Beginning July 1, 2024, SB 478 will go into effect, which means businesses will no longer be allowed to add a service fee, or any other hidden fees, to a customer’s bill, except for government taxes and fees and reasonable shipping costs.  The “Honest Pricing Law” or “Hidden Fees Statute” is intended to allow the customer to see the true price of an item or service they are purchasing and aims to prevent “drip pricing,” which is when businesses advertise a lower price than what customers actually pay.

The Attorney General (“AG”) issued a FAQ statement clarifying many of the issues facing businesses attempting to comply with the new Honest Pricing Law. Below are the key items from the FAQ that businesses may find helpful. The full FAQ can be found here.

1. The law will apply to all businesses selling or advertising to a consumer, not just online ticket sellers, including restaurants, tasting rooms, event centers and hotels.
2. All mandatory and automatic fees, including service charges, fees for employee healthcare, or any other such add on fee must be included in the advertised or stated price to the customer.
   – Businesses can explain that extra fees are included, and they can specify what they represent, but this should be listed under the total price or as an aside explaining the total price.
   – The fees cannot be stated separate from the price on a receipt or at the bottom of a menu, for example, as usually handled currently.
3. Sales taxes and government fees, as well as reasonable shipping costs, do not need to be displayed in the total price and can still be listed separately on a receipt or invoice.
4. Fees for optional services or things contingent on an event, like a cancellation fee, do not need to be included (only mandatory, automatic fees must be included in the price).
5. Fees for delivery of food directly from a restaurant do not need to be included in advertised or stated price for the food because the delivery fee is for the delivery service and not for the food.

Initially, automatic gratuities (like 18% for parties of 6 or more) added to a restaurant bill are allowed if all the automatic gratuity goes to the employees. The AG does not initially expect to enforce SB 478 as to an automatic gratuity as long as all money goes to employees, however, the guidance is not clear whether this will remain the case or whether the business would be safe from prosecution in a private action for such charges. Mandatory gratuities have been treated as service fees for wage and hour purposes, so this may raise unintended consequences, which you should be discussed with counsel.

What does this mean for California businesses?  Businesses can no longer charge a service fee, or any other mandatory, automatic fee, unless that fee is included in the advertised or stated price to the customer.

For more information reach out to the DP&F Employment Law partners Jennifer E. Douglas, Marissa E. Buck and HR Consultant, Kristina Kiessig.

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