S.F. city attorney closes year-long surcharge probe

The San Francisco city attorney concluded its yearlong investigation Monday into whether restaurants were pocketing surcharges meant for employee health care and has collected more than $2 million in missing funds.

City Attorney Dennis Herrera hailed the Healthy San Francisco surcharge fraud amnesty program - in which 57 restaurants volunteered to work with officials to come into compliance rather than be sued - as a victory.

Of the restaurants participating in the program, 38 paid to make up their shortfalls, while 17 were cleared and two others reached non-monetary settlements, with an assurance that they will comply with the city ordinance. Herrera said 4,000 restaurant workers will be eligible for disbursements.

"The success is owed in large part to good faith efforts by restaurants to honor the intent of fees paid by their customers, and to do right by their employees," he said in a written statement.

"I'm grateful to these businesses for working cooperatively with us to either reach settlements or identify the errors responsible for their reported discrepancies."

The Healthy San Francisco law, passed in 2008, required businesses with 20 workers or more to set aside an allotted sum for those who are uninsured.

Many restaurant owners decided that instead of raising the prices of food and beverages to cover the increase, they would tack on a surcharge at the bottom of the bill, explaining to diners that the extra money was to be used toward employee health care.

But last year, the Office of Labor Standards Enforcement conducted audits of the restaurants and found discrepancies over a two-year period in the amount collected in the surcharges versus how much was put aside for employee health care.

Restaurateurs have said that the inconsistencies were not intentional, but that the rules didn't make it clear whether the surcharge money could be used to cover other costs. Not until the law was amended in 2011 did restaurant owners understand what they were supposed to do, they said.

"We are pleased that the city attorney's office worked cooperatively with the Golden Gate Restaurant Association and with the restaurants involved to clear the charges against 17 of the restaurants, and to resolve the grievances with the 40 remainder restaurants without any lawsuits or charges brought against them," said Donnalyn Murphy, assistant executive director of the association.