Several years ago, I was on a panel for a community event at which the topic was Healthy San Francisco, our local mandate that forces employers to provide health care or pay The City to do it on the employer’s behalf. When it was time for questions from the audience, one person asked, “Who makes sure those restaurant surcharges are actually going to pay for employee health care?”
I had to answer with the sad truth: “No one.”
Well, finally someone has stepped up to look into this unregulated practice. City Attorney Dennis Herrera’s office is using California’s Unfair Competition Law to go after restaurants that, from 2009 to 2011 (we don’t have 2012 reports yet) claimed a certain surcharge was for health care, but didn’t actually spend it for that purpose.
According to the city attorney, “despite representing to their customers that the surcharge will be used to fund employee health care, some companies have not used the excess funds for this purpose. This could be consumer fraud, and it is punishable by severe financial penalties.”
The kinds of surcharges at issue say things such as “Healthy SF,” “S.F. Healthy,” “S.F. Health Care Mandate,” “S.F. Health” and “S.F.H.O.” (presumably San Francisco Healthcare Ordinance). Because these businesses specifically advertise to consumers that the money collected is being used for health care, they are the ones the city attorney is going after first.
But what about the squirrely ones that say things like “S.F. Mandates,” “S.F. Mandate Fee,” “Employee Mandates,” “S.F. Mandate Charge” and “City Surcharge”?
They would be much harder fraud cases, since restaurants that use such terms aren’t exactly lying to customers — there are increased costs associated with running a business in this city.
I asked Herrera if he’ll go after restaurants that use the more nebulous terms on their surcharges. He responded: “We’re focused on health care and the representations that were made to consumers. If there are other public policy things that the board wants to deal with, that’s up to them, that’s not what I’m focused on.” (Read: no, because pocketing something called “city surcharge” probably isn’t fraud.)
The board did pass a law in December 2011 that requires any company using a surcharge “to cover in whole or in part the costs of the health care expenditure requirement” to make an accounting to The City showing the destination of that surcharge. But the only penalty for violating that provision is to “refer any potential cases or consumer fraud to appropriate authorities.” This just gets us back to Herrera’s office and the difficult task of showing fraud where health care isn’t explicitly mentioned in the surcharge.
Frankly, any of the restaurants found to be fraudulently misusing surcharge funds could just settle with The City, change their receipts to call it “S.F. Mandates” and keep on with the practice.
The City could ban these surcharges, but no one has approached Herrera to draft such legislation. Ahem.
Melissa Griffin’s column runs each Thursday and Sunday. She also appears Mondays in “Mornings with Melissa” at 6:45 a.m. on KPIX (Ch. 5). Email her at