California restaurant owners say they will be forced to raise menu prices even higher after a new law that bans fees and surcharges goes into effect in July.
Menu prices in California will rise once again when a new law goes into effect in the summer, a double-whammy after fast-food chains in the state hiked prices to help pay for the $20 minimum wage the state imposed last month.
Restaurant owners in the state are warning that a new law signed by Gov. Gavin Newsom that bans "junk fees" in the state starting July 1 will force them to raise prices because it prohibits restaurant surcharges and fees.
Restaurant owners have often relied on surcharges to provide their employees benefits like health care. Some businesses would note surcharges on menus, and others would make them optional, with the decision left to the customer.
However, the new law is prompting restaurant owners to hike prices on their menus to comply with the new law.
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California's attorney general confirmed to the San Francisco Chronicle this week that restaurant surcharges and fees would be illegal under the new law in a blow to the industry.
Golden Gate Restaurant Association Director Laurie Thomas told CBS News Bay Area the law will put restaurants in a tough spot with either lower wages for employees or by discouraging customers with higher prices.
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"So, now, do you take their rate down and do you go to an old-fashioned tip model and say to your servers, 'You have to tip the whole house, but that drops everybody's salaries' or do you raise your prices 20%, 25%?" Thomas said. "It might make a lot of customers happier. They might say, 'We understand why prices went up.' Let's hope that happens. But I don't know if our industry can hope that's what happens. They're still struggling. It's been a tough year."
Food writer Marcia Gagliardi also told CBS News Bay Area the new law will result in higher prices for consumers.
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"I see restaurants easily raising prices 5%, 15%. It's going to be tricky," she told the outlet. "We're going to be seeing even higher prices based on this unfortunate interpretation. But not all is lost. … Things could change."
FOX Business' Alexander Hall contributed to this report.
