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Jan 25, 2013 02:49 PM

City cracks down on SF restaurant surcharge fraud

Wonder how many restaurants will get rid of it now that they know they will get punished and have to give the money to the city if they collect it and don't spend it on health care?

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  1. The city has defined three categories of businesses based on numbers of employees and requires they spend nothing, $1.46, and $2.33 per hour per employee on health care respectively. That creates a pretty strong incentive for restaurants not to factor that de facto tax into menu prices.

    The law explicitly allows restaurants to keep that money under certain circumstances if it goes unspent, so the district attorney crying fraud is political grandstanding.

    6 Replies
    1. re: Robert Lauriston

      "The law explicitly allows restaurants to keep that money under certain circumstances if it goes unspent"

      Restaurants had an incentive for the money to go unspent and from what I understand some made intentional efforts to ensure the money did go unspent by not informing employees that any money was available. So I don't really see this as the restaurants are innocent saints caught up in political grandstanding.

      1. re: Scott M

        If the city isn't happy with the results of that badly-written law they should improve the law, not sue struggling business owners who were following it.

        1. re: Robert Lauriston

          I believe everyone understood the intent of the law was to help provide healthcare for workers, it was even called the Healthy SF surcharge. Now to intentionally make it difficult for workers to get the money for it's intented purpose and then to pocket the money for your own benefit is by definition fraud. Feel free to look it up.

          1. re: Scott M

            I've read the law. The Board of Supervisors amended it in 2011 to regulate surcharges starting 1/1/2012, and to exclude surcharges prior to that—precisely the ones the DA is going after—from reporting or reconciliation.

          2. re: Robert Lauriston

            So what you are saying is if there is a building safety law that is hard to understand a construction company should just get to ignore it cause it will cost them more to follow the law?

            It's real simple. Restaurant can have their pathetic surcharges that NO other business owners would dream of adding to their bills (at least not me or any of the other business owners I know) so long as they actually use that money for healthy care. I would think this would clear to them considering they list it as SF health care charge. If the restaurant isn't maybe a profit from the charge then they have nothing to worry about.

            The problem isn't the law but dishonest business owners who are trying to use a law to make a buck.

            Not rocket science except for people that feel they have right to defraud either customers or employees which I am sure no ethical business person would want to do.

            1. re: tjinsf

              Read the DA's letter, he isn't accusing restaurants of breaking the law prior to the 2012 revisions.

              He's basically trying to apply the revised law retroactively back to 2009 by threatening them with prosecution for fraud.

      2. I have many issues with what is going on.

        1. This is not an easy law to be compliant with and there are not many resources to get answers. It appears to be black and white, however it is not. It essentially does not want the business to self administer this program. They encourage a TPA, which is an addition cost to any business.

        2. The money in HRA accounts must be used in 36 months. What is the business supposed to do with the left over money after 36 months. ???

        3. There is really poor press reporting on this issue. No where does it say what the money was being used for. In Paxti's case, it simply states "other purposes". Paxtis said they every employee who turned in a medical bill received a check. so where is the violation? Is it from the unused money after 36 months? were they refusing to pay certain employee claims?

        4. SF has the highest Min wage and no tip credit, and with the 2.33 per hour requirement, that brings min wage 12.88. On top of the many other expenses that are unique to restaurants. If a restaurant builds it into their prices, they risk that their menu items are now too expensive. And with an increased price per dish, the restaurant is now under even more scrutiny from the customer.

        5. Some companies, shocking enough, offer 100% health insurance for their employees. Now in addition to that they must participate in Healthy SF. Yes, they can take the cost of insurance out of the healthy sf account for each employee. This then becomes more work, and another expense to the business. Healthy SF was introduced in order to cover the uninsured. So if a business offers 100% health insurance, then why do they also have to provide healthy SF?

        6. The citizens of SF wanted healthy SF. The restaurant community tried to sue the city over it. If the citizens want this law, then they should pay for it. Why pass on the cost to the business?

        When the Affordable Care Act goes into affect, Healthy SF will become Null and Void as it does not meet the min requirements for the affordable care act. The Supervisors refuse to discuss this. and my theory is that SF realizes they have till 2014 to go after Health SF violators, because in 2014 Healthy Sf will not exist.

        44 Replies
        1. re: marthayou

          Thanks for writing up the details.

          One more bit, the city was constrained by ERISA from making compliance straightforward. That doesn't excuse writing a bad law but it does help explain why it makes so little sense.

          Correcting my earlier error, it's the city attorney that's doing this, not the DA.

          1. re: marthayou

            "When the Affordable Care Act goes into affect, Healthy SF will become Null and Void as it does not meet the min requirements for the affordable care act. The Supervisors refuse to discuss this. and my theory is that SF realizes they have till 2014 to go after Health SF violators, because in 2014 Healthy Sf will not exist."

            I'm not sure why you think this. HealthySF is legal and doesn't contravene the PPACA requirements. It's true that enrollment in Healthy SF will likely decline as a result of the PPACA going into effect, but that's not the same as saying it fails the PPACA's legal requirements. In fact, because many restaurant employees are undocumented, they are *precisely* the pool who will remain eligible for HSF - they can't go on Medi-Cal.


            "If the citizens want this law, then they should pay for it. Why pass on the cost to the business?"

            Because in America it is your responsibility as a business to provide health insurance coverage to your employees, and has been that responsibility since the introduction of tax breaks for employee health insurance during WWII. Stop shirking your responsibility.

            1. re: bigwheel042

              Healthy SF explicitly does not require any business to provide health insurance. It requires nothing at all of businesses with fewer than 20 employees.

              Businesses with fewer than 50 full-time employees are exempt from the Affordable Care Act's employer mandate, and the penalties for not complying with the mandate are probably lower than the cost of providing health insurance, at least in California.

              Saying that it's business's job to provide health insurance doesn't make it so. That's the kind of wishful thinking that leaves 45 million uninsured.

              1. re: Robert Lauriston

                Missing my point. The taxpayers have long paid for businesses to cover employee health care via tax incentives. In that context, arguing "you should pay for policies you want and stop punishing businesses" is beyond obnoxious.

                1. re: bigwheel042

                  Tax incentives don't come close to covering the high cost of providing health insurance. The small business tax credit, for example, is a maximum of 35 percent.


                  1. re: Robert Lauriston

                    So you're saying that tax subsidies no longer are sufficient to ensure that firms provide health care for their employees? Fine, I'll be more than happy to return to the good old days of sky-high corporate taxes and make good use of the extra revenue to provide proper health care for people.

              2. re: bigwheel042

                Who said they are skirting their responsibility? It is one thing for the Govt to say employers must provide health care. It is another thing for them to say WHAT healthcare must be provided.

                If a business offer 100% health coverage through Kaiser or Blue cross, then why do they also have to fund healthy SF?

                At least that is what I think the above poster was trying to point out.

                1. re: smatbrat

                  "If a business offer 100% health coverage through Kaiser or Blue cross, then why do they also have to fund healthy SF?"

                  They don't. You seem unfamiliar with how Healthy SF is funded.

                  1. re: bigwheel042

                    As I read the San Francisco Health Care Security Ordinance, if a business with 20 or more employees offers Kaiser, and any employees decline to participate in the plan, the business has to spend $1.46 or $2.33 per hour for each of those employees on one of the other health care expenditures allowed by the HCSO, even if the business would pick up 100% of the tab for Kaiser.

                    1. re: Robert Lauriston

                      I read it that way as well. IN addition if the 100% health insurance coverage, if that Kaiser insurance amounts to less then the 2.33 per hour, they have to offer the difference to the employee.
                      so if an employee works 40 hours a week X 4 weeks in a month(example) X 2.33 is 372.80.
                      What if the Kaiser cost is 250.00?
                      the remaining 122.8 must go to the employee for additional health care?

                      1. re: smatbrat

                        Yeah, it's ridiculous to put small businesses in the situation of having to do such complicated calculations.

                        The law should have been written in such a way that providing a health plan satisfied the requirements, and all the business would have to do would be provide copies of the paperwork. But that would probably have made it illegal under ERISA.

                        1. re: Robert Lauriston

                          The point, if I had to guess, is to ensure that businesses don't simply offer the crappiest possible insurance coverage to comply with the ordinance and save themselves money.

                          In the vast majority of cases a reasonable Kaiser plan will be superior to Healthy SF - and thus the vast majority of employees (if any) would not opt out of the group insurance plan. But if the offered plan sucks and turns out to be inferior to HSF, then you might see more opt-outs - in which case it's reasonable to expect the employer to foot the bill to allow the employee to obtain coverage that does not, in fact, suck.

                          From a public policy point of view this is more elegant than having a city agency decide which among the myriad insurance plans qualify and which are too crappy to provide good health care, and maintain an ever-changing list of the good and bad ones. You let the citizens make the decisions for you; if they're opting out it's probably a sign that their plans are not good.

                          1. re: bigwheel042

                            Under the HCSO, employees don't get to choose whether to go with Kaiser or an alternative (which are due to the ERISA business open-ended and undefined).

                            I believe that if an employee declines to participate in a health plan offered by the employer, the HCSO requires the employer to find some other way to spend the required amount for that employee. But it may be that the employer simply needs to spend the total amount. As noted above, the law is deliberately vague to avoid conflict with ERISA.

                            The City of SF is not taking reasonable steps to encourage employers to provide health care which employers are dodging. The law's a mess, employers have been struggling to comply, and the city has made no effort to help them comply or otherwise clean up the mess it made.

                            1. re: bigwheel042

                              Have you ever met anyone who has opted out? Spoke to them about why they opted out?

                              ETA: I really appreciate this discussion. Far more intelligent then what I have found on

                              1. re: smatbrat

                                I work in a restaurant that charges the fee. I hate the fee. Just raise the prices. I hate having the conversation with annoyed people. My job is to make people happy. That said, my employer offers Kaiser(and did before all this) and I decline it. My husband's company, which is also a food related business in SF, covers me with Kaiser. He is in a position that one of his benefits is my health coverage. That, too, was in effect before all this.

                                1. re: srr

                                  For cases like yours, your employer is specifically exempted from having to pay into Healthy SF, provided they file the necessary paperwork proving you are already covered.

                                  3.2 Covered Employee Exemptions
                                  (A) The following persons are not covered employees under the HCSO:

                                  (5) Persons who provide verification that they are receiving health care services through
                                  another employer, either as an employee or by virtue of being the spouse, domestic partner,
                                  or child of another person – provided that the employer obtains from those persons a
                                  voluntary written waiver of the health care expenditure requirements of the HCSO as
                                  follows. [etc]

                                  1. re: bigwheel042

                                    That's still pointless extra paperwork for the employer, and it's at the employee's discretion. Employees could choose not to join the health plan but refuse to sign a waiver.

                                    Employers should be able to offer a health plan that meets certain requirements, provide documentation on that to the city, and be done with it. But that would probably conflict with ERISA.

                                    1. re: Robert Lauriston

                                      Which is more likely?

                                      -That an employee who already has health coverage through a spouse/parent's plan will refuse to sign the form out of...spite for their employer (??)

                                      -That, freed from the requirement for their employees to prove they have coverage, businesses and insurers will work to make sure that they give employees the absolute minimum possible amount of coverage and try to constantly game a system that's weakened the competition piece of the equation.

                  2. re: bigwheel042

                    The citizens are paying for it: they pay the prices the restaurant sets.

                    If you put a surcharge on the menu and say it's for Healthy SF (or something similar) and then use it for something else, then that's fraud on the customer, whether it's breaking the law or not.

                    The surcharges are political, as many restaurant owners explicitly stated when they instituted them. Raising prices an average of four percent (i.e. your $25 entree now costs $26) is not going to make a significant impact on consumer decisions, especially if all your competitors are doing the same. Hiding your price increase in fine print at the bottom of the menu doesn't make the final tab any less, and is another form of fraud, since you're hiding your price increase instead of being upfront about it. The only difference between listing your prices as "$25 plus four percent Healthy SF" rather than "$26" is that the former is more deceptive and manipulative.

                    1. re: Ruth Lafler

                      Raising prices 4% would mean that dishes that were $9.50, $14.50, $19, or $29 would be $10, $15, $20, or $30. Those differences have a chilling effect on potential customers, or at least almost every restaurant in SF believes that's the case.

                      1. re: Robert Lauriston

                        So instead, they lie about the prices by listing the surcharge separately.

                        1. re: Ruth Lafler

                          But the same argument, not including sales tax in the menu prices is fraud and lying. While most Americans are used to having sales tax added, many European visitors are not.

                          1. re: nocharge

                            Except that sales tax is required by law and is the same for every restaurant, and the surcharge is not.

                            1. re: Ruth Lafler

                              Are you saying that the health care costs are not required by law? A business is legally obligated to pay sales tax, but nothing prevents it from having the cost of doing so baked into the price of the goods it sells. Are you saying it's fraudulent not to do so?

                              1. re: nocharge

                                Health care costs are required, but not a specific percentage of sales, nor are they pegged to sales at all. Health care surcharges are an arbitrary amount determined by the restaurant owner at the choice of the restaurant owner.

                                1. re: Ruth Lafler

                                  That still doesn't address whether it's fraudulent not to have the restaurant's costs for sales tax included in the menu prices.

                                  If a restaurant had upfront costs for health care at the level of the surcharge or higher at the time period the City Attorney is going after and charged the surcharge to meet those costs, where is the fraud?

                                  1. re: nocharge

                                    Sales taxes are set by the government. Technically, sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority. Although some merchants include sales tax in their prices for convenience, my understanding is that the government actually frowns on that, since it's harder to determine how much tax was actually collected. The exact amount of the tax is public knowledge, and 100 percent of the amount collected goes to the taxing authority.

                                    "Healthy SF" surcharges are an arbitrary amount established voluntarily by businesses to pass along an increase in their cost of doing business while keeping their listed prices deceptively low, making a political point and then profiting from it.

                                    1. re: Ruth Lafler

                                      "Technically, sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority."

                                      Really? Are you sure about that? I don't claim any expertise on this subject but the BOE has the following:

                                      Retailers engaged in business in California must register with the BOE and pay the state's sales tax, which applies to all retail sales of goods and merchandise except those sales specifically exempted by law.

                                      From that paragraph, it sounds like any business is responsible for paying the sales tax and that would contradict your idea that "sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority".

                                      In any case, I still don't get why charging a health-care related surcharge is fraudulent while a tax related surcharge is not.

                                      1. re: nocharge

                                        Not a contradiction, but a semantic difference. There are two transactions that colloquially we call "sales tax", but only one is legally mandated:

                                        1) from consumer to retailer
                                        2) from retailer to the state

                                        Transaction 2) is the legally required transaction. Transaction 1) is why they have to pay transaction 2), but literally it is true that consumers do not pay sales taxes. Retailers do. Consumers are simply reimbursing the retailer for the tax (let's leave out a wonky discussion of true tax incidence and elasticity).


                                        Can I collect sales tax from my customer?
                                        Yes. Although you are required to pay and report sales taxes to the Board, you may be reimbursed by your customer for the amount of tax you owe on a sale. For example, if you are required to pay $1.75 in sales tax on a sale, you may pass that cost on to your customer, provided it is agreed to as part of the sale. It is presumed that the customer agrees to pay the addition of the tax if:

                                        You list a separate amount of sales tax reimbursement on your receipts or invoices;
                                        You post a sign on your premises stating that sales tax reimbursement will be added to all prices of taxable merchandise, or make a similar statement on price tags, advertising material, and other printed material directed to the purchaser; or
                                        The sales agreement specifically calls for the addition of sales tax reimbursement.

                                        1. re: bigwheel042

                                          So sales tax and Healthy San Francisco are similar. The restaurant is legally on the hook for paying up, but often tries to pass on the cost to its customers. Still don't see why that would be inherently fraudulent in one case but not in the other.

                                          1. re: nocharge

                                            It's fraudulent if you collect more tax than you pay. Unlike sales taxes, the surcharges are not a direct reflection of the money that is actually being paid by businesses for the stated purposes -- they are arbitrary, as is demonstrated by the fact that different restaurants charge different amounts, ranging from nothing to a percentage that is clearly excessive for the stated purpose: you have restaurants where the average check is $40 and restaurants where the average check is $200 and are both charging the same percentage, even though the amount they are required to pay per employee is a flat amount.

                                            1. re: Ruth Lafler

                                              Restaurants that charge more generally have more employees per customer and the employees may also work longer hours.

                                              1. re: Ruth Lafler

                                                Restaurants commonly have labor costs in the 25-35 percent range and a lot of employees at or near minimum wage. Add a $2.33/h mandate to the $10.55/h minimum wage and it bumps up the labor cost by 22 percent for a minimum wage employee. Multiply that by the labor cost percentage and add the cost of administration and it doesn't seem like a 4 percent surcharge would leave a huge surplus for the restaurant to defraud customers with.

                                              2. re: nocharge

                                                The question is whether you know about the charge before ordering.
                                                In america, sales tax will be added to the bill - at the grocery store, when buying an airline ticket, at, everywhere. The amount added the legally required amount, exactly.
                                                An obligatory surcharge other than sales tax is not expected, and should be announced when ordering.
                                                Since Healthy San Francisco is not tied to the price of the check, it is not the same as sales tax.

                                                1. re: bbulkow

                                                  A health surcharge is similar to a sales tax surcharge in the sense that it's the restaurant's attempt to pass on a cost to its customers separately rather than have the cost covered by the menu prices. Nothing stops a restaurant from having the menu prices cover everything, including sales tax. Sometimes stores do when they have "we pay the sales tax" promotions.

                                            2. re: nocharge

                                              Charging more sales tax than you paid could be fraudulent, though the BOE would go after you for underpayment, not fraud.

                                              The city attorney can't go after restaurant owners for underpayment since they complied with the law. Nor can he honestly charge them with fraud if the surcharge notice on the menu said something like "comply with SF law" rather than "provide health services."

                              2. re: Robert Lauriston

                                "Those differences have a chilling effect on potential customers"

                                As does a bill arriving that's got an extra charged tacked on to it. If you're dining on a budget, or with a group, it can be frustrating. What about a single patron being charged a flat fee? Suddenly an item like a pizza is unaffordable, and the establishment collected a surplus they aren't equipped to process towards the benefit of the employee.

                                It's no shock the city wrote a poorly executed law, and it's a tough city to own a restaurant in, but I have to agree, fraud is rampant.

                                1. re: sugartoof

                                  How can you form an opinion about whether fraud is rampant when there's as yet no proof that any restaurant spent surcharge funds on anything other than complying with the HCSO?

                                  1. re: Robert Lauriston

                                    Seems pretty much the same way you formed yours, minus the pages of posts.

                                    1. re: ML8000

                                      I don't have an opinion except that the incomplete and unsubstantiated information available so far doesn't provide a basis for reasonably accusing any business of fraud.

                                      The city attorney's letter makes it clear that they don't have the necessary facts, either. They're asking the restaurants to provide them.

                                  2. re: sugartoof

                                    If passing on health care costs to customers makes a pizza unaffordable, does it matter if the restaurant passes on the cost through raised menu prices or a surcharge? San Francisco has a very high minimum wage without tip credit plus the health care mandate. If dining out on a budget is frustrating, maybe the right people to blame are the voters who elected the politicians whose shoddy laws are causing the high cost of labor.

                                    1. re: nocharge

                                      I agree about shoddy laws, but something is wrong if you're charging the same fee whether a patron spends $12 or $120.

                              3. re: bigwheel042

                                After a look at the Civil Grand Jury report, it's clear that marthayou's post is very confused at best.

                                The PPACA does not proscribe HealthySF (the "City Option", aka option 2 for employers) as a health care plan. What it **does** do is make option **3** under the HCSO, the employer-created Health Reimbursement Accounts that are the source of most of the problems with shoddy reimbursement detailed in this thread, out of compliance with federal guidelines.

                                IANAL so I can't comment on precisely what happens to options 1 and 2 if option 3 becomes illegal or otherwise unavailable, but it doesn't look like anyone thinks it will make HealthySF disappear. Rather, barring some weird complication the phaseout of option 3 will be good for employees, the city, and anyone who's not a greedy restaurateur or a financial services firm paid to handle setting up the accounts: employees will be handled by more orthodox and less problematic sources of health care dollars, the city will have much less of a reimbursement headache like it's dealing with now, and customers will have more confidence that any price increases are actually benefiting employees. Sounds like a win-win-win to me.

                                1. re: bigwheel042

                                  Yes, the relatively well-written and pragmatic law from Washington should moot the worst of the local HCSO mess.

                            2. "If you put a surcharge on the menu and say it's for Healthy SF (or something similar) and then use it for something else, then that's fraud on the customer ..."

                              Not necessarily. What if a restaurant used the surcharge receipts to comply with the requirements of the HCSO, but a couple of years down the road has a bunch of money sitting in health savings accounts that former employees did not use and that, per the rules of the accounts, cannot be disbursed to the ex-employees?

                              I think so long as the restaurant was acting in good faith, the fraud charges are baseless. The city should focus on improving the law and stop being so counter-productively hostile to an industry that does a lot to bring tourists to town.

                              17 Replies
                              1. re: Robert Lauriston

                                Not necessarily? It's true that there are gray areas in every case but the basic principles of fraud are clear. You cannot profit from KNOWINGLY telling your customers a lie or misleading them when soliciting money. In this case explicitly stating you are collecting money to comply with a statute and then KNOWINGLY not using that money as the statute directs.

                                If you are bumbling around, don't know what you are doing etc. you are not committing fraud.

                                Now one can say the City of SF is incompetent - they won't know fraud from non-fraud and a lot of innocent business owners are going to get caught in the crossfire....and that may or may not be true.

                                But - this is not as complicated as the discussion suggests.

                                1. re: goldangl95

                                  As the HCSO was originally written, complying with it in good faith could quite easily result in a lot of the money put aside not actually being spent on employee health care. Businesses who ended up in that situation probably had no idea that that would be the case until they'd been doing it for a couple of years. Accusing them of fraud is, well, fraudulent.

                                  The 2012 revisions may have reduced that possibility somewhat.

                                2. re: Robert Lauriston

                                  If it goes on for years, then they're knowingly collecting more for the surcharge than necessary. If the restaurants really wanted to they could find ways to spend the money on health care -- or at least, for the benefit of the employees or the customers -- instead of just pocketing it as a windfall. Raise the prices and you can use the money for whatever you want without lying about it. It's not legal fraud I'm interested it, it's moral fraud, especially since, as I noted, for many restaurateurs it was motivated politically rather than economically anyway. It more than defeats the purpose of taking a stand on principal if you end up profiting from it!

                                  1. re: Robert Lauriston

                                    I very much want law enforcement to go after any business that says to consumers that there is a government tax they need to collect from us if they don't specifically use that money for that tax.

                                    If they do anything at all to mix the accounts, or account for the money separately then only talk about an intent to use it for health care somewhere in the future, then they should be punished.

                                    As the quote above states, if they don't keep it completely separate, that's consumer fraud. Nobody is forcing them to add that line item, but if they do so they have to be 100% transparent.

                                    1. re: calumin

                                      There is no proof of fraud or wrongdoing. This policy was put into place and the restaurants added the charges to compensate. The numbers didn’t add up but does that mean there is a vast conspiracy among the restaurant owners? Unlikely. The country is coming out of recession and business is up at most restaurants compared to previous years. More likely they miss estimated how much money they needed. Going after them legally is a waste of resources. Why demonize these business over faulty bookkeeping?

                                      1. re: Ridge

                                        So it's okay to rip off customers by claiming they need to charge this and then keeping the money? It's not the money that bothers me -- as I said, I think they should just have raised prices -- it's the "oh, we're poor restaurants, we have to charge this because the law is so onerous" claims that turn out to be totally false. Every restaurateur complains about how unfair the compensation system in restaurants is, and yet very few of them do anything about it. Yes, "the way it's done" is unfair. It's your damn restaurant, if you don't like "the way it's done" do it differently and stop whining to me about it!

                                        1. re: Ruth Lafler

                                          If they were intentionally overcharging and pocketing the money that’s wrong. But I don’t think that’s the case. The thing is it is difficult to be 100% sure how much of a charge to add to pay for the employee health insurance fees. And they got it wrong. But no evidence of intentional wrongdoing. I have never run a restaurant but have friends who do. All I can say is that they work like dogs and do not make very much money at the end of the day. I don’t know the statistics but most restaurants do not make their owners rich and most restaurant owners are not greedy. Especially in SF. The city of SF and the board of supes in particular, treats it’s restaurant owners abysmally.

                                          1. re: Ridge

                                            What justification is there for itemizing a separate charge in the first place? They don't itemize charges for the equipment, the ingredients, the rent, or the furniture, yet these expenses are "costs of doing business" and, just like health care costs, can be highly variable.

                                            Restaurant investors must be utter dolts, because for such a supposedly hostile regulatory climate, they sure seem to have a lot of enthusiasm for opening new restaurants lately.

                                            1. re: bigwheel042

                                              The main justifications I see for a separate charge is that effectively it's a payroll tax, some restaurants in SF don't have to pay it at all, those that do are taxed at two different rates, and restaurants outside of SF don't have to pay it.

                                              1. re: Robert Lauriston

                                                These are the flimsiest of justifications. Restaurants do not typically itemize their other payroll taxes. There are lots of production inputs that are more expensive for some restaurants than other restaurants, and those aren't itemized either. I fail to see how the combination of these two factors justifies itemization.

                                                1. re: bigwheel042

                                                  I don't think there's anything else that increases labor costs by a significant amount based only on whether the business is located in SF and has more than 19 or 39 employees.

                                        2. re: Ridge

                                          It really doesn't matter if they are intentionally overcharging or not.

                                          The problem is that they are misreprenting a tax to consumers.

                                          Even if they are well-meaning but just naive, they can't represent a tax to consumers as a specific amount and then just leave it to accountants later to hope the numbers come somewhat close. And if they pocket a bit on the side it's okay because they were making a generally honest effort,

                                          That is still consumer fraud.

                                          1. re: calumin

                                            Reading the latest update to the linked article, it appears that what a lot of them were trying to do was defraud their landlords (not that I have any love for SF restaurant landlords, who seem to be, on average, greedy and short-sighted), since the "surcharge" doesn't count against the restaurant's gross for rent purposes. Why not, then, just break all your costs down into surcharges. Here's a "clean glassware" surcharge. A "good wine list" surcharge. A "this is a high rent district" surcharge. Etc.

                                            When you're collecting three times what you're spending, it shouldn't take three years to figure out your surcharge is too high!

                                            1. re: Ruth Lafler

                                              The HCSO does not allow restaurants to decrease the amount they spend just because they accumulate a surplus.

                                              1. re: Robert Lauriston

                                                Not strictly true. The law specifies a minimum amount that must be spent per employee-hour, but it doesn't say that that you're not allowed to reduce your spending at all if you happen to be spending **over** the minimum of $2.33/$1.55. Isn't overpaying into the accounts through sloppy handling of surcharge funds the only way restaurants can halfway justify their rock-bottom reimbursement rates compared to the city's? Otherwise, a typical HRA would contain roughly the same dollar amount as a typical MRA, and it would be hard to avoid the conclusion that the differential reimbursement rate is coming from owners simply refusing to pay out employee claims.

                                                1. re: bigwheel042

                                                  They're not overpaying into the accounts. The employees just aren't filing enough claims to draw them down to zero. If somebody works 40 hours a week all year, that's $3224 or $4846. How many people spend that much on health care?

                                                  Normal flex accounts are opt-in and the contribution level is set by the employee, so anybody that opens one is likely to make sure they spend it down to zero.

                                                2. re: Robert Lauriston

                                                  They can decrease the amount of the surcharge if they are collecting more than the amount they're supposed to put aside for each employee.

                                      2. What is the spirit of the law? Seems like it's to provide workers with health coverage.

                                        Was the spirit and letter of the law broken? I'd say both but the City Attorney and the Mayor have decided to take the "attract more flies with honey than vinegar" approach. In other words, if the City decided to hammer the restaurants, it could be bad all the way around...and hurt the real point: to get health coverage for workers.

                                        Instead with a "compromise" settlement more might be gained because shut down restaurants don't pay fees.

                                        3 Replies
                                        1. re: ML8000

                                          The law was revised in 2012 and the practices the city attorney is complaining about are no longer compliant with the HCSO.

                                          Suing restaurants for things they did in 2008-2011 that were compliant with the original HCSO is not going to help anyone get health care, especially since fraud hinges on the precise wording of the explanation of the surcharge.

                                          The law only mandates expenditures. It does nothing to promote health coverage (i.e. insurance). If anything, it discourages it, since that's probably the most time-consuming and expensive way to comply.

                                          1. re: Robert Lauriston

                                            The City should just lower the hammer and push the laggers out if they can't be compliant. It'll create new store front space for other restros that will work with the spirit and letter of the law.

                                            I mean seriously this isn't some kind of nickle and dime situation, the settlements are in the $300k dollar range. That's not lunch money.

                                            1. re: ML8000

                                              The city isn't accusing restaurants of not complying with the HCSO.

                                        2. Doesn’t really make any sense. Can they really prove intentional fraud? Most restaurants are just trying to make ends meet. Why is SF wasting resources taking them to court and demonizing them? Really sad example of SF politics run amok. Why can’t the board of supes just leave restaurant alone?