Going out to eat? Who should pay for the service – you or the restaurant?


Earlier this week, the Central Consumer Protection Agency (CCPA) announced five main guidelines that say a restaurant or hotel should not add service fees by default or by reformulating it, and they cannot force a customer to pay it or limit services based on it: Image: KS Amal / Hindustan Times via Getty Images

cChances are that the next time you’re dining out, you’ll end up with delicious food, but also dressed up in confusion. It’s not about how you want the steak to be cooked, or how spicy the buttered chicken should be, but according to a set of guidelines that will likely influence how much you should pay at the end of your meal.

Earlier this week, the Central Consumer Protection Agency (CCPA), which was set up by the Ministry of Consumer Affairs, Food and Distribution in July 2020, announced five main guidelines stating that no restaurant or hotel will add service charges by default or by reset. They cannot force the customer to pay or limit the services accordingly. Finally, she says, the service won’t be charged by adding it with the food bill and charging GST on it.

The guidelines come a month after the Ministry of Consumer Affairs, on June 2, held a meeting with restaurant associations and consumer forums, and promised to come up with a “strong framework” to strengthen another set of guidelines put forward in 2017 for governance. Service fee subject. With the announcement of July, the pot that had been simmering for a few years began to boil.

The National Restaurant Association of India (NRAI), which represents more than 500,000 restaurants in the country, has remained stern in its defense of service charges, saying it is not something illegal and its members will continue to do so. Says Sagar Dhariani, Vice President, NRAI and CEO and Co-Founder of Wow! Momo. “CCPA creates confusion in consumer minds because in the end it only says that you can ask restaurants to take it off if you want to. I read media reports that service charges have been banned. Nothing has been banned.

In its press release, NRAI stated that the legality of charging a service fee has been confirmed at various points by the Supreme Court and High Courts as well as bodies such as the National Consumer Dispute Handling Commission. He cites a 2001 Order of the Monopolies and Restrictive Practices Commission in the SS Ahuja vs Pizza Express case that stated: “Service charges cannot be called into question under the law…”

Eating Out: Service Fee Mandatory or Optional?  The controversy continues“Our legal team said these guidelines are not stronger than the 2017 guidelines, which were guidelines,” says Dariani. “If it is imposed, we will challenge it in the appropriate forums.”

But Shirish Deshpande, an advocate and chairman of Mumbai Grahak Panchayat (MGP), a stakeholder in talks with the government, disagrees and insists the new guidelines are more explicit than their 2017 counterparts and have the force of law. “The difference between the new and old directives is that in the in-between period, the Consumer Protection Act 1986 was replaced by the Consumer Protection Act 2019, which came into effect in July 2020. It created a new statutory body, the CCPA, which is mandated by Parliament to take note of the practices unfair trade,” says Deshpande. “The CCPA’s guidelines have legal force under Section 18(2)(l) of the Act obligating it to issue guidelines to protect consumer interests.”

“Don’t stick to word guidelines,” Deshpande adds. There are several rulings of the Supreme Court which state that even the guidelines have the force of law if they are issued from the provisions of any law. Violation of the 2017 guidelines called for no action, but the new guidelines must be followed in letter and spirit.”

With both sides refusing to budge and ready to legally scrap the order, we clearly haven’t heard the last word yet.

Survival versus choice

For most restaurants, the controversy over service charges stems from their misunderstanding of the concept. They say this is not something important in the restaurant’s revenue, but a variable component of their employees’ wages. “We are not fighting for ourselves, but for the rights of our employees,” says Dariani.

In the past, says an industry insider, employees of large hospitality chains wouldn’t get paid for a few months because generous tips would make up for it. While the volume has come down significantly now, it can be anywhere from 30-100-200 percent of their paycheck depending on the nature of the restaurant, with fine dining at the higher end. This is why the brothers view this move as hostile to work.

Eating Out: Service Fee Mandatory or Optional?  The controversy continues

“If it is indeed removed, most restaurants will have to make up for the shortfall, but we don’t have the profitability to do so,” AD Singh, founder and managing director of The Olive Group of Restaurants, says in an email. “This would cripple an industry that is just trying to recover from the massive setbacks it has suffered during the pandemic.” According to a study by consulting firm Technopak, about 2.5 million people working in the food and beverage industry have lost their jobs during the pandemic.

While hoteliers base their arguments on staff centralization, consumer forums focus on the customer. “We don’t argue with food charges because that’s the business of restaurants,” says MGP’s Deshpande. “But leave it to us to decide how much to tip or whether we should tip at all.”

In 2017, MGP conducted a nationwide online survey of consumers from 48 cities in which 93 percent of respondents argued that service charges should be eliminated from hotel bills, while 40 percent said they were not aware of the possibility of requesting a waiver if they were not satisfied with services. In its presentation to the government, the SGP highlighted “deception” in practice. “You raise money by crafting it in such a way that it looks like an official fee imposed by the government, such as the Goods and Services Tax,” Deshpande says. “This is not fair trade practice.”

Also Read: The Right Way to Manage Customer Momentum to Maximize Profit

When the service fee is paid, says the food and beverage consultant who spoke on condition of anonymity, it either goes to the restaurant’s account if paid by card, or to the cashier if paid with cash, and is distributed either biweekly or monthly. “You will not go directly to the waiter who has given you good service. There is a control factor in the service fee,” says the consultant who has worked with the best food and beverage brands in the country.

Besides, says Deshpande, many entrepreneurs in the hospitality sector argue that because the 10 per cent tax on service charge is clearly mentioned in the menu and around the restaurant, it is an implied agreement by the diners to pay it once an order is placed. “According to the fundamentals of contract law, a contract should be just and equitable,” Deshpande adds. “These terms are one-sided, dictated by restaurateurs, and therefore are not sustainable in law.”

Eating Out: Service Fee Mandatory or Optional?  The controversy continues

A measure of transparency?

Why don’t restaurants allow customers to decide what to pay for a service? Because, restaurateurs say, India is not yet ripe on the volatile front. “The concept of service charge started in India because the standards for tipping were usually very low,” says Singh of the Olive Group.

Gauri Devidayal, co-founder of Food Matters Group that owns Mumbai’s fine dining restaurant The Table, Mag Street Cafe and a collection of cloud kitchens, takes the argument a step further and explains that there is a fundamental difference between a service charge and tip, terms that are often used mutually. The service charge is not a component of the price of food, but of hospitality, says Devidayal, and is split between the house staff and the backstaff. Tipping is more than that and is subject to the discretion of the restaurant. “It’s still optional,” she says.

Eating Out: Service Fee Mandatory or Optional?  The controversy continuesIn 2016, Devidayal eliminated the service fee charged to The Table, but absorbed it into the menu with a 10% rate hike. One of the most prominent global advocates of pricing this type of “hospitality” was the American restaurateur Danny Meyer, one of the country’s most famous companies and founder of the Union Square Hospitality Group, who announced in 2015 that he would gradually phase out tips. In July 2020, when the group reopened after the pandemic (it was beaten and 95 percent of its employees were laid off), the New York Times reported that Mayer was abandoning politics and returning to stated wages.

Devidayal also reverted to a separate service fee tab in the bill during the post-Covid reopening, because its guests preferred to see what they were paying as a service fee. “The current process for showing 10 percent on an invoice is actually more transparent,” Devidayal says. “If it’s not shown on the bill, it’s included in the menu prices, because it’s not optional. Asking us to waive the service fee is like asking us to cut the price of french fries by 50 percent because the customer doesn’t like it.”

Besides, India is a price-sensitive country, Singh of Olive adds, and higher prices, when service charges are incorporated into the menu price, can lead to customers losing out to restaurants. Restaurateurs also point to global tipping agreements – which range from 10 percent in countries like the UK and Singapore, and even higher in the US – and amenity fee tax across several Indian service platforms, including the government-owned railway IRCTC. Why target the restaurant industry? Daryani asks.

“It’s weak logic,” argues the counselor, who spoke anonymously. “It’s like telling the cop that one of my colleagues jumped off the signal, so let me do that too. In spirit, that’s not true. Plus, pricing is the customer’s habit. It may take the customer some time to get used to it, But he will be back soon.”

“It’s a battle between two parties who have valid arguments,” says Ankur Bessin, senior partner and president of Technopack’s consumer, food and retail business. In an industry devastated during Covid and increasingly polarized since then — with major restaurants finally seeing a revival while a number of independent restaurants have closed their stores or struggle to survive — no hotelier will give up any opportunity to bring in extra cash. The opposing camp comes from a position purely to protect consumer rights. “They’re not wrong either,” says Bessen.

Where does the client go in the middle of this? The government has created a grievance processing mechanism for complainants to file a complaint with the CCPA, the collector or consumer courts in the event restaurants continue to charge a service fee, but, says the advisor, “it will separate complaints on a case-by-case basis and leave it up to customers to fight it.” This will lead to a never-ending cycle of back and forth until stakeholders come up with a common path forward in the form of clear legal guidance.

Until then, patrons can just wait and watch.

Service fee: what can the customer do

  • Ask the restaurant to remove the service charge from the bill
  • You can file a complaint on the National Consumer Helpline by calling 1915 or from the app
  • Submit a complaint to the Consumer Authority or through the portal edaakhil.nic.in
  • Submit a complaint to the district collector or directly to the CCPA by sending an email to [email protected]

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