Wednesday saw the release of CA Attorney General Bob Bonta’s long-awaited FAQs on the California “junk fee” ban, now rebranded as the “Honest Pricing Law” or “Hidden Fees Statute.” The FAQs largely reiterate the very straightforward requirements of the new law, while confirming its most strict application under certain circumstances that, until now, many in the hospitality industry had trouble believing. In light of the climate of wishful thinking surrounding this new law, it is necessary to plainly state that service charges added at the end of a transaction will be illegal beginning on July 1, 2024, and there are scarce “ifs,” “ands,” or “buts” about it. To be clear, this ban covers nearly every form of fee or charge that is added after the initiation of a transaction, including, but not limited to, health mandate fees, employee wellness fees, employee living wage fees, spa service charges, resort fees, large-party auto gratuities, and surcharges.
The price of a good or service advertised to a consumer (listed on a menu, website, app, etc.) must be the full price of the good or service, with very limited exceptions: taxes or fees imposed on the transaction by the government, reasonable shipping costs (excluding handling), and charges for optional services.
Government Fees and Taxes
But isn’t the Healthy SF mandate imposed on a transaction? No, it is not, and the Attorney General specifically names surcharges imposed to satisfy Healthy SF mandate requirements as covered by the ban. The Healthy SF mandate requires businesses either to provide health insurance to employees or pay into the citywide healthcare fund or employee health savings. All of these obligations rest specifically on the employer. Although guidance was issued directing how employers could properly administer a surcharge if they chose to implement one, this did not amount to the imposition of a charge on a transaction by the government, making these surcharges unlawful unless baked into the price of a good or service.
How the new law applies to California Tourism Assessments is a slightly tougher question. CA Tourism fees are typically added to the end of a transaction to satisfy a mandate by the Tourism Marketing Act that a portion of revenues in certain industries be paid to the Office of Tourism. The Act states that businesses “may pass on some or all of the assessment to customers,” and may “separately identify or itemize the assessment on any document provided to a customer.” (Government Code: 13995.65 (f)). Though the language in this statute is technically permissive and only gives businesses the option of adding the tax to a transaction with a consumer, it is likely that this fee will fall under the category of fees imposed on a transaction by the government. Despite the ambiguity in the Hidden Fees Statute, it is hard to imagine that the government will add difficulty to collecting money for itself.
Charges for Optional Services
Charges for services that are being added to a transaction separate and apart from the good or service itself need not be included in the price of the good or service. Specific examples of this provided by the Attorney General include late fees for rented equipment, smoking charges for non-smoking rooms, and delivery charges for food or other items that are ordered “directly from a restaurant.”
This guidance from the Attorney General raises as many questions as it answers. For example, may businesses still impose a 20% charge on a check that is not signed for or a tab that is not closed? Technically, this charge is not a charge for the good or service, but a fee imposed based on “certain later conduct by a consumer,” as described in the FAQs. Though it seems likely in light of this language that such fees are permitted, we advise businesses to proceed with caution. Any such charges should be carefully and clearly disclosed to customers in advance, and it is advisable to make them refundable should a customer reach out later and contest the charge.
The FAQ’s discussion of delivery charges “directly from a restaurant” also raises questions as to the law’s application to in-room dining services at hotels. Depending on the business structure of a hotel, it is possible that an in-room dining service administered directly by a restaurant would be exempt from including delivery fees in the initial price of a menu item. However, the path to compliance with this potential loophole could be narrow and perilous, and it is important to bear in mind that a consumer, who may instigate legal action against a business based on the Hidden Fees Statute, will not be privy to the inner-workings of a business before doing so.
Compliance: Straight is the Gate and Narrow is the Way
If there is one guidestone to follow in the quest for compliance with the Hidden Fees Statute, it is this: the very first price for a good or service that a consumer sees must be equal to its final price. Businesses are permitted to list charges that are included in the initial price through a disclaimer or even a mathematical breakdown, but a consumer must not need to do any calculation or investigation to determine the price of a good or service. Taxes, additional goods or services, and reasonable delivery fees, can be considered separate transactions for this purpose, and may be added later.
Over the next couple of months, it is no doubt that many questions will arise as businesses scramble to comply with the provisions of the Hidden Fees Statute in light of the Attorney General’s guidance.
