San Diego is cracking down on several restaurants that city officials say are adding surcharges in misleading and illegal ways to help cover increased labor costs from the minimum wage hike that took effect Jan. 1.

Surcharges can be imposed legally and some restaurants in the city have done so this week, but City Attorney Mara Elliott said others are violating the law by not divulging the surcharge before customers order and by stating incorrectly that the surcharge is government-mandated.

Elliott said both strategies violate the false advertising provisions in California’s business and professions code, and that she is sending letters demanding these restaurants cease their illegal actions or she will take them to court.

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“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, especially when there is no legal basis for the imposition of an additional fee,” said Elliott, who replaced Jan Goldsmith on Dec. 12. “That’s just treating people fairly.”

Stephen Zolezzi, president of the Food & Beverage Association of San Diego, said he shares Elliott’s concerns and has advised his membership to make sure they are handling surcharges legally.

“Some places haven’t implemented this in the best way,” he said. “There needs to be something on the menu or posted in the establishment telling people this is what we’re going to do. We received some concerns from the members of the public who said they just laid this on us at the end with the bill and they didn’t feel it’s the right way it should be done, and I agree.”

Sami Ladeki of Sammy’s Woodfired Pizza said he is making immediate changes after realizing he might be breaking the law. He said he is adding wording to his menus about his 4 percent surcharge and also installing signs to notify customers.


“We tried to think of everything before we did this,” Ladeki said. “I called two attorneys today to figure out how to do this. I feel like they’re going after us as though we are criminals.”

The message on the menu will read “As we support the new minimum wage and other mandates, the 4 percent surcharge allows us to continue to provide you the hospitality and quality of food you have come to enjoy,” Ladeki said.

Elliott, who announced the crackdown at a downtown news conference on Thursday afternoon, declined to estimate how many restaurants are imposing surcharges illegally or how many her office has investigated so far.

Elliott said her actions were prompted by news stories by the Union-Tribune and other media about the surcharges and complaints the city has received from restaurant customers.


Local restaurant industry officials last week estimated that about 30 local operators are adding surcharges of about 3 percent to bills in response to the minimum wage hike.

They include Rockin’ Baja Lobster, Urban Kitchen Group, the Brigantine chain, Cohn Restaurant Group and several others.

Most are limiting the surcharges to locations they operate within the city of San Diego, but some are extending the new policy to locations in other areas.

Fast food chains, where restaurant workers don’t receive tips, are not adding surcharges.


The city’s minimum wage increased from $10.50 an hour to $11.50 an hour on Sunday thanks to legislation voters approved in June. In the rest of the county, the minimum wage increased from $10 an hour to $10.50 an hour on Sunday because of a statewide hike.

San Diego’s series of wage hikes is similar to a series approved by the state that will boost California’s minimum wage to $15 an hour by 2022. San Diego’s will increase again, based on the consumer price index, in January 2019.

Many business are affected, but restaurants have more workers earning closer to the minimum wage and labor costs make up as much as 35 percent of operating costs for a restaurant compared to about 11 percent for retail, economists say.

Raising prices is what many restaurants have done in response to the wage hikes, but some others have chosen a surcharge instead to alert customers to why they are paying more.


Elliott said such an approach is legal as long as customers are told about the surcharge before they order.

“Some diners are surprised to learn they are being charged as much 3.5 percent above and beyond what the prices on the menu indicate,” she said. “Many of these diners did not learn of this so-called surcharge, which is not mandated by any governmental entity, until they received their checks. At that point, of course, it was too late to send the food back.”

Elliott said some restaurants have also inaccurately described the surcharge on customer bills as “government mandated,” which makes it seem like the restaurant has no choice but to impose it.

She said the surcharge could legally be described as the restaurant’s response to a government-mandated wage increase, but that the surcharge is not being mandated by the government.


“There has been ample time for every business owner to think through the law’s ramifications on their operations and to make whatever lawful changes they deem appropriate to their prices,” she said. “It’s unfortunate that some restaurants chose another route.”

Zolezzi, the food and beverage industry official, said he is advising restaurants they must be careful to make clear the surcharge is not a government mandate but rather a response to a government mandate.

The California Restaurant Association also agreed that the concerns raised by Elliott should prompt some restaurants to make changes, saying in a news release that they appreciated and respected her comments.

The association said that not just restaurants, but many hotels and transportation providers have also imposed surcharges.


“To adapt to wage increases, restaurants around the state have either raised menu prices, reduced employees’ hours, reduced their own hours of operation, or adopted a surcharge or, in some cases, eliminated tipping and are now using a service charge,” the association said. “Whatever avenue each business chooses as a way to survive in the coming years, restaurants in San Diego and in every city want to be around for a long time to come.”

John Hemmerling, an assistant city attorney who heads the criminal division, said based on a preliminary investigation it didn’t appear that restaurants are acting in concert.

He said that was based on differences in the size of the surcharges and variations of when and how diners are being made aware of the new fees.

Hemmerling said restaurants are breaking the law if they mislead customers or engage in false advertising.


“What’s illegal is not giving somebody notice of what something actually costs until after they’ve already bought it or consumed it,” he said.

Hemmerling said he expects Elliott’s announcement of a crackdown to prompt a flood of complaints from disgruntled diners.

The city’s consumer complaint hotline is (619) 533-5600. Complaints can also be filed at sandiego.gov/cityattorney.

Many restaurants in San Francisco and Los Angeles have imposed surcharges as a way to help cover city-mandated healthcare for workers.


Some restaurants in those cities have also explored prohibiting tips so they can raise prices to pay for higher wages and benefits.

Staff writer Lori Weisberg contributed to this story

david.garrick@sduniontribune.com (619) 269-8906 Twitter:@UTDavidGarrick