New Junk Fees law taking effect in MN effective January 1, 2025
Similar to how California has just enacted legislation regarding “junk fees”, MN has now passed a bill HF 3438 into law to provide price transparency regarding the sale of various goods and services.
According to the MN law, in the restaurant industry, “ (h) A food or beverage service establishment, including a hotel, is compliant with this law if, in every offer or advertisement for the purchase of a good or service that includes pricing information, the total price of the good or service being offered or advertised includes a clear and conspicuous disclosure of the percentage of any automatic and mandatory gratuities charged.”
While certain fees have been customary in the restaurant industry for decades like catering service fees, private dining room fees, delivery fees, other additional fees have emerged in recent years generally called “service fees”. These service fees have largely been charged to help restaurants cover the cost of providing benefits to their employees that were needed to be competitive in the current labor market that had not been offered historically. Today 1 in 5 restaurants have a line on their guest check indicating they are imposing a Service Charge or Health Care Charge, etc. to cover these types of benefits being provided to their employees or just to help maintain their profitability. Restaurants have also started charging for accepting credit cards versus cash with the cost of interchange fees increasing so much in recent years.
Now with the new law, these fees will have to be “baked” into the price of menu items so that the total price is known at the time of ordering. It is believed in the industry that this requirement will cause the price of eating out to really go up and and discourage some people from doing so or at the very least impact of frequency.
The bottom line is…Customers have to pay for inflationary costs somehow…the restaurant industry cannot continue to absorb more inflationary costs to the point of being non-sustainable as a business with restaurant margins already quite small historically.
So, stay tuned for more guidance to come out on compliance with this new law as the implementation date approaches. There will certainly be challenges of how to embed these costs and translate them into higher menu prices as well as how they will complicate the anticipated growth of dynamic pricing in the restaurant industry.
Stay tuned for more developments as the implementation date approaches.
Karen is a Principal in the CLA Bizops practice specializing in serving restaurant clients as a CFO. She has 25 years of experience in the retail and restaurant industry with senior management positions at Wilsons Leather, Famous Dave's, and a division of Hallmark Cards. She is based out of Minneapolis, MN
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