingstone v. Shelter Island, Inc. (2019 Cal. Super.) LEXIS 19556, *24. ↑

15. § 1761(a). ↑

16. Bryan Garner, Black’s Law Dictionary (9th ed.), p. 268. ↑

17. § 1760. ↑

18. Soumya Karlamangla “A California Law Banning Hidden Fees Goes Into Effect Next Month” (Jun. 14, 2024) New York Times, https://www.nytimes.com/2024/06/14/us/california-restaurant-hidden-fees-ban.html. ↑

19. U.S. Const., 14th Amend.; Cal. Const., art. I, § 7(a). ↑

20. Heller v. Doe (1993) 509 U.S. 312, 320. ↑

21. Merrifield v. Lockyer (9th Cir. 2008) 547 F.3d 978, 991, fn. 15 (Merrifield); Allied Concrete & Supply Co. v. Baker (9th Cir. 2018) 904 F.3d 1053, 1064 (“bare economic protectionism is not a valid justification for discriminatory treatment”). In Merrifield, the Ninth Circuit addressed the application of California’s pesticide licensing scheme to pest controllers, regardless of whether they use pesticides, who dealt with bats, raccoons, skunks, and squirrels but not pest controllers who dealt with mice, rats, or pigeons. (Merrifield, supra, 547 F.3d at pp. 981–82.) The plaintiff, who did not use pesticides, challenged the licensure scheme on due process and equal protection grounds. In defending the law against a due process challenge, the state argued that licensure was needed to educate workers about pesticide risks, even if they did not use pesticides. (Id. at pp. 987–88.) But since those who eradicate mice, rats, and pigeons were more likely to encounter pesticides, the Ninth Circuit concluded that the state “undercut its own rational basis for the licensing scheme,” striking down the selective exemptions as equal protection violations. (Id. at p. 992.) ↑

Date of Hearing: June 18, 2024

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

SBPCA Bill Id:SB 1524

Author:(Dodd) – As Amended Ver:June 5, 2024

As Proposed to be Amended

SENATE VOTE: Not relevant

SUBJECT: Consumers Legal Remedies Act: advertisements: restaurant, bar, food service provider, or banquet or catering services

KEY ISSUE: SHOULD THE PROHIBITION ON ADVERTISING THE PRICE OF A GOOD OR SERVICE THAT DOES NOT INCLUDE ALL MANDATORY FEES AND CHARGES BE CLARIFIED SO THAT MANDATORY FEES OR CHARGES IMPOSED BY A BAR, RESTAURANT OR CERTAIN FOOD SERVICE PROVIDERS ARE EXCLUDED, PROVIDED THAT THAT THEY ARE “CLEARLY AND CONSPICIOUSLY” DISPLAYED?

SYNOPSIS

Last year, the Legislature passed landmark legislation to specifically confront the deceptive advertising practice in which a seller uses an artificially low headline price to attract a customer and only discloses additional required fees in smaller print, or reveals additional charges later in the buying process. That measure, which is scheduled to go into effect on July 1, adds to the Consumer Legal Remedies Act’s (CLRA) long list of unfair or deceptive acts, the “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction.” (SB 478, Dodd, Chap. 400, Stats. 2023.) As explained by the author, “questions have been raised about potential unintended consequences of the transparency requirements in this law on food service workers and industry. Questions have also been raised as to whether the advertising requirements in SB 478 apply to restaurant menus altogether.” The author brings SB 1524 to answer those questions.

As proposed to be amended, mandatory fees or charges for individual food or beverage items sold directly to a customer in a restaurant or bar do not need to be included in the “all-in” advertised price required by SB 478, provided that such a fee—with an explanation of its purpose—is clearly and conspicuously disclosed on any advertisement, menu, or other display that contains the price of the food or beverage item. The author’s proposed amendments, which are discussed throughout the analysis and reflected in the SUMMARY, clarifies who and what is covered, and provides a specific framework for compliance.

This bill is co-sponsored by the Office of the Lieutenant Governor, the California Restaurant Association, and UNITE Here. It is supported by a broad coalition of restaurants and hospitality associations. SEIU and UFCW support the bill, if amended, and their concerns appear to have been mostly resolved by the author’s proposed amendments. The Consumer Federation of California is opposed, unless amended, to the bill in print, and many of their concerns also appear to have been addressed by the proposed amendments. In the event of its successful passage out of this Committee, SB 1524 will be immediately heard by the Committee on Privacy and Consumer Protection (on the same day it is heard by this Committee). To accommodate this tight schedule, the amendments described here will be processed in the next committee. In order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, the bill, as proposed to be amended, will take effect immediately.

SUMMARY: Clarifies that a mandatory fee or charge imposed by restaurants and certain food service providers do not need to be included in the advertised “all-in” price, provided that any such mandatory fee or charge is clearly and conspicuously displayed. Specifically, this bill:

1. Clarifies that the prohibition on advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges does not apply to restaurants, bars, and other food service providers, as provided.
2. Establishes that 1) applies provided that a mandatory fee or charge is clearly and conspicuously displayed with an explanation of its purpose.
3. Establishes that 1) applies provided that the clear and conspicuous display of a mandatory fee or charge appears on any advertisement, menu, or other display that contains the price of the food or beverage item.
4. Provides that 1) applies only to individual food or beverage items sold directly to a customer by a restaurant, bar, concession, grocery store, grocery store delivery service, or by means of a menu or contract for banquet or catering service that fully discloses the terms of service.
5. Defines “grocery delivery service” as a company owned by, or under contract with, a grocery store that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer.
6. Clarifies that a third-party food delivery platform, as defined, or food delivery platform is not a grocery delivery service, and therefore falls outside the scope of this measure.
7. Establishes that any disclosure, advertisement, or notice that is required to be “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined.
8. Provides for delayed implementation of 7) until July 1, 2025.
9. Establishes that the provisions of the CLRA are severable.
10. Provides that in order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

EXISTING LAW:

1. Establishes the Unfair Competition Law (UCL), which provides a statutory cause of action for any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising, including over the internet. (Business and Professions Code Section 17200 et seq.)
2. Establishes the False Advertising Law (FAL), which proscribes making or disseminating any statement that is known or should be known to be untrue or misleading with the intent to directly or indirectly dispose of real or personal property. (Business and Professions Code Section 17500 et seq.)
3. Establishes the Consumers Legal Remedies Act (CLRA), which proscribes certain unfair methods of competition and certain unfair or deceptive acts or practices undertaken by a person in a transaction intended to result or that results in the sale or lease of goods or services to a consumer, including advertising goods or services with intent not to sell them as advertised. (Civil Code Section 1770 et seq.)
4. Defines “goods” as “tangible chattels bought or leased for use primarily for personal, family, or household purposes, including certificates or coupons exchangeable for these goods, and including goods that, at the time of the sale or subsequently, are to be so affixed to real property as to become a part of real property, whether or not they are severable from the real property.” (Civil Code Section 1761 (a).)
5. Defines “services” as work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods. (Civil Code Section 1761 (b).)
6. Prohibits, commencing July 1, 2024, the advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges, as provided. (Civil Code Section 1770 (a)(29).) 
7. Defines “third-party food delivery platform” as a business engaged in the service of online food ordering and delivery from a food facility to a consumer. (Health and Safety Code Section 113930.5.)
8. Defines “clear and conspicuous” as a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. (Civil Code Section 1791 (u).)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: Last year, the Legislature passed landmark legislation to specifically confront the deceptive advertising practice in which a seller uses an artificially low headline price to attract a customer and only discloses additional required fees in smaller print, or reveals additional charges later in the buying process. That measure, which is scheduled to go into effect on July 1, adds to the Consumer Legal Remedies Act’s long list of unfair or deceptive acts, the “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction.” (SB 478, Dodd, Chap. 400, Stats. 2023.)

Why is this bill necessary? SB 478, according to the bill’s author (who is also authoring this measure), was intended to “address the bait and switch advertising practice where ‘drip pricing’ or ‘hidden fees’ are not advertised to a consumer before they purchase any goods or services and instead, are revealed later in the transaction or upon receiving a final bill.”

It was not intended, however, according to the author, to harm workers “in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry.” This measure seeks to address that unintended consequence by exempting bars, restaurants and certain food providers from including fees and charges specifically targeted at helping workers from its “all-in” price advertisement mandate, provided that any fees and charges are “clearly and conspicuously disclosed” to the consumer.

This measure aims to further the goals of SB 478 and enhance consumer protection, by requiring that certain food providers disclose full and complete information about what additional mandatory charges are being charged—and an explanation of their purpose—any time the price is disclosed to the customer.

As explained by the author:

SB 1524 seeks to enhance consumer protections by providing that restaurants, bars, and food service providers must clearly and transparently disclose all mandatory fees up-front to consumers on all menus and advertising in a clear and conspicuous manner. SB 478 (Dodd, 2023) sought to address bait and switch practices in which a business advertising a lower price only to add additional “hidden fees” during the final purchase process or revealed only upon receiving a bill. In working through implementation of the measure, potential harms have come to light in the form of lost wages and benefits provided to workers whose employers or unions have negotiated additional benefits afforded by service fees in the food service industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. If service charges are eliminated and instead prices are increased – the benefit of those increases will flow disproportionately to employees that will receive higher tips – exasperating compensation inequities. In addition to automatic gratuities, unions have bargained for service charges to supplement healthcare coverage, pension payments, and other health and welfare benefits. Elimination of service charges will upend these collectively bargained benefits, leaving workers with lost wages and other collectively bargained protections.SB 1524 codifies best practices by restaurants and other food service providers by ensuring that any and all fees are clearly disclosed to consumers up-front so that consumers are empowered with the full and complete costs ahead of making their purchase.

What does this bill do? The bill in print establishes that SB 478’s mandate to disclose all mandatory fees and charges when advertising a price for a good or service does not apply to the sale of individual food or beverage items by “a restaurant, bar, or other food service providers or sold pursuant to a contract for banquet or catering services,” provided that such fees are clearly and conspicuously disclosed. As proposed to be amended, the measure clarifies who and what is covered, and provides a specific framework for compliance:

1. A restaurant, bar, food concession, grocery store, grocery delivery service or caterer that sells individual food or beverage items directly to a consumer does not need to include a mandatory fee or charge in their “all-in” advertised price. (The bill specifies the categories of food providers that fall within its scope; third-party food delivery platforms, such as DoorDash and UberEats, for example, are expressly excluded, and therefore must include all mandatory fees or charges in their “all-in” pricing, pursuant to SB 478.)
2. But, restaurants, etc. must disclose any mandatory fee or charge anywhere they disclose a price for a given item. (So for example, if a menu item is advertised for $20, and the restaurant adds any additional healthcare fees, service charges, etc, those do not need to be included in the $20 price, but must be disclosed anywhere the $20 item is displayed).
3. The mandatory fee or charge must include an explanation of its purpose, and must be clearly and conspicuously disclosed. (The text of the additional fee or charge must be in larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size.)

Why shouldn’t mandatory fees or charges by restaurants be included in the advertised all-in price? The author and sponsors of this bill explain the need for this measure by pointing to the recent changes in the restaurant industry. In recent years, many restaurants have moved away from tipping to a service fee model to create greater equity between front and back-of-the-house employees. Similarly, many restaurants that provide full health care and other discretionary worker benefits recapture those costs through a surcharge, which disclose the purpose of the charge. Other union-bargained benefits, such as pension and other health and welfare benefits, are often included in these charges.

This measure is intended to preserve these bargained-for benefits, especially at a time when many restaurants are still struggling to survive the aftermath of the COVID-19 pandemic and changing work patterns in high-cost urban centers. SB 1524 balances that interest with consumer protection, by establishing mandates that any such additional fees—and their purpose—are clearly disclosed any time the price for an item appears. In other words, any mandatory fees or charges must also appear on the menu, not just on the receipt after the customer has already incurred the charges.

Author’s amendments. The author has taken several amendments to clarify the scope and intent of the measure, and establish clear guidelines for compliance.

Section 1770(a)(29)(D)(i) 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  Subject to (ii), this paragraph does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, or other food service provider, concession, grocery store, grocery delivery service, or sold pursuant to a by means of a menu or contract for banquet or catering services that fully discloses the terms of service. ,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.

(ii) A mandatory fee or charge under subparagraph (i) shall be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.

(iii) “Grocery delivery service” means a company owned by, or under contract with, a grocery store that delivers food, primarily fresh produce, meat, poultry, fish, deli products, dairy products, perishable beverages, baked foods, and prepared foods, from the grocery store to a consumer. A “third-party food delivery platform,” as defined in Health and Safety Code Section or a food delivery platform is not a grocery delivery service for purposes of this subparagraph.

Additional amendments clarify the meaning of “clear and conspicuous” disclosure. Recognizing the time it will take for all restaurants and food providers that fall within the scope of this bill to update their menus and displays to conform with the text and font requirements cross-referenced in this bill, the “clear and conspicuous” definition, for purposes of this measure, will only go into effect next year, on July 1, 2025.

1770(c) As of July 1, 2025, any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous” as defined in subdivision (u) of Section 1791 of the Civil Code.

(c) (d)This section shall become operative on July 1, 2024.

Further amendments add uncodified severability and urgency clauses to the bill, and delete intent language in the bill in print.

SEC. 2. The changes made in subparagraph (D) of paragraph (29) of subdivision (a) of Section 1770 of the Civil Code in Section 1 of this act are intended to clarify, and do not constitute a change in, existing law.

SEC. 2. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 3. In order to accurately target application and enforcement of consumer protection laws that go into effect on July 1, 2024, it is necessary for this act to take effect immediately.

ARGUMENTS IN SUPPORT: The Office of the Lieutenant Governor, a co-sponsor of this measure, explains the need for this bill:

SB 1524 will bring much needed clarity to how state law applies to restaurant fees by requiring restaurants, bars, and other food service providers to clearly and conspicuously disclose any service charge, mandatory gratuity or other mandatory fee to consumers on advertisements, menus or other displays. SB 1524 strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.

Another co-sponsor of this measure, the California Restaurants Association, explains that SB 1524 brings clarity on how certain food service establishments and restaurants must communicate their pricing models to guests prior to any purchase:

SB 1524 builds upon SB 478 from 2023 which was aimed at preventing “drip pricing,” where consumers see an advertised price, but are subject to additional, undisclosed charges at purchase.

SB 1524 requires restaurants and other food service establishments to properly disclose to guests any service charges, surcharges, auto-gratuities and other similar charges in advance of customer purchase.

Additionally, SB 1524 provides strong protections against “drip” or “bait and switch” pricing by requiring restaurants to clearly disclose the existence or amount of a mandatory service charge, auto-gratuity, or surcharge on the menu. This transparency in pricing allows guests to be presented with the price of various menu items and the amount of the surcharge at the same point in time, when they are deciding what to order, and before they are charged for the meal.

Finally, SB 1524 acknowledges the increasing trend among restaurants to establish and disclose “service charge” models to help finance non-mandatory benefits to team-members and staff. For example, in recent years many restaurants have shifted to a service fee model giving the establishment greater ability to disburse those dollars to create greater equity between front and back-of-the-house employees.

Without SB 1524- and its required disclosure to guests ahead of purchase- a host of unintended consequences for restaurant operators, patrons, and workers will rapidly take place.

ARGUMENTS IN OPPOSITION: The California Federation of California (CFC), which supported SB 478, opposes the bill in print for several reasons, many of which appear to have been addressed by the author’s proposed amendments. It is unclear whether the proposed amendments resolve all of their concerns, including the broader issue CFC identifies with this measure:

Consumers deserve to know up front what something will truly cost, be it a concert or sporting ticket, rental housing, new or used vehicle, rental car, hotel room or house rental, account with a credit union or bank, mobile phone plan, cable or streaming service, and a restaurant meal or takeout delivery. Almost all of these industries were included in the scope of SB 478 (auto dealers and car rentals were two of the exclusions that CFC finds lamentable. Simply put, there is no justifiable public policy reason why the restaurant industry should be excluded from the new law that hasn’t even fully gone into effect yet.

…

CFC must note that what is currently happening in the restaurant industry generally is infuriating consumers of all income levels, but particularly those of low and moderate incomes. Many mandatory fees are actually misleadingly labeled to create the false impression in the consumer’s mind that some or all of these fees are actually government pass-throughs when they are not, or fees that will help the workers at the restaurant, when their either do not at all or only a small percentage of said fee helps the workers. This directly leads to two outcomes - first the consumer gets frustrated and then leaves a smaller optional tip, which hurts employees (especially in the context of consumer frustration with now being asked to tip for products and services that never previously seemed to warrant a tip), and then the consumer converts this frustration upon seeing the bill by choosing not to dine in the future at that particular establishment. Neither outcome is good for consumers or workers.

REGISTERED SUPPORT / OPPOSITION:

Support

Support If Amended (to the bill in print)

Opposition Unless Amended (to the bill in print)

Consumer Federation of California

Analysis Prepared by: Shiran Zohar / JUD. / (916) 319-2334

 CONSENT  

Bill No: SB 1524

Author: Committee on Governmental Organization

Introduced: 3/12/24

Vote: 21

SENATE GOVERNMENTAL ORG. COMMITTEE: 16-0, 4/23/24

AYES: Dodd, Wilk, Alvarado-Gil, Archuleta, Ashby, Bradford, Glazer, Jones, Nguyen, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Smallwood-Cuevas

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: California Gambling Control Commission

SOURCE: Author

DIGEST: This bill reduces the time by which the Governor must fill a vacancy on the California Gambling Control Commission (Commission) from 60 to 45 days.

ANALYSIS:

Existing law:

1. Provides, under the Gambling Control Act (Act), for the licensure and regulation of various legalized gambling activities and establishments by the Commission and the investigation and enforcement of those activities and establishments by the Bureau of Gambling Control (Bureau), under the California Department of Justice (DOJ).
2. Provides that the Commission is composed of five members who are appointed by the Governor, subject to confirmation by the Senate.
3. Requires one member of the Commission to be a certified public accountant or a person with experience in banking or finance, one member to be an attorney and a member of the State Bar or California with regulatory law experience, one member to have a background in law enforcement and criminal investigation, and one member to have a background in business with at least five years of business experience or five years of governmental experience, and one member be from the public.
4. Requires the Governor to fill any vacancies on the Commission, subject to confirmation, to within 60 days of the date of the vacancy.

This bill reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days.

Background

Author Statement. According to the author’s office, “the bill simply reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The Commission plays a critical role in ensuring that gambling licenses are not held by unsuitable individuals. Any vacancy in the Commission delays this very critical role. This bill helps to ensure that vacancies are filled in a timely matter.”

Gambling Regulation/Enforcement in California. The Act created a comprehensive scheme for statewide regulation of legal gambling under a bifurcated system of administration involving the Bureau within DOJ and the five-member Commission appointed by the Governor. The Commission is authorized to establish minimum regulatory standards for the gambling industry and to ensure that the state gambling licenses are not issued to, or held by, unsuitable or unqualified individuals.

The Act requires that one member of the Commission be a certified public accountant or a person with experience in banking or finance, one member to be an attorney and a member of the State Bar of California with regulatory law experience, one member to have a background in law enforcement and criminal investigation, and one member to have a background in business with at least five years of business experience or five years of governmental experience, and one member be from the public.

The Bureau monitors the conduct of gaming operations to ensure compliance with state gambling laws and conducts extensive background investigations of applicants seeking a state gambling license. The Bureau also conducts background checks for all key employees and state gambling licensees and vendor applications.

The Bureau inspects premises where gambling is conducted, examines gambling equipment, audits papers, books, and records of the gambling establishment, investigates suspected violations of gambling laws, and is ultimately responsible for enforcing compliance with all state laws pertaining to gambling.

Related/Prior Legislation

AB 2084 (Lackey, 2024) reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. Never heard in the Assembly Governmental Organization Committee.

AB 1167 (Bigelow, 2021) would have reduced the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The bill would have also required the Governor to notify the Legislature of the removal of a member of the Commission. Never heard in the Senate Appropriations Committee.

AB 2097 (Gallagher, 2019) would have reduced the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The bill would have also required the Governor to notify the Legislature of the removal of a member of the Commission. Never heard in the Senate Governmental Organization Committee.

SB 666 (Vidak, Chapter 245, Statutes of 2017) prohibited a member of the Commission, the executive director, the chief, and any employee of the Commission or the department designated by regulation, for a period of three years after leaving office or terminating employment, for compensation, from acting as an agent or attorney for any other person before the Commission or the DOJ, if the appearance or communication is for the purpose of influencing administrative actions, as specified.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 5/6/24)

None received

OPPOSITION: (Verified 5/6/24)

None received

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

5/7/24 10:52:33

**** END ****

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Bill Dodd

Chair

2023 - 2024 Regular

Bill No: 1524 Hearing Date: 4/23/2024

SUBJECT: California Gambling Control Commission

DIGEST: This bill reduces the time by which the Governor must fill a vacancy on the California Gambling Control Commission (Commission) from 60 to 45 days.

ANALYSIS:

Existing law:

1. Provides, under the Gambling Control Act (Act), for the licensure and regulation of various legalized gambling activities and establishments by the Commission and the investigation and enforcement of those activities and establishments by the Bureau of Gambling Control (Bureau), under the California Department of Justice (DOJ).
2. Provides that the Commission is composed of five members who are appointed by the Governor, subject to confirmation by the Senate.
3. Requires one member of the Commission to be a certified public accountant or a person with experience in banking or finance, one member to be an attorney and a member of the State Bar or California with regulatory law experience, one member to have a background in law enforcement and criminal investigation, and one member to have a background in business with at least five years of business experience or five years of governmental experience, and one member be from the public.
4. Requires the Governor to fill any vacancies on the Commission, subject to confirmation, to within 60 days of the date of the vacancy.

This bill reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days.

Background

Author Statement. According to the author’s office, “the bill simply reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The Commission plays a critical role in ensuring that gambling licenses are not held by unsuitable individuals. Any vacancy in the Commission delays this very critical role. This bill helps to ensure that vacancies are filled in a timely matter.”

Gambling Regulation/Enforcement in California. The Act created a comprehensive scheme for statewide regulation of legal gambling under a bifurcated system of administration involving the Bureau within DOJ and the five-member Commission appointed by the Governor. The Commission is authorized to establish minimum regulatory standards for the gambling industry and to ensure that the state gambling licenses are not issued to, or held by, unsuitable or unqualified individuals.

The Act requires that one member of the Commission be a certified public accountant or a person with experience in banking or finance, one member to be an attorney and a member of the State Bar of California with regulatory law experience, one member to have a background in law enforcement and criminal investigation, and one member to have a background in business with at least five years of business experience or five years of governmental experience, and one member be from the public.

The Bureau monitors the conduct of gaming operations to ensure compliance with state gambling laws and conducts extensive background investigations of applicants seeking a state gambling license. The Bureau also conducts background checks for all key employees and state gambling licensees and vendor applications.

The Bureau inspects premises where gambling is conducted, examines gambling equipment, audits papers, books, and records of the gambling establishment, investigates suspected violations of gambling laws, and is ultimately responsible for enforcing compliance with all state laws pertaining to gambling.

Prior/Related Legislation

AB 2084 (Lackey, 2024) reduces the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. (Pending in the Assembly Governmental Organization Committee)

AB 1167 (Bigelow, 2021) would have reduced the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The bill would have also required the Governor to notify the Legislature of the removal of a member of the Commission. (Never Heard in the Senate Appropriations Committee)

AB 2097 (2019) would have reduced the time by which the Governor must fill a vacancy on the Commission from 60 to 45 days. The bill would have also required the Governor to notify the Legislature of the removal of a member of the Commission. (Never Head in the Senate Governmental Organization Committee)

SB 666 (Vidak, Chapter 245, Statutes of 2017) prohibits a member of the Commission, the executive director, the chief, and any employee of the Commission or the department designated by regulation, for a period of three years after leaving office or terminating employment, for compensation, from acting as an agent or attorney for any other person before the Commission or the DOJ, if the appearance or communication is for the purpose of influencing administrative actions, as specified.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

None received

OPPOSITION:

None received