Are Your Menus Compliant with the New California Restaurant Surcharge Law?

As overhead prices surge, many restaurants have turned to surcharges to stay profitable. A new California restaurant surcharge law allows these surcharges but requires restaurants to provide clear information on menus. These rules are in effect as of July 1, 2025, so make sure your restaurant is compliant.

The Controversy over Restaurant Surcharges

Faced with higher operating costs and changing regulations, many restaurants are forced to raise prices. Rather than increase the cost of each individual menu item, some restaurant owners have introduced surcharges. According to a 2023 report from the National Restaurant Association, 15% of restaurants had added a surcharge. A year later, 16% of restaurants had added a surcharge. Although these surcharges can take different forms, many are service fees that are added to checks for large groups, especially in states that have banned tip credits. Delivery fees are also common. Surcharges can also be a way to deal with price fluctuations and supply chain snags. USA Today says some restaurants added egg surcharges to cope with egg shortages caused by bird flu. For example, Waffle House introduced a temporary $0.50 surcharge per egg in February.

While restaurant operators may view this as a practical approach, diners aren’t always happy to see extra charges on their bills. CNBC says some customers are surprised by the extra costs and feel like they’re being tricked into paying more. Some Reddit users even created a list of restaurants charging hidden fees.

Legislation Against Hidden Fees

Restaurants aren’t the only industry to leverage fees. California passed SB 478, the False Advertising Law, banning businesses from charging hidden fees that are not included in the initial price presented to customers. On a national level, the FTC introduced a ban on so-called junk fees. According to the National Restaurant Association, the rule initially included restaurant fees, causing alarm among restaurant owners who said they would have to raise their prices if they couldn’t charge delivery fees or other fees. Additionally, the FTC estimated the rule would cost each restaurant an average of about $5,000 to implement.

While it looked like both of these laws would initially apply to restaurants as well as businesses in other industries, exceptions were made to provide relief to the restaurant industry. The National Restaurant Association says the FTC excluded restaurants from the junk fee ban. Meanwhile, Restaurant Hospitality explains that Governor Newsom signed an exemption, SB 1524, to exclude restaurants from the California ban on fees. However, this did not mean that restaurants would be free to add hidden fees, as the California law also created disclosure requirements to prevent surprise charges.

New Restaurant Surcharge Rules Effective July 1, 2025

SB 1524 takes effect on July 1, 2025, and applies to restaurants as well as bars and other food service companies. Under this new law, these businesses are required to conspicuously display additional fees along with an explanation of the fees’ purpose on advertisements, menus and other displays.

The key word here is “conspicuously.” Restaurants need to ensure that any and all fees are clearly displayed so diners will not be surprised when they receive the bill. The California Restaurant Association explains that fees should be displayed in a larger or contrasting type, font or color to the surrounding text or set off by symbols or other marks to call attention to the fee.

Many restaurants that use fees will need to update their menus and advertisements to comply with this requirement. Restaurants that have menus posted on various websites should verify that they are all updated. Restaurants that violate these requirements may be subject to legal action, and consumers can seek actual damages of at least $1,000. You can read SB 1254 here.

New regulations like the California’s surcharge rule can make it hard for restaurants to manage their risks. Heffernan Insurance Brokers can help with specialized risk management and insurance solutions designed for the hospitality industry. Learn more.