Restaurants might not have to inform customers about service charges before money changes hands under a set of changes to Santa Monica’s minimum wage law that City Council will vote on Tuesday.

The city’s minimum wage ordinance guarantees workers a $15 hourly wage by July 2021, with workers at large businesses currently earning $14.25 and their counterparts at small businesses earning $13.25. The ordinance also requires that businesses distribute service charges, such as healthcare surcharges, to employees, and mandates that businesses explain any service charges to customers before a transaction.

But businesses and employees have been confused as to what constitutes a service charge and how to handle surcharges that don’t fall into the “service charge” category. Customers have also been unsure of whether the service charges or surcharges on their bills comply with city law, according to the report.

The City Attorney’s Office is proposing changing the ordinance to apply to all surcharges, including delivery, sustainability and catering fees, and remove the portion of the ordinance that requires businesses to disclose surcharges prior to purchase. City Council will vote on the proposed update to the ordinance Tuesday.

Staff said in a report on the update that they believe many businesses will elect to disclose surcharges to avoid the risk of violating the ordinance.

“The revised ordinance prohibits such a surcharge only if it is misleading or deceptive, that is a surcharge that is imposed in a way that a reasonable customer would believe it will be used for something other than its actual use,” said city spokesperson Constance Farrell. “The ordinance also includes a surcharge disclosure provision that permits a business to comply with the revised ordinance by providing a clear and conspicuous statement that accurately discloses to the customer the purposes for which the surcharge will be used.”

The changes to the ordinance attempt to avoid litigation from the California Restaurant Association, which sent the City Attorney’s Office a letter alleging that the service charge provisions of the city’s minimum wage ordinance amounted to an unconstitutional restraint on commercial speech, according to the staff report.

Additionally, staff said more workers will be covered by Santa Monica’s minimum wage ordinance under AB 5, a state law that sets new standards for defining independent contractors and employees. AB 5 classifies all workers as employees unless they work independently of their employer, perform work that it outside the usual course of their employer’s business or is engaged in an independent occupation of same nature as the work they perform.

The law, which went into effect Jan. 1, was lobbied for by Uber and Lyft drivers who argued that they should be classified as employees to receive a minimum wage, overtime, sick leave and benefits. Many occupations are exempt from the law, including real estate agents, some health care workers and certain artists.

Staff said ensuring that workers previously classified as contractors are being paid Santa Monica’s minimum wage may require additional spending on enforcement.

madeleine@smdp.com