The Office of the Attorney General for Washington D.C. (OAG) recently reminded hospitality employers in the city who use mandatory service charges and other fees that they must properly disclose such charges to guests under D.C. law.

Hospitality venues that fail to properly disclose such charges can be fined up to $5,000 or required to refund customers. Therefore, D.C. hospitality venues should review their service charge language (and any related charges) to ensure that it clearly communicates the reason for the fee and that it is communicated to guests in advance.

Background

On November 9, 2022, District of Columbia voters approved an initiative that gradually phases out the tip credit used by hospitality employers. The initiative, also known as the Increase Minimum Wage for Tipped Employees Measure, will eliminate the tip credit by July 1, 2027 at which time hospitality employers must pay their tipped employees the full minimum wage that is in effect:

For more information on these upcoming changes to the tip credit, employers should review our previous alert here.

Mandatory Service Fees

In the wake of the 2022 initiative, an increasing number of D.C. hospitality venues have implemented mandatory service charges to offset labor and other costs. While such charges are legal, the District’s Consumer Protections Procedures Act (CPPA) requires that such fees be timely, prominently and accurately disclosed to guests.

In March 2023, the OAG sent letters to over 2,400 restaurants advising them that their mandatory service charges were in violation of the CPPA. These letters explained that guests are (i) frequently surprised about unexpected fees and surcharges at the end of their meals; and (ii) often confused about how restaurants are using these fees, including whether the establishment distributes them as tips or retains the fees to cover operational expenses.

Many restaurants, however, believed that the OAG’s letter failed to clarify exactly what information must be disclosed to properly institute a mandatory service charge. Accordingly, in August 2023 the OAG offered guidance explaining:

• Timeliness – Restaurants must disclose the existence and the amount of mandatory service fees before guests place their order.
• Prominence – When restaurants disclose food and beverage prices to consumers, they must also disclose mandatory service fees in a manner that consumers are “likely to be aware of them,” such as printing the fee on the menu or on signs throughout the establishment. In short, restaurants cannot bury fee information, obscure fees in fine print, or otherwise hide the existence or amount of fees.
• Clarity – If the proceeds of the service charge are not paid to employees, restaurants must clearly communicate to the guest that the service fee (or a portion thereof) is not a gratuity and instead will be retained by the restaurant to cover operational expenses.

The OAG’s guidance also provides examples of service fee disclosures that do and do not comply with the CPPA. Employers are strongly encouraged to review these examples and make efforts to ensure that they are correctly communicating mandatory service fees to guests.

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