California restaurants can charge service fees but there's a catch

The bill builds on SB 478, which bars businesses of all types from adding undisclosed fees at the end of transactions

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Restaurants in California are allowed to keep surcharges but a new law states that they have to disclose them to customers.

Gavin Newsom on Saturday signed SB 1524 into law, which clarifies language for restaurant pricing and transparency.

While the bill doesn't ban service charges, it does require restaurants to clearly display mandatory fees and charges with an explanation of their purpose, on any advertisement, menu, or other display.

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Customers at a restaurant at the Ferry Building in San Francisco, California, US, on Friday, May 31, 2024.  (David Paul Morris/Bloomberg via Getty Images / Getty Images)

The bill, which goes into effect Monday, builds on SB 478, which bars businesses of all types from adding undisclosed fees at the end of transactions, according to Sen. Bill Dodd, who introduced the bill alongside Sen. Nancy Skinner.

The bill "applied to the proliferation of the hidden charges on purchases such as online event tickets, lodging and other transactions that add billions of dollars in costs for California consumers," according to Dodd.

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However, Dodd said there were questions about how the bill, signed last year by Newsom, applied to restaurant charges, which prompted him to write an urgency measure.

A new distillery and restaurant, Broken Spirits Distillery held its grand opening in Long Beach on Friday, May 31, 2024.  ( Brittany M. Solo/MediaNews Group/Long Beach Press-Telegram via Getty Images) / Getty Images)

Now, under the new law, if a restaurant adds a 20% service fee to the bill, it must be clearly stated on the menu and "cannot be a surprise that only shows up when the bill arrives," according to Dodd.

Sen. Scott Wiener, D-San Francisco, argued that restaurants "should be able to cover costs as long as they do so transparently."

The bill, Wiener said, "strikes the right balance between supporting restaurants and delivering transparency for consumers."