Hospitality Industry – “New Hidden Fees” Law in California ! Effective July 1st, 2024

Effective July 1, 2024, California law will prohibit a method of pricing referred to as “drip pricing”— advertising a price that is less than the price that a consumer actually pays for the good or service. SB 478 (also known as the “hidden fees” statute), amended California Civil Code Section 1770, which makes certain business practices unlawful, to prohibit hidden fees for consumers.

The new law applies only to consumer transactions (purchases of goods or services for personal, family, or household purposes), and exempts some transactions by regulated businesses that are subject to other governmental requirements, such as airlines and financial institutions. The law requires advertised, displayed, or offered prices to include mandatory fees or charges imposed by the seller (although the advertised price does not need to include government taxes, transactional fees, reasonable postage, or carriage charges actually incurred to ship a good to a consumer). This means, as a practical matter, that the price that a company displays for goods or services must be the price that a consumer actually pays the company.
This will have a huge impact on hotels and restaurants. For example, a hotel which charges a mandatory “resort fee” will, under the new law, now be required to include the resort fee in the listed room price that is advertised by the hotel rather than as a separate fee. The California Attorney General recently issued FAQs on the statute, and according to the AG, the law will prohibit separate mandatory charges or automatic gratuities (such as for large parties of 6 or more in a restaurant, or for hotel in-room dining orders) after July 1, 2024), even if those fees are clearly disclosed on a menu. The AG also has stated that the law prohibits restaurant and hotel surcharges for items such as “living wage” costs or health care mandates. And although not addressed in the FAQs, the law also appears to apply to private weddings (or other “consumer” events) held at hotels. The risks of legal claims include injunctions, actual damages, restitution, punitive damages, attorneys’ fees, and other relief.

Hospitality businesses should make sure that they take steps to ensure compliance by July 1, 2024.

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