Hospitality Minnesota will ask lawmakers for restaurant exemption to new junk fee law

NINA MOINI: Minnesota businesses can no longer add service fees, health and wellness surcharges, or other mandatory charges to customer's bills at the end of a transaction. It's known as the Junk Fee Law, which went into effect January 1. It bars these types of charges, and requires any mandatory fee or surcharge to be included in the advertised or list price for goods and services.

Surcharges on restaurant bills and bar tabs have become increasingly common in recent years, as business owners look for ways to maintain the prices of their goods and pay for things like health insurance for their employees. Supporters say the law ensures price transparency, meaning the price you see on the menu is the price you'll pay.

Here's DFL Representative Emma Greenman.

EMMA GREENMAN: Hopefully, it will provide some transparency and some feeling to consumers that they can compare prices, and they can decide what they want to purchase and services they want to purchase based on what provides a good value or based on the quality of the service or product, not based on having spent 15 minutes thinking it was $20 cheaper, and now at the end, you get this unwanted surprise.

NINA MOINI: But many restaurants and other hospitality businesses argue the service fees are transparent to begin with, and simply raising prices of items on a menu will hurt the business. Joining us to talk about the implications of the law is Angie Whitcomb, CEO of hospitality Minnesota.

Thank you for being here, Angie.

ANGIE WHITCOMB: Thanks for having me, Nina.

NINA MOINI: This is a tough one, right? Because many people have been in the situation, I know I have, where I go, whoa, where did that come from? And you can understand trying to protect the consumer.

But the bill really impacts any industry that sells goods or services, but a lot of focus on your industry, hospitality, right, and how restaurants and food services in the state might be impacted. What are you most concerned about with this new law?

ANGIE WHITCOMB: That's a great question, Nina. We're most concerned with, ultimately, the employees being hurt. If sticker shock drives consumers away, ultimately, shifts will get cut, and if the shifts are cut, you're not working, you're losing out on money.

And if the owners have to find other revenue streams to cover benefits and they can't find it and these tools are taken away, I worry that benefits will be cut.

NINA MOINI: What do you say to customers who say, well, why is it the customer's job to help to support the employees of this business? Cannot the business owner make adjustments to support them?

ANGIE WHITCOMB: The service fee is one of those adjustments. And with Minnesota, we're an outlier, and we have really unique tipping laws. We're one of seven states that don't have the tip credit, we're one of four states that don't allow for tip pooling, and with our minimum wage laws, we've created a real inequity in pay between the front of the house staff and the back of the house staff. And these fees are a very useful tool to help close that gap in pay between the front of the house and the back of the house.

NINA MOINI: How have you seen restaurants adapting to this law change? Have they adapted it? It has gone into effect at the start of this year, but I'm curious, what that process went like for them, and if some are still adapting.

ANGIE WHITCOMB: I think it's important to note that not all restaurants utilize the service fee, and those that do are still adapting. There's added costs with having to change your menu prices and change your menus.

And one thing I want to point out too, Nina, is these fees have always been legislated to be displayed. So there was legislation that it had to be posted in three different places. It mandated the font size. It had to be a certain font and in these three different places, so they've never been hidden or not disclosed on the front end, giving consumer's choice. So to insinuate that our industry is being deceptive in this is just simply not true.

NINA MOINI: Sure. People might be surprised by it, but you're saying it was there in the fine print.

Restaurants are still able to charge a mandatory gratuity, as long as it's displayed clearly, but some owners have said that this has not been received well. So for our listeners, can you explain the difference between a mandatory gratuity and say, a health and wellness fee?

ANGIE WHITCOMB: Sure. So a mandatory gratuity is something that we've all experienced on large parties. So if you have a party of eight or more and you go to a restaurant, they say an automatic gratuity will be charged. That's still allowed.

A service fee or a wellness fee is an additional fee that is not a gratuity. Gratuities by law are the sole property of that server. A wellness fee is revenue that the owner can use to supplement salaries or wages, so it's not mandated to be delivered directly to your server.

NINA MOINI: Thank you for breaking that down. So then if the health and wellness fees are now going away, are you concerned that those costs will come down to the consumer, that the business owner or the restaurant owner will say, well, this has got to fall, trickle down, to the consumer now?

ANGIE WHITCOMB: Well, they're already being paid by the consumer if they're paying the fee. So rolling it up into the price of the menu item-- so if you pay $17 for a burger and fries at your favorite restaurant now, and next week that burger and fries, that same plate, is $21.50 or $25, but there's no fee, it doesn't change anything. They've just hidden it.

And at some point, the consumers are going to say, I know that burger doesn't cost $25 to serve, so I'm going to go somewhere else. And that's ultimately going to hurt the restaurant. And if the restaurant's losing business, their servers are losing shifts, and ultimately the employees are the ones who are going to be hurt. And that's our big concern.

NINA MOINI: And the hospitality industry, like others, I would imagine, or restaurants are also probably facing staffing shortages. So the owners also need to take care of their employees, or they'll lose them. What do you think about that?

ANGIE WHITCOMB: Absolutely, Nina. You could not be more on point.

It is a competitive market out there for employees, for any industry. In the hospitality industry in Minnesota, we employ a quarter of a million people. 250,000 people have hospitality jobs in this state. And on any given day, we're 15,000 short.

So our owners and operators know that-- and they're inherently-- I mean, our business is hospitality. We take care of people for a living, so it starts at home. If you're not taking care of your people, they're not going to take care of your customers, and it's a real short journey for the owner at that point.

So they want to take care of their employees, they want to give them the benefits, but the reality is, they have to as well, because it is such a competitive and tight labor market.

NINA MOINI: How are restaurants planning to communicate these changes with their customers, I guess, and their employees?

ANGIE WHITCOMB: Well, I think the customers are pretty aware that these are going away. So it's really, the conversation has to be with their employees, and being real transparent with them saying, this revenue stream has gone away. This is what we've used it for. We're working on other ways to find revenue to continue to cover these costs.

But, as in any business, if your revenue doesn't cover your costs, you have to cut costs. And that could be employees, that could be benefits, and we don't want to see that happen.

NINA MOINI: So come Monday, when the new legislative session begins, Hospitality Minnesota will be there on the forefront, correct, asking for some changes or amendments. Can you describe what you'll be asking for, and what you think would be helpful?

ANGIE WHITCOMB: Absolutely, and thank you for giving me this opportunity. I don't want this to seem as though we're just the whiny, loud industry saying we don't like this, fix it. We have a solution, and that solution came in the form of the Federal Trade Commission's ruling late last month, and we will be asking for that same fix.

We will be asking for conformity with the FTC language, which exempts restaurants from this ban on service fees, and that includes banquets and catering.

NINA MOINI: So tell me a little bit more about that. The federal Trade Commission has these special rules. How does that change what's currently going to be in the law?

ANGIE WHITCOMB: Well, the Federal Trade Commission established or released rules, a ruling, on this particular topic of the junk fees, and it exempts restaurants from having to follow that rule. So basically, restaurants would be free to utilize these fees, and they'll be disclosed, and they'll be up front. And they won't be subject to this ban.

NINA MOINI: And you're saying that's different from catering and banquet businesses.

ANGIE WHITCOMB: It involves-- it includes catering, banquet. And if you think about it, our industry-- yes-- our industry has so many different business models. So restaurants runs very differently than a food hall that runs differently than a private club that runs differently than a catering company or even a catering and banquets department within a hotel.

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NINA MOINI: Sure, it's not a one-size-fits-all.

Angie, I really--

ANGIE WHITCOMB: One-size-fits-all never works.

NINA MOINI: Right. Thank you so much for coming on and sharing this perspective with us. We'll certainly be following it as the session picks up again come Monday.

Thank you, Angie. Take care.

ANGIE WHITCOMB: Thank you, Nina.

NINA MOINI: That was Angie Whitcomb, CEO of Hospitality Minnesota. As always, thank you so much for tuning in to Minnesota Now. We'll see you back here tomorrow at noon.