California AG Handcuffs Restaurants, Bans Service Charges

California AG Rob Bonta labels restaurant service charges as ‘junk fees’, meddling into business operations
  • Publication Date: May 2024

California sit-down restaurants have been suffering the consequences of the state’s relentless wage hikes since 2017. The state has raised its minimum wage every year since and is the highest in the country. Local California cities have also been pushing their minimum rates even higher (see a full list here).

Now the state attorney general has announced one of the inevitable adjustments to rising wage hikes will no longer be allowed: restaurants cannot charge service fees as a way to adjust to rapidly rising price increases. According to Attorney General Rob Bonta, service charges added to customer checks at restaurants will now be considered “junk fees” and thereby banned in California.

New data analysis by the Employment Policies Institute (EPI) shows California’s state and local wage hike laws have already hurt state restaurants. Federal data shows California’s full-service restaurant (FSR) industry has lost jobs since wage hikes were enacted starting in 2017 – even before the impact of the pandemic.

Rebekah Paxton, EPI’s research director, made the following statement:

“Across the country where restaurants are being subject to ill-advised minimum wage hikes, operators are introducing service fees as the only method of adjustment that allows them to keep their staff without driving away customers with huge price hikes. California is now punishing restaurant owners for making these adjustments to its own bad law, and will drive more restaurants out of business and kill many more jobs in the process.”

See more detailed data findings below:

  • Since California’s most recent wage law was implemented in 2017, full-service restaurant (FSR) jobs have fallen by -5.7%. (Total private employment rose 8.8% during this period.)

    • Prior to wage hikes implemented in 2017, California’s FSRs increased employment by 28.4% since 2010, doubling total private employment growth in the same period (19.7%).

  • Prior to pandemic losses, California’s full-service restaurants (FSRs) were already suffering. 

    • From 2017 to January 2020, California’s FSR employment growth rate plunged from averaging 4.1% growth from before the 2017 state wage hike law, to averaging just 0.7% from 2017 to January 2020

    • Prior to pandemic-era shutdowns beginning in Spring 2020, the state had fewer FSR jobs in January 2020 compared to the year before: a loss of -0.1% (almost 700 lost jobs) from January 2019 to January 2020.

  • Full-service restaurants’ share of total California employment has fallen by -13.3% since 2016.

  • California’s full-service restaurant (FSR) industry has failed to recover from pandemic-era losses, still 6.5% below its peak in January 2020. Total private employment in California has recovered, rising 2.0% beyond 2020 levels.

    Source: Bureau of Labor Statistics State and Local Area Employment data, 2010-2024, retrieved from the Federal Reserve Bank of St. Louis.

California businesses are already facing a potential hike to $18 an hour, which will be up for the voters to decide in November on the ballot. Last month’s fast-food wage law mandating a $20 per hour minimum wage has already wreaked havoc on limited-service restaurants. Activists marched on Sacramento this week to make this mandate apply to all industries. If enacted statewide, full-service restaurants may be subject to the same fate as fast food restaurants, which have lost nearly 3,000 jobs in 2024 bracing for the new wage law.