Consumer Advisory: New Minnesota service fee law is not as simple as it may seem
December 20, 2024
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Consumer Advisory:
New Minnesota service fee law is not as simple as it may seem
Confusing one-size-fits-all approach reduces transparency
ST. PAUL, MN – A new Minnesota law that takes aim at service fees is a confusing one-size-fits-all approach that reduces transparency for consumers and lacks the clarity the industry is looking for, according to Hospitality Minnesota, the trade association representing restaurants, hotels, resorts, and other hospitality-related businesses. The new law is set to take effect on Jan.1.
The industry is still awaiting final guidance on how to comply, 11 days before the law goes into effect.
These service fees have been referred to by some as “junk fees” and have been recklessly compared to excessive and obscure charges associated with ticket sales, live event tickets, and vacation rentals. However, Minnesota will be the first state to ban restaurant service fees.
The new law still allows restaurants to add an automatic gratuity, but it must be clearly labeled and go to the wait staff, in compliance with MN’s tipping laws. It also allows credit card fees, taxes, shipping and delivery charges to be added and clearly disclosed. Government-imposed taxes, such as sales taxes, are exempt from this requirement and do not need to be included in the advertised price.
Minnesota will be an outlier
Unlike other states and the Federal Trade Commission (FTC), Minnesota’s new law does not exempt restaurants, bars, grocery stores, grocery delivery, banquet or catering services, and food delivery platforms. This leaves the Minnesota hospitality industry in the unique position of navigating untested rules that will likely have unintended consequences.
Service fees add transparency for consumers by showing what restaurants, hotels, and other businesses in the hospitality industry must pay for things like mandated benefits or increased costs for delivery.
Service fees help “pay equity”
Minnesota’s tipping, tip credit, tip pooling, and increased minimum wage laws have created inequity between employees, typically favoring “front of house” workers over “back of house” workers.
Service fees are a mechanism that allows owners to continue providing benefits and increased wages to all employees as businesses face increased costs and government mandates.
For example, some restaurants charge 3-5 percent to help pay for worker benefits in a competitive marketplace. Those dedicated fees help cover such expenses as healthcare, dental, vision, PTO, 401k and employee assistance programs.
Under the new Minnesota law, “health and wellness” charges are banned, meaning businesses will not be able to include them on a bill, much like gratuities for large parties, which is still allowed. This is expected to raise the cost of menu items, likely affecting consumers’ purchasing decisions and minimizing transparency.
Minnesota needs a “junk fee fix”
“Service fees are not ‘junk fees.’ They are used to offset the costs that hospitality businesses are paying, some of which are mandated by law. These dedicated fees go to employees in either pay or benefits,” said Angie Whitcomb, President and CEO of Hospitality Minnesota. “Including a line item on a bill identifying those fees, and how they are being used, provides more transparency, not less,”
The FTC rule, released this week, requires up-front disclosure of the total price, including fees. The rule is focused primarily on bait-and-switch pricing for live-event tickets and short-term lodging
- It allows for “truthful itemization and breakdowns.”
- It does not prohibit any type or amount of fee, nor does it prohibit any specific pricing strategies.
- The rule simply requires that businesses that advertise their pricing tell consumers the whole truth up-front about prices and fees
The FTC rule exempts restaurants, bars, grocery stores, grocery delivery, banquet or catering services, and food delivery platforms. Minnesota has no such exemptions.
“We agree that customers have a right to know what they are paying up-front, but Minnesota’s new law goes too far and is not in sync with other states or the federal government. We’ll seek a fix to the law with the Minnesota Legislature that is more in line with the Federal Trade Commission’s approach,” said Ms. Whitcomb.
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About Hospitality Minnesota
Hospitality Minnesota is a trade association that represents and advocates for businesses in Minnesota's hospitality industry, including restaurants, hotels, resorts, and other lodging and tourism-related enterprises. The organization works to support its members through advocacy, education, and business resources.