Feb 26, 2024 - News

Minnesota lawmaker pushes to ban "service fees" on restaurant bills

Illustration of a restaurant bill holder with the words "no thank you" on it.

Illustration: Brendan Lynch/Axios

A Minnesota state lawmaker wants to ban "service fees" and other surcharges that come on top of the tip on restaurant bills and hotel tabs.

Why it matters: The charges, sometimes called a health and wellness fee, are one of the most polarizing aspects of dining out and traveling.

Driving the legislation Rep. Emma Greenman (DFL-Minneapolis) told Axios she was tipped off to the issue after she noticed a 4% fee on a receipt at MSP Airport that "wasn't clear what it was for."

  • "Consumers hate it, and it's also deceptive because you're not actually telling people what something costs until they're at the point of no return," Greenman said.

State of the tabs: The practice grew in popularity during the pandemic. Some restaurants say the fees help them boost pay for cooks and other back-of-house workers since state law bans employers from forcing servers to share their tips.

  • Some also use them to offset costs related to employee benefits such as health insurance or complying with local and state mandates.

Yes, but: Greenman argues that the cost of payroll and other benefits should instead be baked into menu prices.

  • "It doesn't keep the prices down; it just obscures what the actual price is right at the front end," she said.

Her bill seeks to end the practice by adding advertising or offering a price for goods or services that does not include "all mandatory fees or surcharges" to the state's list of illegal "deceptive trade practices."

The other side: Tony Boen, director of operations at Duluth-based Grandma's Restaurants, said taking the option off the table will make bills less transparent because diners will see higher prices with no indication of where that money is going.

  • "A service charge at least says, 'Hey, we're doing something good,'" said Boen, who added a 5% surcharge to food sales a few years ago to give workers who aren't tipped servers "a fraction of the action."

The fine print: Greenman said she does plan to add a carve-out for gratuity charges that are used in place of a tip, so restaurants could still charge a 15 or 20% service fee instead of offering the DIY option.

Reality check: The draft bill is in its early stages and hasn't yet gotten a hearing. It's not clear whether it will advance this year.

Between the lines: A growing number of restaurants in Minnesota are ditching fees in response to confusion and backlash from customers.

Grandma's is among them. Boen said he's phasing out the idea due to negative feedback from diners and will increase prices by 5% instead. But he still thinks others should be able to try it for themselves, especially given the industry's tight margins and labor market.

  • "I don't know what government is doing, telling us what we can charge for and what we cannot," he said.

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