Service charge

Service charge line: Why restaurants can’t raise staff salaries, HC asks

The Delhi High Court on Tuesday observed that service charges levied by hotels and restaurants on food bills resembled a government levy and questioned why restaurants could not raise the salaries of their staff if such expenses were intended for them.

The submissions came from a bench led by Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad on the appeal filed by the Central Consumer Protection Authority (CCPA) against the stay granted by a single-judge bench on its guidelines prohibiting restaurants from charging service fees.

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When the attorney representing the hotel associations told the court that the service fees collected were for their employees, the bench questioned why restaurants concerned about their employees couldn’t raise prices and wages instead of levying such fees. “The common man may perceive the service charge as a government levy,” he said.

The hotels argued that if customers agree to order food after seeing on the menu that a service charge would be levied, they are entering into a private contract with the restaurant.

The CCPA had issued guidelines with the aim of preventing unfair commercial practices and the violation of consumer rights regarding the collection of service fees. In accordance with the guidelines, hotels and restaurants are prohibited from charging service fees under any other name.

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Granting a reprieve from CCPA guidance on July 20, the Single Judge also said information about the levy of service charges should be displayed on menu cards so customers are aware. Hotels and restaurants typically charge a 10% service charge on the food bill.

Delhi HC will now hear the case on August 18.