In early 2024, a single issue has roiled the D.C. dining scene: service fees. The practice of tacking on extra charges — beyond stated menu prices and standard, voluntary tips — has divided restaurant staff, frustrated customers and prompted lawsuits by an advocacy group that’s intent on stamping out a business method it says can be deceptive.
But restaurateurs who’ve introduced the fees say they did so to stay afloat in an industry with notoriously thin margins. Some assert the funds are used to offset the cost of higher wages they must pay workers as a result of Initiative 82, which was enacted last year to increase the paychecks of D.C.’s tipped restaurant employees. Other owners say the fees are used to help pay for workers’ health care. And some restaurants introduced service fees during the height of the pandemic. The pandemic may have abated, but the fees stuck around.
Customers, meanwhile, are left surprised by bills that can be 10 to 15 percent higher than what they were expecting, with charges they don’t understand. Employees are split on the issue, and sometimes confused about whether the fees are helping their personal bottom lines. The issue has proved exceedingly complicated, even for policy professionals tasked with helping to regulate the industry.
Controversy came to a head in recent weeks as several well-known restaurants and hospitality groups agreed to drop their fees in the face of public pressure or the threat of litigation.
Here’s where the issue stands now, and what you need to know.
What’s happening?
Public resistance to service fees is ramping up. In January, Travelers United, a nonprofit opposed to what it considers “deceptive” fees in the travel industry, filed a lawsuit against Knead Hospitality and Design, a restaurant group that owns nine restaurants in the District, including Succotash, Mi Vida and the Grill. The suit targeted Knead’s “Initiative 82 fee,” which added an extra 3.5 percent to every tab. Like Clyde’s Restaurant Group, owners of Old Ebbitt Grill, Clyde’s, the Hamilton and others, which Travelers United sued in late 2023, Knead dropped its fees.
Travelers United counsel Lauren Wolfe says the organization’s goal is to stop restaurants from charging tourists and residents fees they don’t expect or understand.
“Our wheelhouse is deceptive fees,” says Wolfe. “[Tourists] … don’t know why there are suddenly hidden fees all over D.C. restaurants. We think that these deceptive fees are just taking advantage of tourists to Washington, D.C.”
After Clyde’s dropped its surcharges, Wolfe says, Travelers United stopped pursuing the case.
Earlier this week — and without threat of legal action — Dacha Beer Garden announced that it would also drop the 15 percent surcharge from the menus at its outposts in Shaw and Navy Yard, a move that was cheered by patrons and staff alike.
How did we get here?
In 2018, D.C. voters passed Initiative 77, which would have gradually increased servers’ pay to match the standard minimum wage rather than expecting them to rely on tips for the majority of their income. However, it was ultimately repealed after opposing restaurateurs, servers and members of the Restaurant Association Metropolitan Washington (RAMW) lobbied against it.
In November 2022, voters passed Initiative 82 with close to 74 percent in favor. The initiative’s goal is the same as its predecessor’s: to phase out the $5.25-per-hour tipped wage by 2027, eventually requiring restaurants to pay staff the standard $17 per hour (it will increase to $17.50 in July) that applies to all other D.C. businesses.
This time, the D.C. Council chose not to take action on the initiative, and I-82 went into effect last spring. Restaurants, already grappling with increased rent, food and labor costs that had been amplified by the pandemic, began to look for ways to supplement profits. According to RAMW President Shawn Townsend, some restaurants increased prices, but others worried that menu hikes would scare off customers. Enter the surcharge, which the D.C. attorney general’s office required restaurants to disclaim clearly on menus and checks — though not every diner is reading a menu’s fine print.
Today, D.C. restaurants must compensate staff for the difference if their base pay plus tips does not add up to the $17 minimum wage. Initiative 82 also raised the tipped wage from $5.25 to $6 per hour in May 2023, then from $6 to $8 per hour in July. This base tipped wage will continue to climb year by year until 2027, when it will match “standard” or non-tipped minimum wage.
What has the public response been?
Reactions to the implementation of these service charges have been mixed.
Labor organizations such as One Fair Wage, a key player in lobbying for the initiative, have been monitoring public response. Saru Jayaraman, president of One Fair Wage, says that these service fees may have been well-intentioned, and many restaurant owners use them in responsible ways, but that in some cases they have been “corrupted” by those who seek unfair financial gain, keeping funds from workers. Service fees, unlike tips, are owned by the restaurant and can be distributed however the owner wants, which is why some diners and organizations are calling for increased transparency.
“There still are great, equity-minded employers who are using service charges in what we think is the right way, which is essentially a guaranteed gratuity for workers,” says Jayaraman. But others, she says, are using the fees in ways that “are misleading both consumers and workers.”
Jayaraman also says the majority of workers and consumers are frustrated and confused by these fees, to the point that some are boycotting restaurants they feel have exploitative fees. And customers are increasingly taking their grievances to the internet.
“It’s hard to figure out what to do at this point,” one D.C. diner wrote in the comments of a discussion on X, the social media platform formerly known as Twitter. “Menu prices have gone way [up]. Then there’s 10% tax and 20% [service] charge. Are we supposed to tip 20% on top of that? No idea what the expectations even is — or what’s reasonable. DC should ban service charges for an even playing field.”
“It’s the 1-15% fees that are so obnoxious and infuriating,” responded another local patron. “Makes me feel cheated and/or lied to.”
Jason Berry, a co-owner of Knead Restaurant Group, which Travelers United sued, says that his servers reported decreased tips after Knead implemented its Initiative 82 surcharge, and as a result, the group was already in the process of removing the surcharge when it was informed of the lawsuit.
What do restaurants say?
Berry wants diners to know that it’s not just the servers who receive tips; it’s also the bartenders, hosts, bussers, barbacks and more. He estimates that between 65 percent and 70 percent of his staff receive tips. At the same time, he says, restaurant profit margins are notoriously slim, putting pressure on restaurateurs to figure out how to stay in the black.
“A good restaurant in America has a 10 percent profit margin,” says Berry. “People think that this restaurant is so busy, it makes so much money. … They’re busy when you’d expect them to be busy, and they’re slow when you’d expect them to be slow, but we’re paying rent and electric and gas and water all day every day.”
Dmitri Chekaldin, co-owner of Dacha, the beer garden that recently dropped its surcharges, says Dacha servers continually had to decode the service charge for baffled diners.
The decision to eliminate Dacha’s service fee has been met with an “overwhelmingly positive” reaction, according to Chekaldin.
“The staff is elated,” he says. “It just basically means that … they will have to explain less, and they will make more tips.”
What does this mean for the future of D.C. restaurants?
Restaurants are working with the district attorney’s office and D.C. Council to clarify the language relating to service charges. One piece of legislation up for consideration is the D.C. Restaurant Relief Bill, which Townsend of RAMW says would provide more specific instructions to restaurants about service charges and create a public educational campaign about Initiative 82. Some employee advocacy groups, including One Fair Wage, however, fear that the bill, which is in front of the D.C. Council, could encourage some restaurants to implement more ambiguous service fees and cause tipping to decrease even further.
The bill is likely to be modified as it moves through the council’s voting process, and some restaurants have proposed eliminating the tipped wage immediately, rather than phasing it out.
In the meantime, Wolfe says Travelers United plans to continue to file suits against restaurant groups that it believes are violating the laws around service charges, including those that don’t specifically reference who will receive the money. Furthermore, the Fair Price Fair Wage coalition, an advocacy group of which One Fair Wage is a member, has created an Instagram page that tracks which D.C. restaurants have service fees and whether they are displayed properly, according to the D.C. attorney general’s guidance.
So, should I still tip?
Read the fine print on your menu to see whether gratuity is included in any service fees, but as The Post’s Tim Carman and Justin Wm. Moyer wrote in May 2023, it’s always a good policy to tip your servers. Read their helpful guide to tipping in a post-I-82 world here.
Attention, D.C. restaurant workers: The Post wants to hear how you’ve been affected by Initiative 82. Fill out our questionnaire to share your experiences.
