City Attorney Mara Elliott has filed San Diego’s first legal action against a restaurant for adding an allegedly deceptive menu surcharge to help cover higher labor costs from recent minimum wage increases.
Elliott filed a civil enforcement action last month against Barefoot Bar & Grill on Mission Bay for allegedly failing to disclose its menu surcharge and then adding it to menus in extremely small print after Elliott sent an Aug. 30 warning letter.
The enforcement action, which seeks $2,500 per violation, says Barefoot failed to clearly and conspicuously alert consumers to its 3 percent surcharge and advertised prices that didn’t reflect the true cost of items to customers.
"If a family goes out to dinner, they should be able to trust that the prices on the menu are the prices they will pay," Elliott said. "Our message to restaurants is not complicated: Tell your customers the truth."
Elliott says surcharges, which many city restaurants have instituted since San Diego’s minimum wage rose to $11.50 in January, are legal only if customers are told about them in an accurate way before placing their order.
She said most restaurants that have received warning letters about their surcharges have either made their disclosures more conspicuous or removed the surcharges entirely.
Some restaurants had also been describing the surcharges falsely as government-mandated, but a spokesman for Elliott said that practice appears to have ended at restaurants in San Diego.
Management at Barefoot, which is part of the Paradise Point Resort and opened in 1962, didn’t respond to requests for comment.
A spokeswoman for the California Restaurant Association declined to comment specifically on the Barefoot case, but said restaurants across California are struggling with how to cover sharply increasing labor costs.
The minimum wage in California has risen from $7.50 in 2007 to $10 for businesses with 25 employees or fewer, and to $10.50 for businesses with 26 or more workers.
An ordinance approved by San Diego voters in June 2016 makes the minimum wage inside the city limits $11.50 for all businesses, regardless of size.
The increases have prompted most restaurants to take one of three actions — raise prices, institute surcharges of somewhere between 2 and 5 percent or replace tipping with larger “service” charges of 15 to 20 percent.
The restaurant association spokeswoman, Sharokina Shams, said each of those moves has been unpopular with at least some customers.
"Restaurants feel like they are between a rock and a hard place," she said.
For restaurants choosing surcharges, the association issued a “best practices” document that urges them to clearly alert customers to the surcharge, explain why it’s happening and describe how the money will be used.
One advantage of a surcharge over traditional price increases is that the money can be divided more evenly among restaurant staff instead of going mostly to servers and bartenders, Shams said.
"A surcharge helps them distribute more in pay to kitchen workers, who don't share in tips," she said. "When you just raise menu prices, it increases the tip amount for the server or the host or the bartender, but it still isn't doing anything for the guys who wash the dishes and cook the food."
Service charges are popular for the same reason – the restaurant can divide the money more equally among its staff, she said.
But some customers complain that losing their discretion on tip size eliminates an incentive for quality service, she said.
The federal government is exploring “tip pooling” legislation with the same goal in mind, but Shams said it’s not clear whether new regulations would apply in California.
The state is also among only seven in the nation that don’t allow tip credits – a reduction in pay below the minimum wage for employees who earn tips.
Elliott says Barefoot’s handling of its surcharge violates the false advertising provisions in California’s business and professions code.
In her legal action, filed Oct. 11, Elliott described it as “committing theft by false pretenses by knowingly and designedly misrepresenting or omitting material facts to consumers.”
She says that after a customer complaint that Barefoot’s 3 percent surcharge was not disclosed in any way before the bill arrived, her office sent a letter warning the restaurant that it was handling its surcharge illegally.
Barefoot then “added a disclaimer at the bottom of some of their menus in a font so small it was barely legible,” Elliott said.
A spokesman for Elliott said he couldn’t disclose whether additional civil enforcement actions against other restaurants are being prepared.
Barefoot officials haven’t yet filed a legal response to the city’s action. The deadline to do so is Nov. 24.