No comment on restaurant surcharges

Kevin Vasquez dines out a lot. He expects to pay tax and feels good about tipping. But the 6.9 percent surcharge a local restaurant added to his bill after January 1, well, that was hard to stomach.

"Nothing was ever said about it. Nowhere was there notice I was going to be charged," Vasquez said. "I wasn't told when I came in and I wasn't told when I ordered. To me, that's fraud."

Fiesta Cantina in Hillcrest isn't alone — many restaurants have added surcharges, usually around 3 percent, saying they need to offset the costs of minimum-wage increases that went into effect the first of the year. (Calls to Fiesta Cantina to confirm the surcharge resulted in the manager refusing to answer and hanging up on this reporter.)

The Cohn Restaurant Group and Sammy's Woodfired Pizza restaurants have added a 3 percent surcharge. Calls to find out if San Diego Restaurant Week (January 15–21) diners should expect to see the surcharge went without response.

On January 1, San Diego's minimum wage rose to $11.50 per hour — a dollar higher than the state minimum wage set at $10.50. The California Restaurant Association was one of the most outspoken and active opponents of the wage increase; the group is based in San Francisco, where the minimum wage is at $13 until July 2017, when it jumps to $14.

Antitrust lawyer Daniel Sterrett wants to know is if the association guided the move to surcharges.

"If one restaurant decides to surcharge, that's not antitrust," Sterrett said. "If a bunch of restaurants come together and levy very similar surcharges at the same time, that bears looking into because it could be colluding to set prices and that's an antitrust matter.... You can't legally have a bunch of businesses getting together and deciding it's time for a price increase."

The restaurant association sought an opinion from the state Board of Equalization on whether the surcharge could be taxed in December, according to state documents posted on the group's website on December 29. Board of Equalization employees confirmed that the restaurant association sought the information.

But association spokeswoman Sharokina Shams said the group is guided by its membership and not vice versa

"Where we come in is we help them speak to each other," she said. "We help them connect." Shams pointed out that the average profit for restaurants is around 5 percent — so achieving a $50,000 profit requires $1 million in gross revenues. And, she said, wages and employee costs are as much as 95 percent of a restaurant's expenses.

Calls to the local restaurant association were not returned Tuesday and Wednesday (January 3 and 4). Both the Cohn group and officials from the Ladeki Restaurant Group (which owns Sammy's) declined to comment.

Patrons of restaurants in the Sammy's chain (as of January 4) can expect to see a 3 percent surcharge at San Diego restaurants and a 2 percent surcharge at restaurants outside of the San Diego city limits, an employee said.

Sources say that the local chapter of the restaurant association — which Shams described as one of the most active in the state — consulted with the Golden Gate Restaurant Association on how to implement the surcharge. The San Francisco group instituted surcharges in 2015 when Obamacare policies triggered extra costs for small-business employers, including restaurants. Calls to that association went without response as well.

Attorney Sterrett is suing some Los Angeles restaurants over those 2015 surcharges, claiming the add-ons violate antitrust law. His suit recently withstood attempts to dismiss it — winning a judge's ruling that the conduct in question is a per se violation of antitrust law — a ruling that nearly wins the case for him.

For Fiesta Cantina diner Vasquez, the surcharge was offensive primarily because it was a surprise, but it also cast a bad light on the restaurant. "I feel bad for the servers who have to explain to customers it's so they can have a decent wage, This makes people mad at the servers," he said. "And I don't like being nickeled and dimed — they should just raise prices 25 cents."

Vasquez's reaction to the surcharge lines up with what University of California San Diego professor On Amir has observed. Amir is a professor at the Rady School of Management who studies consumer behavior.

"There are right ways and wrong ways to raise prices," Amir said. The surcharge "doesn't create the image of fairness for diners who think 'you're underpaying your people and now I have to pay more because of your unfair labor practices."

Consumers evaluate pricing for what they are used to paying and for their expectations of what things should cost, as well as fairness, he said.

"Restaurants would be much better off incorporating the surcharge into the food prices and saying, 'It is January 2017 and our prices are up.' Explicitly surcharging for labor creates the image of unfairness."

But if restaurants do plan to surcharge, the surcharge should be thoroughly disclosed from the moment people enter the restaurant, Sterrett said.

"To not tell customers and then add it at the end of the meal could be construed as fraud," the lawyer said.