Admin Fee Testimony at City Hall

By NYC Hospitality Alliance

June 21, 2018

The NYC Hospitality Alliance team and members participated in a press conference and testified at City Hall in support of legislation to allow NYC restaurants the option of using a clearly disclosed administrative fee on menus.

Thursday, June 21, 2018

250 Broadway, 14th floor, Committee Room

New York, NY 10007

Comments of the New York City Hospitality Alliance on Int. 823 – in relation to allowing restaurant surcharge

My name is Andrew Rigie and I am the Executive Director of the New York City Hospitality Alliance, a not-for-profit trade association that represents thousands of eating and drinking establishments in the five boroughs, many of whom want the option of adding a clearly disclosed surcharge to menu prices, a right given to restaurants throughout the rest of New York State and the country. That’s right, New York City, the most competitive restaurant market in the world, is the only place that we’re aware of where restaurants don’t have this freedom. Restaurants in other progressive cities like San Francisco and Seattle may use a surcharge, and they do successfully. In NYC we should have the same freedom too.

The cost to operate a restaurant in New York City is sky high and the regulatory environment is daunting. Contrary to Mayor de Blasio’s comments that he isn’t sure the restaurant industry is struggling; many local businesses are – just speak with a few in your Council district. Employment growth in our city’s full-service restaurant industry has been chopped in half in recent years. The growth of liquor licensed establishments plummeted. Many established full-service restaurateurs, and new operators are opening in other cities, or opening limited service restaurants, which are great, but they don’t employ as many New Yorkers, nor do workers earn such significant money from tips. They also don’t offer the same full-service dining experience that has made New York City the Restaurant Capital of the World. 

So, in today’s changing business environment, full-service restaurants seek new ways to modify their business model and stay competitive. That’s where a clearly disclosed surcharge comes in. It is not a fix-all, but it is one tool commonly used by many other industries, that may help some restaurants and their workers in today’s challenging climate. If restaurateurs believed they could just continue to raise menu prices, they would, and we wouldn’t be having this conversation. Your favorite restaurant didn’t design consumer purchasing behavior, they are just trying to run a business, employ people, pay taxes and create nice experiences within its confines.

If their customers don’t like the surcharge, they won’t continue using it. And, as long as the charge is clearly disclosed to the customer where menu prices are listed, as required by the proposed law, nothing is deceptive about the practice.

This point leads us to question the legality of the Department of Consumer Affair’s (“DCA”) Rule prohibiting a clearly disclosed surcharge. The Rule is promulgated under the section of the law that prohibits deceptive trade practices. If the surcharge is clearly disclosed, then it clearly is not deceptive. And, because surcharges are permitted in all other industries in the city, the Rule is also discriminatory towards the restaurant industry. Over the years, the DCA has issued multiple opinion letters on the Rule, providing various exemptions, except the one restaurateurs want, which has turned the Rule into swiss cheese, and further delegitimized its standing. It is clear however, that if this proposal is enacted into law, or the Rule is repealed, the City would and should retain the authority to penalize a restaurant that applies a surcharge without properly disclosing it to a customer.

It’s important to note that full-service restaurants are the ones asking for permission to use a surcharge. They are respected business owners, many of whom sit on the Mayor’s own NYC Food and Beverage Hospitality Council, of which I am a member. The surcharge has not been a limited-service restaurant issue. And, we’re unaware of limited service restaurants in other cities that use a surcharge.

Two camps of full-service restaurants want the option of using a surcharge. Some want to use a small  surcharge (around 3-4%) where customers still tip. Others may experiment by having a larger  surcharge but eliminate tipping. Both can use the revenue to cover operating expenses like high rents, high labor and benefit costs, and to help reduce the disparity in wages between tipped workers (servers and bartenders) and kitchen workers who work so hard but are prohibited by law to participate in a restaurant’s tip pool. So, a surcharge can help businesses and help create a more fair and equitable workplace. In both examples, restaurants would independently set the surcharge percentage and business model, so it is tailored for their specific needs.

In my nearly 15 years representing the City’s hospitality industry, I have seen very few issues so important to so many restaurateurs for a consistent period. Nearly every day, for two years, I’ve had one or more restaurateurs ask me when Mayor de Blasio will step up and help them by getting rid of this antiquated prohibition. Regretfully, I haven’t been able to provide them with an answer they deserve. So, it is with great thanks to Council Member Borelli, Chair Espinal, members of this committee, and the City Council at large for hearing the voice of our city’s restaurant operators and taking action on getting this inappropriate Rule off the books.

Regardless of how you feel about a restaurant surcharge, we urge you to let businesses owners have the same right others have throughout the rest of the state and country, and let their customers decide if they like the system or not.  We urge you to please support and pass Int. 823 – in relation to allowing restaurant surcharges.

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