San Francisco restaurants that have charged customers a surcharge for employee health care but failed to use all the money as they said will be prosecuted for consumer fraud starting in April, city officials said Friday.
City Attorney Dennis Herrera said a letter went out Friday to several dozen restaurants in the city that are under investigation for discrepancies between the amounts collected in surcharges for employee health care and actual expenditures between 2009 and 2011.
The restaurants, none of which were named, have been given until April 10 to reach a settlement with the city before they are prosecuted for consumer fraud, Herrera said.
Restaurants are permitted to charge customers a surcharge for employee health care under the Health San Francisco ordinance that went into effect in 2008.
However, Herrera said some restaurants are collecting the surcharge and either failing to provide health insurance or care at all or not spending all of the money collected on health care.
The gaps between the amounts collected and amounts spent range from tens of thousands to hundreds of thousands of dollars, Herrera said.
He emphasized that the vast majority of the roughly 3,500 restaurants in San Francisco are in compliance with the law.
“The enforcement program that 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,” Herrera said.
The targeted restaurants, and any others in the city that wish to voluntarily participate, have until April 10 to submit information on health care surcharges and expenditures.
They can either demonstrate that they are in full compliance with San Francisco’s health care laws or settle with the city by paying half of any amount collected beyond what was spent on health care to employees and half to the city, Herrera said.
Those who fail to settle with the city during the amnesty period face prosecution for consumer fraud. The city plans to sue for full restitution of the amount of surcharges collected plus up to $2,500 in penalties for every consumer who was defrauded during that period, Herrera said.
The amnesty and enforcement program was reached with input from the Golden Gate Restaurant Association, which at one time sued the city to attempt to block the ordinance, which requires all businesses with more than 20 workers to provide health insurance or pay a fee to the city.
The group remains concerned that many of those who have misrepresented their surcharges may have been confused about how to properly fill out city forms, said Rob Black, the association’s 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,” Black said in a statement.
Restaurant workers appearing at today’s announcement noted that many customers don’t believe that the surcharges they pay are going to employee health care.
Christine Appleby, a server for Zazie, a restaurant in the city’s Cole Valley neighborhood, noted that she was personally very grateful for the city’s health care ordinance because she had recently learned she was pregnant.
“The restaurant industry thrives in San Francisco and many people make a career out of it, so this health care is critical,” Appleby said.
Friday’s announcement follows a $320,000 settlement announced earlier this month with Patxi’s Chicago Pizza, a chain with four locations in San Francisco. The company did not use most of a 4 percent surcharge added to customers’ bills for employee health care between 2009 and 2011, according to Herrera.
The company, which has stated that unused funds were set aside for future health care costs, agreed to distribute $205,000 to current and former employees, increase health care spending by about $100,000 and pay the city $15,000 in penalties.
Herrera noted today that Patxi’s voluntarily negotiated a settlement when it realized it was not in compliance with city laws.
“I would encourage all restaurants to handle this like Patxi’s did,” Herrera said, noting that restaurants that make a good faith effort toward compliance will be considered on a “case by case” basis.
Assemblyman Tom Ammiano, who authored San Francisco’s Health Care Security Ordinance, appeared in support of the enforcement effort along with Board of Supervisors president David Chiu and Supervisor David Campos.