Letter sent to thousands of DC restaurants

THIS IS LEGAL INFORMATION ONLY AND NOT A SUBSTITUTE FOR LEGAL ADVICE. I’M NOT YOUR LAWYER

DC’s Attorney General office posted on Tuesday a Q&A “Consumer Alert” about “deceptive restaurant fees.” Although it specifically says it’s not a “legal opinion,” it appears to state their view on how the DC Consumer Protection Procedures Act (CPPA) applies to service fees and other charges restaurants/bars use.

Aside from the pretty obvious “make sure you disclose all fees upfront before ordering” direction, there was a big stir this week because the Consumer Alert says any restaurant fees have to be:

1) explained how they’re used (either by a clear name or explanation) and

2) used “exclusively  for the purposes disclosed.”

And they raised some eyebrows in particular when it stated “’service fees’ must go fully and directly to service workers, unless other uses are prominently disclosed.”

(Similarly, the alert said that something like a “restaurant recovery fee” has to explain what the fee will assist in recovering.)

So some of you who are in the hospitality industry or close followers of the blog/Twitter feed might be confused – “I thought service charges belong to the business and they can do whatever they want with it,” you might say. That’s exactly what my guest posters from September 2020 of the Veritas Law Firm said, and from a labor/tax law standpoint, this appears to be still true. Still, as echoed in the post, the IRS itself has stated “generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges.”

The guest post lawyers included an important caveat, stating “Restaurants should not use misleading language though, we have seen the AG’s office sniff around when fees are labeled as though they are going to the employees, but kept by the house.” So this guidance might not be completely out of left field for those familiar with the CPPA.

So, where is the AG’s guidance coming from? There is no DC law that explicitly talks about service fees.

The AG’s office cites the CPPA and by referring to the term “deceptive” they’re most likely referring to DC Code 28-3904, which bans “unfair or deceptive trade practices.” I would guess based on past cases that I found Googling, they are likely considering (e), (f), and (f-1) as potential reasons:

• (e) “misrepresent as to a material fact which has a tendency to mislead;”
• (f) “fail to state a material fact if such failure tends to mislead, or
• (f-1) “use innuendo or ambiguity as to a material fact, which has a tendency to mislead.”

What the hell does this all mean?? What’s a material fact?? One major way a fact is material appears to be when:

• a reasonable consumer would attach importance to its existence or nonexistence in determining their choice of action in the transaction in question

So essentially, what DC’s Attorney General seems to be saying is that a reasonable consumer would expect that an service fee (without further explanation what it is used for) is effectively the same as a tip, in that 100% of it goes to “service workers” and that a reasonable consumer would find whether or not a restaurant in fact actually gives the service fee to their staff (just like they would for tips) is important in how they are choosing to order at a restaurant. It’s an interpretation that isn’t completely outrageous. In fact, 46% of my followers (and I would expect higher in general restaurant-going public who might not be as aware of the issues) expect a service fee to be a tip replacement, so seems like a “reasonable consumer” might in fact think this.

What’s tricky is that the alert says it must be given “directly” to service workers – for a lot of people that sounds like they’re making it a tip and thus not business revenue. I don’t think that’s what they mean, but I could be wrong. What I think it means is that a restaurant couldn’t use service fees (unless they specifically state this) to pay their employees higher wages in general (which is indirect); without explaining that, I believe it’s intended that the service charges are tied to the employees themselves who were working when the consumer paid them.

As to whether the guidance prevents restaurants from passing along part of the service fee to back of house staff like dishwashers and cooks? It could be definitely read that way as “service workers” could be interpreted to only mean the people personally serving, but in the same poll cited above, 68% believe service charges are shared with back of house staff as well, so seems that potentially would be acceptable in the reasonable consumer eye’s, and potentially in the DC AG’s eyes.

Also, as first reported by Barred in DC, and then followed up with real reporting by Axios, the Attorney General sent copies of the letter posted above to nearly 2,500 DC restaurants, due to consumer complaints. The letter promises education first, but the Consumer Alert linked above only mentions enforcement and a consumer complaint hotline.

Note that by law, DC’s Attorney General, while part of the DC government executive branch, does not actually report to the Mayor.

More to come on this surely.