Two L.A. Hyatts Investigated For Adding Service Fees For Restaurant Workers, Pocketing The Money

One of the dirty underhanded practices that’s become increasingly common in California is to use sympathy for workers to pad business bottom lines. If you go to a restaurant in the San Francisco airport you’ll likely notice an add-on service charge for worker health benefits.

  • You may rightly sympathize with people serving you getting a receiving wage, including health care

  • But that should still be included in the price, not as a surprise add-on. It’s false advertising to say your entree costs $10 when it actually costs $10.50.

Worker pay is an employer’s responsibility, between the worker and employer within the bounds of law or between union and employer. It shouldn’t be an ‘add on’ responsibility of the customer. Regardless, the advertised price should be the actual price.

What becomes an even worse practice is charging a 5% add-on service fee for workers and not actually giving the money to those workers which is what the Los Angeles City Attorney suggests seems to be happening at Hyatt’s Thompson and tommie Hollywood hotels.

This 5% service fee attached to customer restaurant bills is at the heart of an investigation launched by the Los Angeles city attorney’s office, and it involves some of the city’s most celebrated restaurants at the adjacent Thompson hotel, Tommie hotel and Citizen News building: Mother Wolf, Ka’teen, Mes Amis, Bar Lis and the Terrace.

The city is even investigating the concern that two workers spoke out about receiving the service charge for workers and were fired as a result. Generally if a service charge is framed as being for workers, then it needs to go to workers. Not doing so is even more fraudulent than advertising prices that aren’t actually the prices.

San Francisco’s Marriott Marquis was just dinged for pocketing $9 million in service charges that presented as benefiting workers. L.A. has a strong ordinance on this:

L.A.’s ordinance states that service fees cannot be retained by a hotel employer but must be paid in their entirety to the hotel worker performing services for the customers from whom the service charges are collected. The ordinance also mandates that no part of these amounts may be paid to supervisory or managerial employees, and that the service fee must be paid to the hotel workers equitably.

One restaurant group operator reportedly claimed that the 5% service fee was being used “to shore up losses at the restaurants due to the COVID-19 pandemic.”

The simple solution to all of this, of course, is to charge the price that is listed as the price and to pay employees the amount that is promised to them. Then there’s no defrauding of employees, no defrauding of customers, and no legal risk to the owners or brand.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Sleazy. Make them pay the workers back triple the amount and require all senior management involved to spend one day a week bussing tables in some greasy spoon diner for the next three years.

  2. The service charge added onto restaurant bills shows no sign of topping out. Last week the Hyatt Regency Mission Bay added 6% to our restaurant bill.

    Yes, SIX PERCENT — and they were short staffed and much of our food arrived lukewarm.

  3. Exactly. Make them stop lying to their customers and their workers. I hope that they get nailed with massive fines and prison times for the executives in charge of this fraudulent activity.

  4. The simple solution is to ban tipping.

    But the US is a country of corrupt people who don’t want to be banned for corruption; when Uber tried this, this very blogger was one of loud voices advocating his ability to bribe the driver through the app.

    Thankfully data shows that 69% of Americans don’t tip Uber, so maybe things are getting better with the new generation.

  5. This is how unregulated markets work.

    If my competitor lists a burger at $9.99 and tacks on a 6% fee, I simply cannot put mine on the menu for $10.56 as I look expensive. And that’s exactly what’s happening in the marketplace.

    To the contrary, I have all incentives to charge $9.99.and make the fee 8%.

    It’s very well known in economics that free markets cannot exist without regulation to ensure transparency, fairness, and so on. Regulation in this area is severely lacking, even though it’s very simple in nature: “no surcharges can be added to the price on the menu, except for mandatory state tax, which is grandfathered for historical reasons.”.

  6. These extra charges should just be illegal. Add it to the price on the menu. Some people are greedy like the restaurant in Arkansas that tried to take a server’s $4,400 tip.

  7. Money is fungible. If the employees were paid any wages or benefits at all, they can say it came from that pot of money. I don’t really see any potential for an issue here.

  8. We just returned from an extended trip through Asia with a lot of time in Japan. It was so refreshing to enjoy a no-tipping culture. The bill was the menu price and we never had to apply math calculations for tax, tip, service charge, health care, etc. in order to determine how much we were supposed to actually pay..

    In the US we typically tip 20%, but we live in a state that requires all tips be paid to the server attending you.

    From now on, when we see restaurant bills with a service charge added, we will adjust the tip accordingly. I.e., if the service charge is 6%, then we will tip 14%.

  9. Capitalism sucks – it only benefits the people who already have more-than-enough money . Gen Z and millenials have already figured this out, and it’s just the boomers who behind the curve.

  10. @InLA we were at at restaurant in Tokyo that had $5 cover per person…… we thought there was going to be entertainment but NOPE just to sit at a table. I do have to say the service was not better then USA for sure.

    Tipping is discretionary. Starbucks workers DO NOT need a tip jar. When i pick my pizza up I will not give you a tip . Housekeeping for doing their job? nope

    When customers start to tip the cashier at Walmart for ringing up their purchases then everything has gone too far

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