Restaurateurs in California are very nervous about how their businesses will fare when they have to stop adding surcharges to customers' checks and either raise menu prices or lower wages, or both, starting in July.

San Francisco restaurants in particular have been fond of these charges for the last 15 years or so, in response to city mandates for higher minimum wages and healthcare for employees. And while customers have generally disliked the surcharges, inflationary pressures and calls within the industry for living wages for cooks and dishwashers have kept them around — even as menu prices have also risen all the same.

Those menu prices could go even higher starting in July, after a state law that passed, SB 478, without much apparently debate, that bans all "hidden" fees and surcharges for "goods and services" across the state — which was largely aimed at combatting the trend of ticket brokers and others tacking on fees at the last minute, which jack up the price of things like concert tickets and food delivery after you've already clicked on a given price.

As the Chronicle reports, the California Restaurant Association is attempting to litigate the matter of whether restaurant dishes count as "goods" or "services," to see if the restaurant industry can get away with skirting this law as written.

Attorney General Rob Bonta has already shot back at the group's lawyer, Brian Hildreth, saying that restaurants are not exempt, and that the law "empowers consumers by arming them with accurate information." The new law also, Bonta says, "protects businesses that don’t charge hidden fees from being unfairly undercut by those that do."

Presumably, Bonta is referring to businesses like restaurants that have already, perhaps long ago, built all of their costs into their menu prices, so that check prices aren't a shock.

The Chronicle's Soleil Ho already stopped in for a chat last week with longtime Cole Valley restaurant Zazie, which adopted a policy several years ago of what-you-see-is-what-you-pay with their prices — and that means even tips are included. Uniquely for an SF restaurant, Zazie charges no surcharges and asks for no tips checks, saying that gratuities, wages, food costs, rent, 401k matching, and healthcare are all built into their menu prices — which aren't that much higher than at other restaurants.

How do they do it? The rent on the space is not cheap, but perhaps not as high as some restaurants pay — it's $13,000 per month. And servers' take-home pay does vary depending on how busy the restaurant is. But a burger at Zazie is $26 — and as Ho points out, Zuni Cafe's $22 burger will actually cost you $27.50 after you factor in the automatic 20% service charge and 5% "employee benefit fee."

So, will this argument about restaurant dishes being neither "goods" nor "services" really work? Probably not. But it points to what will likely be some legal wrangling in the six weeks ahead before the law takes effect on July 1.

Harvey Rosenfield, founder of Consumer Watchdog, tells the Chronicle that the Restaurant Association's argument is "ridiculous," and of course food in a restaurant, like food purchased from an app, is a purchased "good", and the process of getting it to your home or your table is a "service."

Hildreth, the restaurants' attorney, is hoping a judge will see things his way, and that "goods" are physical things "bought or leased for use primarily for personal, family, or household purposes."

The powerful restaurant lobby in the state could put pressure on lawmakers or Governor Gavin Gavin Newsom to carve out exceptions here, but we'll see.

Tim Stannard of the Bay Area's Bacchus Management Group (Spruce, La Connessa, Selby's) called the prospect of the change "terrifying," telling the Chronicle earlier this month that without surcharges, "We can’t pay the wages we’re paying now unless we dramatically increase prices and hope guests actually come in and pay those prices."

As an example, Stannard suggested that we'll see "cocktails going from $16 to $26," and he adds, "I’m pretty sure that’s not what [the lawmakers] intended."

Now, this could end up being an exaggeration — Zazie has somehow managed, after all — and maybe once their hands are forced, restaurants will just make it work and no one will notice any dramatic markups. It is important to note that Chronicle critic Michael Bauer was calling for an end to these surcharges way back in 2008, saying that restaurant owners needed to suck it up and fold their costs into menu prices, and the surcharges were like a childish form of protest — and that was a full 16 years ago.

But it can also be argued that the raft of surcharges you get on a DoorDash bill or a Ticketmaster purchase are more akin to "junk fees" that are lining the pockets of corporations. Whereas restaurants, which are historically low-margin, are often just trying to balance rising costs against pressures to keep their prices reasonable and customers happy.

The California Restaurant Association was pressing Bonta's office for clarification of the law last month. "This legislation was promoted as a measure that would clarify, but not expand, the scope of current law," association President Jot Condie said in a statement. "Unfortunately, the Attorney General appears to have broader ambitions for this law than the legislators that wrote and passed it."

And Napa-based Senator Bill Dodd, who co-sponsored the legislation, even said "there remain open questions and varying views on the law," but this week he tells the Chronicle that he agrees with Bonta's interpretation that restaurants should be included.

Previously: Restaurant Surcharges Are Set to Disappear This Summer Under New State Law

Photo: Simon Kadula