SF restaurants pocketed health care fees S.F. CITY ATTORNEY Diners were duped as dozens of restaurant owners kept the extra money, Ammiano says

Patxi’s Chicago Pizza is paying back 115 current and past employees - who were denied medical coverage from 2009 to 2011 - a total of $205,000. Patxi's will also pay $15,000 in penalties to the city. Patxi’s Chicago Pizza is paying back 115 current and past employees - who were denied medical coverage from 2009 to 2011 - a total of $205,000. Patxi's will also pay $15,000 in penalties to the city. Photo: Stephanie Wright Hession Photo: Stephanie Wright Hession Image 1 of / 4 Caption Close SF restaurants pocketed health care fees 1 / 4 Back to Gallery

More than 50 San Francisco restaurant owners are being targeted by the city attorney's office for charging diners extra fees to cover the cost of city-mandated health care for workers and pocketing most of the money.

Friday, San Francisco City Attorney Dennis Herrera is expected to announce an amnesty program requiring restaurateurs and a handful of other business owners to pay back a portion of the money to their employees.

More than $14 million was collected in worker health care surcharges in 2011, and roughly only a third of that money was actually used for medical coverage, according to a report by the Office of Labor Standards Enforcement.

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"It was pocketed back to the restaurateur," said San Francisco Supervisor David Campos. "I can't say all of them, but for some of these restaurants it was a marketing ploy."

Under Healthy San Francisco, a program for uninsured residents, the city requires businesses with 20 workers or more to set aside an extra $1.55 an hour for each employee, to be used toward health care. For companies with 100 employees or more, it's $2.33 an hour.

In 2008, many restaurant owners decided that instead of raising the prices of food and beverages to cover the increase, they would tack on a surcharge at the bottom of the bill, explaining to diners that the extra money was to be used toward employee health care. The surcharge can be a percentage of the bill or a flat fee.

But those diners have been duped, said Assemblyman Tom Ammiano, the primary architect of the Healthy San Francisco law when he was a supervisor. He and Campos will both be at a news conference Friday to announce the city's findings - an investigation that is continuing, they said.

"Requiring these people to pay restitution is a compromise," Ammiano said. "If it was up to me, I'd throw them in jail."

In some cases, not only did the surcharge money go back into owners' pockets, but employees were denied health care altogether, Ammiano and Campos said.

The inconsistencies were caught after the health law was amended in 2011, requiring city audits of the surcharges. Last year, 3,652 restaurants turned in their paperwork to the labor office, which found oddities in the accounting. The documentation was then turned over to the city attorney for a full-fledged investigation.

As part of that examination, Patxi's Chicago Pizza has already agreed to a settlement, including increasing health care benefits by $100,000 this year and paying back 115 current and past employees - who were denied medical coverage from 2009 to 2011 - a total of $205,000. Patxi's will also pay $15,000 in penalties to the city. None of the other restaurants involved has been disclosed.

The city attorney plans to notify the other restaurant owners of the discrepancies and require them to give an accounting of how much they collected in surcharges and how much of that money was put toward employee health care as far back as 2009, Ammiano said. Then a payment plan will be worked out, he said.

"Where I come from it's larceny," Ammiano said. "But at least it's coming to light and there will be consequences for these business owners."

For Campos, it's a consumer-trust issue.

"These diners thought they were paying for workers' health care. Instead these owners were gaming the system," he said.