Herrera takes on restaurants that use bogus healthcare surcharges

In reality, some restaurants offer employees substandard health coverage and pocket surcharges customers pay.

City Attorney Dennis Herrera fired a warning shot across the bow of San Francisco restaurants that use a customer surcharge ostensibly to pay for employee health care – while in reality, many restaurateurs simply pocket the money and offer substandard health care options to employees – over the weekend when his office announced a settlement with Patxi's Chicago Pizza.

The tone of the press release announcing the $320,000 settlement was generally positive, with Patxi's claiming it was an innocent error and Herrera praising the owner's cooperation in an agreement that improves the health care coverage of Patxi's employees, compensates employees for the error, and ensures all surcharges tacked onto customers' bills go to employee health care. Yet Herrera also included a warning to other restaurants.

“But today's settlement should send a strong message that San Francisco is serious about making sure that restaurants keep their promises to their customers about health care surcharges. I look forward to announcing a larger, more global effort in the coming days to address this issue, to make sure health care surcharge money goes to the workers rather than being pocketed by business owners," Herrera said in the release, signaling an effort to resolve with civil enforcement something that the political system has failed to do.

This became a hugely contentious issue in 2011 when the Golden Gate Restaurant Association (GGRA) and San Francisco Chamber of Commerce aggressively opposed reform legislation by Sup. David Campos that would have required that all surcharges be spent on health care and prevented employers from raiding health savings accounts at the end of each year. Mayor Ed Lee vetoed that measure but signed a watered down version by Sup. David Chiu – moves that Herrera criticized while running for mayor.

GGRA (whose Executive Director Rob Black didn't return our call) aggressively fought the city's Health Care Security Ordinance requirement that employers provide minimal health coverage to their workers, taking it all the way to the US Supreme Court. After losing that battle, many restaurants began adding a 3-5 percent surcharge of customers' bills, even while offering employees what experts say is the worst form of health coverage, healthcare savings accounts, and often blocking their employees efforts to use them.

An investigative report in the Wall Street Journal showed how many San Francisco restaurants were essentially committing consumer fraud by pocketing the surcharges, elevating the issue, but the District Attorney's Office has consistently refused to treat this as a criminal matter, despite calls for action by the Civil Grand Jury. So Herrera's willingness to use civil sanctions, and his warning of more to come, was enthusiastically welcomed by Campos and other advocates.

“I'm very happy with what the City Attorney's Office is doing,” Campos said. “It's time for this kind of legal action.”

Campos had already pledged to reevaluate the issue later this year as data comes in about how the compromise regulations by Chiu and Lee are working, threatening to take it to the ballot if necessary and calling it an important issue for all San Franciscans.

“It's not just about protecting workers and consumers, but also protecting businesses that play by the rules and comply with the law,” said Campos, noting that many restaurants have admirably refused to use the surcharge, shortchange their employees, or support GGRA's litigation against the city. “It's about fairness.”


I believe the Buca di Beppo on Howard Street also socks its customers with a "Healthy San Francisco surcharge" and has been doing so for a while.

Posted by Peter on Jan. 15, 2013 @ 9:14 am

About time, but what took Herrera so long? Until these thieving proprietors and financiers start doing some time, it will be business as usual.

Posted by Proudhon on Jan. 15, 2013 @ 2:55 pm
Posted by Guest on Jan. 15, 2013 @ 3:05 pm

Employing people is theft.

Posted by matlock on Jan. 15, 2013 @ 3:12 pm

it's how the employer gets rich off of other people's efforts

Posted by Guest on Jan. 15, 2013 @ 3:34 pm

I know tech employees who make far more than most of my "rich" employers.

I also have consulted start ups, many people have the goal of starting a small business and getting by. In the case of eateries their goal is to survive.

Posted by matlock on Jan. 15, 2013 @ 4:03 pm

At Patxi's, we are 100% committed to the health and wellbeing of every employee and consider it a fundamental duty to pay each and every one of our employees the healthcare benefits they rightfully deserve. We’d like to set the record straight. Money accrued by Patxi’s for this purpose has never been spent on anything other than healthcare for our employees. Unused Healthy SF surcharge funds were set aside to pay future healthcare claims filed by Patxi’s employees.

This post on our blog has the full story: www.patxispizza.com/community/healthy-sf-settlement

To our patrons who feel they’ve been wronged or mislead by Patxi’s as a result of the news of our settlement, we offer our sincerest apologies. Our employees are our family.

Posted by Patxi's Pizza on Jan. 15, 2013 @ 7:42 pm

You people only do the right thing when the government forces you to. Thank god we have some laws in place to make sure you treat your workers well. Not strict enough, IMO.

Posted by Greg on Jan. 15, 2013 @ 10:12 pm

every year? Or why? It's those laws and costs that government have stuck to restauranteurs.

Minimum wage PLUS tips PLUS free healthcare? for shlepping a few plates? Gimme a break?

Tip 11%.

Posted by Guest on Jan. 16, 2013 @ 7:47 am

It's a tough business. There was high turnover before Healthy SF. There's high turnover in the states that pay the lowest wages.

Now, you are encouraging others to undertip. Nice guy.

Posted by Eddie on Jan. 16, 2013 @ 8:05 am

that inevitably puts extra stresses on them, meaning the survival rate will be lower.

And yes, I am advocating tipping differently. I still tip 15% - 11% in cash and 4% for their healthcare.

Posted by Guest on Jan. 16, 2013 @ 8:42 am

You tell 'em, Guest, that's why SF has so few restaurants, it's the damn government's fault.

Hmm, doesn't that really make any sense to anyone?

Apparently you don't get out much. The reality is restaurants are thriving in this city, despite having to pay minimum wage and offer bare minimum health coverage.

Posted by steven on Jan. 16, 2013 @ 12:35 pm

It's an affluent place, after all, despite your best efforts to turn it into Detroit.

But many restaurants fail and a high cost base has to be a factor.

Since wait staff get minimum wage (unlike servers in many other places) why should customers pay their healthcare. It's not like I have to do that for those on minimum wage in other jobs, and who don't get tips?

Why are servers special over janitors, shopkeepers, cashiers etc?

Posted by Guest on Jan. 16, 2013 @ 12:54 pm

I was under the impression that everybody in San Francisco has some kind of health care coverage now, either through the employer or through Healthy SF.

And as Steven said, restaurants are thriving. Even if you accept the view that government imposed mandates are a negative to doing business here, the fact that the wealth and culture and tourist base of San Francisco supports a ready customer base, is a positive. Which effect is greater? Well, the fact that SF supports such a sheer number and diversity of restaurants -a better restaurant scene than anywhere including (dare I say it?) New York -is prima facie evidence that on balance, San Francisco is a fantastic place for restauranteurs to do business.

Posted by Greg on Jan. 16, 2013 @ 10:34 pm

Jason Grant Garza ... wow, what a wonderful puff article about Herrera. Wasn't there concern over this back ago in the newspapers? Is this part of the followup to that ... just now?

So Herrera takes on BOGUS HEALTHCARE CHARGES ... WHAT ???

I'm a bit confused ... what about BOGUS STAYAWAY (Restraining Order) that DENIES PUBLIC HEALTHCARE to a DISABLED individual seeking HEALTHCARE. See youtube https://www.youtube.com/watch?v=7cP3jCmJFRo o 8/15 and then after going to the Sheriff (Ross) and told NO such ORDER on 11/27 (see youtube) what DPH does again https://www.youtube.com/watch?v=VFd-KtS8Zss . on 12/19.

I'm waiting to be told that Herrrera can not make DPH perform ... you know follow the LAW and provide legally required medical services ...

Yes, let the GAMES continue ...

Look at all the OTHER videos and remember YOU ARE NEXT ... keep drinking the KOOL-AID.

Posted by Jason Grant Garza on Jan. 16, 2013 @ 12:08 am

Personally, I love my flex spending account that exists because of the HCSO. You would not believe the completely legitimate medical expenses that mine covers, processes that I need and have not had a chance to attend to in years because I have not had health care.

Posted by Guest on Jan. 16, 2013 @ 10:21 pm