Legal Question in Business Law in California

Is it legal in California for a restaurant to:

1. Include gratuity on a bill without any written or verbal notification to it's patrons (not stated in the menu or anywhere in the restaurant at all)?

2. Include gratuity on a bill AFTER the sales tax has been added to the subtotal?

3. Combine gratuity and sales tax on the same line and label it "tax"? (The only way I figured out that it included gratuity was by doing the math and then asking why the "tax" was so high- 27%)


Asked on 8/28/10, 11:07 pm

3 Answers from Attorneys

Joe Marman Law Office of Joseph Marman

It should not be legal without first giving notice.

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Answered on 9/03/10, 8:27 am
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

There are multiple shades and degrees of being illegal. A few things will get you executed at dawn, somewhere at least. Other are punished by imprisonment, jail time, fines, or loss or suspension of a license. Then, there are things like breaching a contract, the mildest form of conduct that might fall into the "not legal" category, where there is no punishment inflicted by the government, you just become liable to the victim for his damages, if any.

As to the three things you mention, I'd say that the effect of #1 is that the patron has not contracted to pay the gratuity and therefore has no obligation to pay it. Therefore, I'd conclude that the only "illegal" thing the restaurant has done here is to forget what the owners should have learned in Business Law class (or they never took it) about how an enforceable contract is formed. Ordering from a menu creates an oral contract between the patron and the restaurant to pay the menu price, nothing more. Arguably, #1 might also be an attempt to commit a civil (or possibly even criminal) fraud. If this were a Bar exam question, the student would be expected to discuss this for full credit. However, there is no fraud until the patron suffers actual harm.

As to #2, and given that #1 has also happened, this is just an insult-to-injury kind of compounding of the overreaching attempt to collect on a contract that's not enforceable. If #2 happened without #1, i.e., if the restaurant announced an 18% gratuity, but then added it onto the after-tax total, I'd say it was an independent example of overbilling, akin to charging for a bowl of chowder when you only ordered (and got) a cup.

Finally, #3 might upset the Franchise Tax Board, as it hints that the restaurant is not properly segregating bill, tip and tax in its accounting and reporting. It further suggests a deliberate attempt to deceive, i.e., unwary or tipsy patrons may be defrauded.

If any of these three practices is addressed by any law regulating restaurant billing practices, I am not aware of it, but it's certainly possible, and there will be one soon after the first state legislator sits down in this joint.

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Answered on 9/03/10, 9:04 am

You have gotten very good answers. I would just add that if you paid by a credit card you should have hand corrected the total before signing the slip and if the bill came in at the full amount contest it with the card company. If you didn't catch it until the slip was signed you can still contest it with the credit card company. Just not sure if you would succeed then.

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Answered on 9/03/10, 9:58 am


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