Owners of more than 90 restaurants in San Francisco are under fire for charging customers extra fees to cover the cost of employee health care and then pocketing the money instead of spending it on workers.
The restaurants have collectively kept more than $9 million in employee health care surcharges for themselves, the city alleges, and owners will face consumer fraud lawsuits if they haven't spent at least half of the unallocated cash on workers by April 10, officials announced last week.
“It was pocketed back to the restaurateur,” San Francisco Supervisor David Campos said of the surcharges in an interview with the San Francisco Chronicle. “I can’t say all of them, but for some of these restaurants it was a marketing ploy.”
On Sunday, under a public records request, the Chronicle obtained a list from the Office of Labor Standards Enforcement naming 93 business owners who collected more money in employee health care surcharges in 2011 than they spent on health care for their workers. It revealed gaps at restaurants owned by several high-profile chefs, including those that have accrued more than $100,000 in un-spent employee health care surcharges.
When contacted by the Chronicle, some offending restaurants claimed that they have not spent the surcharges on anything besides employee health benefits, and that the difference between the surcharges collected and the cash spent on employee health care is still sitting in an account waiting to be dispersed to workers with health care needs.
As early as 2006, San Francisco started requiring all businesses with over 20 employees to either provide health insurance to workers or set aside between $1.55 and $2.33 an hour for each employee's medical expenses. Restaurant owners soon decided that instead of raising prices to cover the increase, they would tack on a surcharge at the bottom of the bill, explaining to diners that the extra money was going toward worker health care.
While the surcharge, which shows up as a percentage of the bill or a flat fee, is legal, withholding the cash from employees is not, the city says.
Already, the investigation has prompted Patxi’s Chicago Pizza, a Palo Alto-based restaurant, to fork over more than $200,000 to settle similar allegations. In a statement to HuffPost earlier this month, Patxi's said the company never spent money collected through the surcharges on anything other than health care for their employees.
Meanwhile, other San Francisco restaurateurs are disputing the city’s allegations, the Chronicle reports. "We complied with what we thought we were supposed to be doing," Skip Young, a partner at the San Francisco-based restaurant AsiaSF, told the newspaper.
According to the city's list of offending restaurants, AsiaSF has only spent about ten percent of the surcharges it collected from diners on employee health care.
This isn’t the first time business owners have reacted to health-care mandates by introducing a customer surcharge. To cover the costs of Obamacare, which will kick in come January 2014, a Denny’s franchise owner announced in November that he will introduce a five percent surcharge on diners’ bills, provoking the ire of Denny’s customers nationwide.
Also on HuffPost:
McDonald's Grew During The Recession
McDonald's had <a href="http://www.slate.com/articles/business/moneybox/2009/08/who_won_the_recession.html" target="_hplink">higher sales growth in 2008</a> than in 2006 or 2007, opening nearly 600 stores that year, according to Slate. The chain was able to take advantage of Americans' recession tastes: Cheap, convenient food.
They Handle Food That Isn't Really Food
One <a href="http://www.reddit.com/r/AskReddit/comments/w2sv3/fast_food_workers_of_reddit_what_is_the_one_menu/" target="_hplink">Reddit user claiming to be an ex-McDonald's worker</a> said he once left a bag of chicken nuggets out on the counter for too long and "they melted. Into a pool of liquid." That didn't stop him from loving the nuggets, "still delicious," he wrote.
Fast Food Companies See Huge Profits On The Backs Of Low-Wage Workers
More than <a href="http://www.nelp.org/page/-/Press Releases/2012/PR_MinWageCorpProfits.pdf?nocdn=1" target="_hplink">60 percent of low-wage workers</a> are employed by big corporations, according to a July analysis by the National Employment Law Project. And more than 90 percent of those companies were profitable last year.
The Average Pay For A Fast Food Worker In New York City Is $9 Per Hour
Fast food workers in New York City make an <a href="http://blogs.villagevoice.com/forkintheroad/2012/11/fast_food_forward_strike_nyc.php" target="_hplink">average of $9 per hour</a>, according to the Village Voice. That comes to about $18,500 per year for full-time workers.
Fast Food Workers Are Unlikely To Get Paid Sick Days
For 40 percent of private sector workers, <a href="http://articles.baltimoresun.com/2012-11-28/news/bs-ed-sick-leave-20121128_1_sick-days-care-workers-service-workers" target="_hplink">taking a sick day</a> and still getting paid isn't an option, according to the Baltimore Sun. Fast food workers are especially likely to be part of that 40 percent.
The Boss Can Threaten To Take Workers' Health Care Away
Many fast food workers saw their health benefits put at risk this year, if they even had them at all. <a href="http://www.huffingtonpost.com/2012/11/09/papa-johns-obamacare-john-schnatter_n_2104202.html" target="_hplink">Papa John's CEO John Schnatter</a> said he would likely reduce some of his workers hours so that he wouldn't have to cover them in response to Obamacare. Jimmy John's founder, Jimmy John Liautaud told Fox News in October that <a href="http://www.foxnews.com/on-air/your-world-cavuto/2012/10/16/jimmy-johns-founder-business-owners-unsure-future" target="_hplink">he would "have to" cut workers' hours</a> so that he wasn't forced to cover them under Obamacare.
The Average Hourly Pay At Many Fast Food Eateries Is Less Than $8 An Hour
The average hourly pay at McDonald's, Wendy's, Burger King and Taco Bell is less than $8 an hour, according to <a href="http://www.cnbc.com/id/50015355" target="_hplink">salary data cited by CNBC</a>.
The Median Age Of A Fast Food Worker Is 28
As more workers fight for limited jobs, many older employees are gravitating towards the fast food industry. The median age of a fast <a href="http://www.theatlantic.com/business/archive/2012/11/mcjobs-should-pay-too-its-time-for-fast-food-workers-to-get-living-wages/265714/" target="_hplink">food worker is 28</a>, according to Bureau of Labor Statistics data cited by the Atlantic. For women, who make up two-thirds of the industry's employees, that age is 32.
Labor Leaders Rarely Try To Unionize Fast Food Workers
Fast food worker's went on strike in late November in New York City, showcasing a rare effort to organize the industry's workers. Labor leaders often don't make an effort to organize these workers because the high turnover makes the challenge daunting.
Fast Food Workers Are The Lowest Paid Workers In NYC
For all their work, fast food workers get very little dough. The lowest paid job category in New York City is "Combined Food Service and Preparation Workers, Including Fast Food," according to Bureau of Labor Department Statistics <a href="http://www.salon.com/2012/11/29/in_rare_strike_nyc_fast_food_workers_walk_out/" target="_hplink">cited by Salon</a>.