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News Release: 2013-01-25

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Restaurant surcharge fraud crackdown includes one-time amnesty, enforcement

Illegal business practices of ‘relative handful’ of worst-offenders require tough enforcement initiative, Herrera says

SAN FRANCISCO (Jan. 25, 2013) --  City Attorney Dennis Herrera today launched a tough new enforcement initiative to remedy consumer fraud by restaurants and other businesses that imposed surcharges on customers to cover the cost of compliance with San Francisco’s universal healthcare law, but that used little or none of the funds they collected to provide health care benefits to their employees. Assemblymember Tom Ammiano, Supervisors David Campos and David Chiu, and San Francisco restaurant representatives and workers joined Herrera at a City Hall news conference today to announce the enforcement program, which includes a one-time partial amnesty offer for errant businesses that voluntarily come into legal compliance and immediately cooperate with city investigators.

Video coverage of the City Attorney's Jan. 25 press conference.

Terms of the surcharge fraud enforcement program were detailed in a target letter Herrera issued today to several dozen San Francisco establishments under investigation as likely serious offenders: restaurants that collected significantly more in surcharges beyond what they actually spent on employee health care benefits in 2011, according to data collected by the city’s Office of Labor Standards and Enforcement. San Francisco claims more than 3,500 restaurants citywide, and is reported to rank first in the nation in the number of restaurants per capita.

“The enforcement program we’re launching today isn’t simply to protect employees and consumers from surcharge fraud—it’s also to protect the vast majority of competing restaurants that follow the law and provide health care benefits to their workers,” said Herrera. “We San Franciscans take great pride in a vibrant local restaurant scene that enriches our neighborhoods, employs thousands of our residents, and serves millions of tourists each year. And it’s unfortunate that the illegal business practices of a relative handful of bad actors require the creation of this enforcement initiative. The proposal we’re offering to worst-offenders today is eminently fair. It offers partial amnesty for past violations, in exchange for cooperation and compliance moving forward. It avoids ongoing costs for investigation and litigation. It does right by workers, by customers and also by law-abiding competitors. And it assures taxpayers that our public health safety net won’t be abused to subsidize businesses that break the rules. But the leniency reflected in this program is short-lived—and San Francisco will crack down hard on businesses that continue to flout the law. I appreciate the continued efforts of our partners from the San Francisco Office of Labor Standards Enforcement, under the leadership of Donna Levitt. I am very grateful for the leadership of Assemblymember Tom Ammiano, who authored San Francisco’s groundbreaking Health Care Security Ordinance. Thanks to Supervisor David Campos and Board President David Chiu for their longstanding leadership to address enforcement problems, and to fulfill the promise of San Francisco’s universal healthcare program. And finally, I want to express my appreciation to the Golden Gate Restaurant Association for sharing their input about this program. With the policy and legal disputes now behind us, I’m confident we can continue moving forward with a productive dialogue to assure fair and even-handed enforcement of the law.”

Herrera assured businesses on the target list that they would have every opportunity to confidentially share information about their surcharge collections and health care expenditures in order to either prove they should no longer be a target of the investigation or to meet the program’s conditions. In addition, the City Attorney assured businesses that are not currently on the enforcement target list that they would be extended the same protections afforded by the one-time amnesty and enforcement program for voluntarily coming forward to remedy their own possible past violations. Herrera developed the enforcement program with extensive input from City policymakers as well as the Golden Gate Restaurant Association, or GGRA, the non-profit trade association for the San Francisco Bay Area restaurant industry.

“We agree with the City Attorney that the vast majority of businesses are not misrepresenting information to their customers. We also agree that a small minority of businesses may have misrepresented their surcharges, but we are also concerned that some businesses receiving this letter are doing so solely because they were confused about how to correctly fill out the City’s forms,” said Rob Black, GGRA Executive Director. “The GGRA is glad that the City Attorney’s office has committed to a fair and efficient process that allows businesses who may have made inadvertent reporting errors to be cleared from the enforcement target list.”

The City Attorney’s target letter outlined conditions worst-offender restaurants must take steps to meet by a deadline of April 10, 2013 to come into legal compliance, and avoid civil litigation by Herrera’s office for pocketing customer surcharge money intended to fund employee health care benefits.

• Worst-offenders must provide an accounting to City Attorney investigators for all health care surcharges collected during the period from 2009 to 2011, along with health care expenditures pursuant to the Health Care Security Ordinance, or HCSO, for that time period.

• Worst-offenders must distribute 50 percent of unallocated health care surcharge funds to employees who worked for the company during the time surcharges were imposed on customers, covering the years 2009 to 2011, in accordance with City Attorney instructions.

• Worst-offenders must remit amounts unredeemed by their eligible employees to the San Francisco City Attorney’s Office for the purpose of funding future enforcement of the HCSO and other consumer protection laws.

• Worst-offenders must attest that they will refrain from committing further consumer fraud and remain in full compliance in good faith with the HCSO going forward, in accordance with City Attorney instructions.

Herrera said that restaurants and other businesses found to have committed HCSO-related surcharge fraud during the years 2009 to 2011 that fail to come forward voluntarily will risk being sued for full restitution of the amount of surcharges collected during that period, plus substantial penalties. State law provides for penalties of up to $2,500 per customer in such consumer protection lawsuits, with offenders additionally liable for costs and attorneys’ fees incurred by the City to pursue the litigation.

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Last updated: 2/28/2013 1:30:21 PM