Two calls to investigate SF restaurant surcharges as consumer fraud

Are you being scammed by the SF restaurants that tack on an "employee health care" surcharge?

The surcharges that many San Francisco restaurants charge their customers – ostensibly to help cover their employee health care obligations, although in practice it has often just padded their profits – should be investigated by the District Attorney's Office as consumer fraud, according to Sup. David Campos and San Francisco's Civil Grand Jury, which recently issued a scathing report scrutinizing the practice.

Campos raised the issue during Tuesday's Board of Supervisors meeting, calling for a criminal investigation and City Hall hearing. He even questioned whether businesses that have been so hostile to city's Health Care Security Ordinance – the landmark 2008 measure that created the Health San Francisco universal care program and required businesses to help pay for their employees' health coverage – should benefit from the tax cuts it would receive under a business tax reform ballot measure the board also considered that day.

“In the restaurant industry, we have an issue that remains unresolved,” Campos said during the business tax debate, after earlier in the meeting calling for the DA “to begin an investigation for fraud against the people of San Francisco by businesses that use this surcharge.”

DA's Office spokesperson Stephanie Ong Stillman confirmed that the office is looking at the issue: “The Grand Jury report was just released and we are in the process of evaluating the results.”

Mayor Ed Lee last year vetoed legislation by Campos that would have banned the practice and prevented businesses from simply pocketing money from Employer Health Reimbursement Accounts they create to comply with the mandate (federal law bars the city from dictating how businesses cover employee health care) at the end of each year. Lee later signed a watered down version sponsored by Board President David Chiu requiring employers to keep the money in the fund for two years, to let their employees know about the fund on a quarterly basis, and to dedicate surcharge revenue to employee health care.

Rob Black, executive director of Golden Gate Restaurant Association – which unsuccessfully sued the city over the employer mandate and appealed the case all the way to the US Supreme Court – criticized Campos and the Grand Jury, saying they were relying on data from last year and that the situation has improved since Chiu's legislation went into effect (Chiu told us data collection from his legislation will allow the city to better assess what's happening).

“Supervisor Campos know this information is based on data that was prior to the new ordinance,” Black told us, acknowledging that many restaurants profited from the surcharges “but that was before the law was changed.” Campos responded by saying the grand jury concluded that the Chiu legislation didn't go far enough the prevent the abuses, which are tough to detect because they are based on self reporting by the businesses.

The Grand Jury looked at 38 restaurants, of which 25 used the surcharges and 22 use the reimbursement accounts rather than either health insurance or Healthy San Francisco, which health care experts uniformly say are better options for employees. It analyzed data submitted to the city by these 22 restaurants with a total of 1,562 employees, finding that of the more than $2 million earmarked for the health reimbursement funds, just $123,612 was paid to employees and $1.9 million was kept by the employers.

Black said the quarterly noticing requirement in the Chiu legislation is already helping with the low reimbursement rate: “My hope is, and my belief is, we're going to see significant...improvements in utilization rates in people taking advantage of their benefits, and that's great.”

The grand jury also looked specifically at the health care surcharges collected by 18 restaurants with almost $64 million in gross revenue. Despite collecting almost $2.2 million in the surcharges it placed on customers bills, they reimbursed their employees for $1.16 million medical expenses and kept the more than $1 million that remained as profits.

Black criticized the grand jury for selectively picking the restaurants in its study and for targetting private sector businesses rather than the public agencies it traditionally investigates. “They're outside of what the government charter calls for,” he said.

But Mark Busse, the chair of the Grand Jury Health Committee that led the study, told the Guardian that while it's unusual to look at the private sector, there was a legitimate public policy interest here and its work was approved and overseen by Presiding Judge Katherine Feinstein (who happens to be the daughter of US Sen. Dianne Feinstein, San Francisco's former mayor).

He also denies hand-picking the restaurants, saying he asked jurors to simply keep the receipts from all restaurants they frequented. While that may not be representative of all restaurants, he said it was a large enough sample to draw some conclusions and that he was more surprised than anyone at their findings.

“I thought our results would be totally different. I didn't think they would be that abusive, I really didn't. I thought we would find we have some outstanding restaurants and entrepreneurs,” Busse said, adding that he was alarmed by their actual findings. “It turned our stomachs. It makes us sick. It is not a level playing field. There are legitimate businesses that accept the spirit of the law and are taking care of their employees, but a lot of them aren't.”

Given that these employees handle the food of city residents, he said that they should get the health care to which they're entitled. As Busse told us, “The intention of the jury was to make sure the workers are getting health care and the customers aren't getting deceived.”

7/27 Update: We heard back from the Mayor's Office, whose Chief Deputy Communications Director Francis Tsang wrote: “Mayor Lee is a strong supporter of the Healthcare Security Ordinance. The Civil Grand Jury surveyed only 38 restaurants and its report restates facts we already know - some businesses add a surcharge and in the past, it was not well regulated.  Working with Supervisors, Mayor Lee strengthened practices effective January 2, 2012 to ensure employees could make better use of the program.  We will know the results in 2013, when we collect and report on 2012 data informed by the new regulations.”


I resent paying an extra 4% for dinner out regardless of who ends up getting it.

Healthcare should be a matter between an employer and an employee. If a restaurant wants to pay for healthcare and then pay it's employees less, then so be it. It's really not my concern what their pay is and there should not be extras on the bill.

My response is to pay 15% on top of the bill regardless. Whether that's 11% tip and 4% healthcare, or whether all 15% goes to the employee and he chooses to buy his own healthare, or not, is quite simply nothing I have an opinion about.

This is bad law and so there will always be problems with it. It also drives down tips which is bad for employees.

Posted by Guest on Jul. 26, 2012 @ 10:32 pm

1st - The employers didn't make the law. The City of San Francisco HCSO law require the employer to pay for the health care. And thats a cost. And how do you cover that cost by applying a surcharge of raising your price. Many small business do not have the resources for it and believe me it can be pretty high.

2nd - You can't pay an employee less than what they are already making. And by the way the minimum wage in San Francisco is the highest in the country at $10.24/Hour.

3nd - Also per the City of San Francisco Sick Leave ordinance all employees have to be paid for sick days. How do you cover these cost ?

4th - I believe that if employers wants to provide benefits to their employees and can afford it then so be it but it should be at their discretions but not being for to do so when they don't the resources.

Posted by Guest on Jul. 27, 2012 @ 3:10 pm

that SF progressives think money can be picked off a tree, unless they work for the Guardian. Why Bay Guardian must have picked the money tree clean.

Even though the Bay Guardian has been laying people off for years, is thinner every week, was sold to a somewhat major corporation, got a huge settlement from the ownership of the SFWeekly, etc... real world economic issues are a mystery to the true believers.

Other businesses can foot the bill for progressives schemes endlessly. It's an interesting world view that the Bay Guardian progressobot puts forth, they as a business can contract and cut costs, everyone else is rolling in cash and can afford to foot the bill for their good intentions.

Noting is keeping Guardianbots from not eating at these places.

Posted by matlock on Jul. 27, 2012 @ 4:08 pm

I'd like to know how many of these restaurants disclose the fee to customers in advance of getting the check. Not all do.

Posted by Guest on Jul. 26, 2012 @ 11:38 pm

Yeah, I know, it's unfair to punish the employee but there is no alternative and, at least this way, the workers complain and can pressure their boss to change their policy.

Otherwise, I'm adding 15% to the bill and no more. Whether it's 11/4 or 15/0 is a matter between the joint and it's workers. Leave me out of it.

Posted by Guest on Jul. 31, 2012 @ 5:26 am

You're right - it IS unfair to punish the employee. Suck it up, leave the right tip + the 4%, and punish the business by sending the manager a note as to why you won't be back. If it's something you feel so strongly about that you're willing to stiff the service staff, you should feel strongly about it enough to find out before you sit down to eat.

Posted by Guest on Aug. 28, 2013 @ 3:43 pm

so 4% less tip will just put him or her back where they were in the first place.

Tips used to always be 10% and I'm comfortable at that level.

Posted by Guest on Aug. 28, 2013 @ 4:04 pm

There are many other payments mandated by government that business has to pay. Why the Golden Gate Restaurant Association has organized its members to itemize this one out separately speaks to how out of step the GGRA is in San Francisco. Social Security, Medicare, workers comp, the list goes on and on in a society that purports to be civilized.

That some members of the GGRA does so fraudulently speaks to the fly-by-night nature of some business people that reflects poorly on the vast majority of good actors. What do you expect of an organization that jumped from Kathleen Harrington to into the pits of Rob Black as its public face?

Posted by marcos on Jul. 27, 2012 @ 6:33 am

on my bill, so there is full disclosure and accountibility.

That also gives me the freedom and opportunity to deduct 4% off the tip since now I know the workers don't have to pay for healthcare and so can afford lower tips.

Posted by Guest on Jul. 31, 2012 @ 5:28 am

Ummm...did you happen to notice the part of this article saying employers were pocketing the money meant for staff's health care and that the staff were getting very little of it for health care? So essentially, you're saying because employers are tacking on an extra fee, which is primarily going to their profits, you are going to deny the server his/her tip--which by the way is where servers make their living, NOT from wages--so they are not really getting health care coverage (reimbursement accounts most of them are not even told about and possibly couldn't afford to pay the costs upfront even if they did know they could be reimbursed) AND now they're earning less money to pay for their own health care. Let me ask you a you WANT sick people serving you (or preparing you) food? That is food for thought.

Posted by Guest on Nov. 13, 2012 @ 4:20 pm

A seafood joint on Fisherman's Wharf. I never went back.

Restaurateurs: Don't do it. I'll gladly eat your bread and drink your water for free if you insult me by bringing up politics at the table.

Posted by lillipublicans on Jul. 27, 2012 @ 7:43 am

Should the menu show prices inclusive of sales tax, like in Europe?

I'd rather see it right there.

Posted by Guest on Jul. 31, 2012 @ 5:32 am

San Franciscans in general support financing health care through taxes instead of insurance company extortion. Tax whining does not play here the way it does elsewhere.

Posted by marcos on Jul. 31, 2012 @ 6:41 am

that a significant number of us do not find this policy to be deeply offensive.

I am very glad the 4% is openly spelled out in bills so I can deduct it from my tip.

While when dining in another city with no "health policy", naturally I will tip more because those workers have to buy their own insurance rather than have it given to them on a taxpayer-funded plate.

The public option of ObamaCare was rejected even by the Democrats. That should tell you something.

Posted by Guest on Jul. 31, 2012 @ 7:37 am

I will gladly pay extra to ensure that my servers and chefs have access to health care because I do not want to pay for food prepared and served by sick people.

Just have some class and don't itemize out the cost of keeping staff healthy.

Posted by marcos on Jul. 27, 2012 @ 8:02 am

I include the surcharge as part of the tip. We're already paying most of a server's wage via tipping when we dine out. Now we're expected to pay their healthcare costs too?

Posted by Chromefields on Jul. 27, 2012 @ 9:41 am

You shouldn't be responsible for paying the health care costs for these employees, that's their employers responsibility under city law. Those restaurants that choose to itemize this are behaving unlike every other employer in town for whom employee salary and benefits are simply a cost of doing business. But if you're buying into the restaurants' ruse and decreasing your tip, you're rewarding this bad behavior and punishing the employees for something that is beyond their control.

Posted by steven on Jul. 27, 2012 @ 10:23 am
Posted by matlock on Jul. 27, 2012 @ 4:11 pm

they no longer have to buy it, meaning they have more disposable pay, meaning lower tips will merely put them back to where they were before.

Posted by Guest on Jul. 31, 2012 @ 5:29 am

I don't know how we reached the point in the restaurant business where the customer is informally responsible for paying a portion of the labor cost, in addition to the cost of the items he orders. As someone who spends far more time in restaurants than he'd like, it's long irked me. I'd take the European model on this one, in which the restaurant owners (like every other business under the sun) are actually responsible for paying the people who work for them.

Posted by Chromefields on Jul. 27, 2012 @ 11:34 am

vote with your dollars.

The strange thing with "progressives" is that when voting with their dollars doesn't work they need another law. If you as an individual don't like what these businesses do, don't go there.

I don't go to Wallmart, Target, or most chains because I don't like the business model of how they treat employees and how they buy garbage from China. The progressives can't abide just making choices for themselves, they need to do it for everyone. Like born again Christians they take pride in making you responsible for their life choices.

Posted by matlock on Jul. 27, 2012 @ 3:57 pm

garbage continues unabated. Matty, you are like a persistently erupting volcano of intellectual purulence.

The basic calculus you mischaracterize for the purpose of deriding it is like this: while on occasion some people will take pains to investigate working conditions where they do business, and based on such an assessment will "vote with their dollars" on an ad hoc basis, a far greater percentage will only act if they know that such action will have an effect; that they are acting in concert -- but they really don't want to take the time to figure it out case-by-case.

Hence legislation reflecting public values. Its the basic idea of democracy and it is an eminently more workable plan than the pie-in-the-sky libertarianism to which you apparently subscribe.

Posted by lillipublicans on Jul. 29, 2012 @ 7:33 am

you are opposed to progressive opportunism?

You are for the feds closing pot clubs? The nation has decided through electing politicians to make weed illegal.

You were for prop 8 after it passed? I wasn't but as it was "democracy" after all, then you were after the fact for it I assume?

Do you even think your ravings through? When right wingers legislate their values the same as progressives do, it infuriates you, at times it bothers me too. That's why I don't want to do it to others for their own good. You are not self aware enough to make the connection. When the SF progressives pass a nanny state law you yammer about democracy, When a right winger passes a nanny state law you yammer about how backwards, hypocritical they are, and spout every other tired buzz word you have learned.

Posted by matlock on Jul. 29, 2012 @ 10:53 am

I know it's gonna soon be raining shit as though from some crap-packed Krakatoa.

Posted by Guest on Jul. 30, 2012 @ 1:12 pm

"progressives" pick and choose their way through things. Everyone does it, the average progressive is just more opportunistic and lacking in self awareness.

Posted by matlock on Jul. 30, 2012 @ 2:18 pm

the intellectual acumen to engage in a meaningful debate, being incapable of other than the rather tawdry rhetorical parlor trick of reciting some rightist cant and falsely attributing whatever argument it pretends to refute to whomever is at hand.

matlock, I can't even begin to explain to you just how much you suck.

Posted by Guest on Jul. 30, 2012 @ 7:23 pm

keep it up.

Posted by matlock on Jul. 30, 2012 @ 10:16 pm

"I know it's gonna soon be raining shit as though from some crap-packed Krakatoa. "

So very very good.

Posted by matlock on Jul. 31, 2012 @ 1:32 am

Don't these restaurants know that making profit is illegal in the socialist paradise of San Francisco? Don't they know that whatever money they earn belongs to City Hall to spend on the panhandlers and vagrants and does not belong to them? I'm sure the illegal alien felon's best friend, David Camos, will set them straight?

Posted by Guest on Jul. 30, 2012 @ 8:18 am

I know of several restaurants that do this -- I was in one yesterday.

Upon thinking about it, there are several ways the cost of paying for employee healthcare can be handled. One way would be to do what every other non-restaurant company does and simply supply health care insurance options, and pass some of that cost onto the employee. But where does the money come from? One way or another, the customer will pay it, whether it is through increasing the price of menu items or the surcharge. If you increase the price of menu items, then the tax you pay will be higher because it will be based on the higher price. If you pay a 4% surcharge, the cost to the customer should be lower because the surcharge is non-taxable.

I also believe that restaurants should not be allowed to pay their wait staff less than minimum wage. They should be paid a living wage and if they have to raise menu prices, then that is the price of doing business.

The money, however, has to come from somewhere. Restaurants are not high profit ventures and restaurant closings are as common as restaurant openings.

Restaurants, especially in California, are somewhat over-regulated and this also adds to the cost. In response, underground restaurants and foodie events are becoming popular. And they are completely unregulated and un-taxed.

Posted by Robert M on Jul. 30, 2012 @ 3:46 pm

Clearly diners have indicated that they're willing to pay higher prices to ensure that the people handling their food get paid when they're sick and have health care.

At this point adding the surcharge is just tacky and vindictive.

Posted by marcos on Jul. 30, 2012 @ 8:22 pm

Having a mandatory 4% added to the bill is effectively a tax. I can't avoid it but I certainly don't approve it.

And tips will be less as a result. My budget for eating out doesn't go up by 4%. I just become cheaper.

Posted by Guest on Jul. 31, 2012 @ 5:30 am

Restaurant business is booming, the health care costs are not driving away diners nor are they making restaurants less viable economically.

Posted by marcos on Jul. 31, 2012 @ 6:07 am

impact of this policy, just like it masks the housing price crash (what crash?).

But you have no figures on whether tip income is lower because of this policy, which is what I suspect the real inpact is.

Workers are still getting their 15% but some of it is now in the form of health insurance, whether they want it or nor, rather than cash tips.

Posted by Guest on Jul. 31, 2012 @ 7:40 am

I've got a feeling that if tip income was down, that we'd hear that from the servers.

Posted by Guest on Jul. 31, 2012 @ 9:30 am

they can make up the shortfall because they get more customers.

But they're still working harder for the same tip, and there's nothing wrong with that.

10% is the new 15%. and in fact back when I was a kid, tips were 10% anyway.

Posted by Guest on Jul. 31, 2012 @ 9:49 am

Servers have to make an effort to get less than 20% tip from us. Otherwise we don't dine out.

Posted by Guest on Jul. 31, 2012 @ 10:04 am

previously got from a 15% tip, because they no longer have to buy health cover.

Dude, you can tip 20% or 200% if you want. I'm tipping 10%-11% tops and if a server asks me why, I'll have no issue explaining to them it's to allow for their free healthcare.

Posted by Guest on Jul. 31, 2012 @ 10:17 am

You will be fortunate if the least of your problems will be spit in your next meal at that establishment.

Posted by Guest on Jul. 31, 2012 @ 10:26 am

Tips are discretionary.

Posted by Guest on Jul. 31, 2012 @ 11:03 am

Tipping is classy. Spitting in your food is discretionary.

Posted by Guest on Jul. 31, 2012 @ 11:17 am

Their income drops but they no longer have to buy health insurance.

That's the point, surely, to leave them no worse off than before.

Posted by Guest on Jul. 31, 2012 @ 9:55 am

This is obsurd.....this makes folks not want to tip xtra....not the employees fault right? Ok Mayor of San need to change this before the charges, the investigation get you in the@#$%%. I refuse to eat in San Fran till this gets corrected.

Posted by Guest on Aug. 15, 2012 @ 5:25 pm

I always tip 20% or more to my servers. I don't have a problem with the added 4% surcharge towards healthcare for the doesn't effect the 20% that I normally tip. I DO HAVE A VERY BIG PROBLEM with the restaurants that are charging me this surcharge and not making sure that it goes to their employees healthcare. As a consumer, I believe that I have the right to know which restaurants have been STEALING from ME and their employees...I will no longer patronize them! Does anyone know which restaurants? I only know of one...ate there frequently...will not be going back there!

Posted by Rdhlout on Jan. 25, 2013 @ 9:03 pm

I simply deduct these charges from the tip. The servers can complain to management as far as I'm concerned and work elsewhere if the management wants to continue to try to scam me. Raise prices if you want enhanced margins. That way, I'll know to avoid the restaurant when I see the menu.

Posted by Guest on Aug. 28, 2013 @ 2:31 pm

imposed on diners, and I am very happy to further reduce tips if I get any sense from my server that he or she feels entitled to what should be a discretionary increment.

Posted by Guest on Aug. 28, 2013 @ 2:51 pm

of spit in your food yet?

Posted by Guest on Aug. 28, 2013 @ 3:17 pm

Are you in Albania, perhaps?

Posted by Guest on Aug. 28, 2013 @ 4:01 pm

and you still don't tip properly. Skin to flint.

Posted by Guest on Aug. 28, 2013 @ 4:15 pm