Only 10% restaurant goers support Delhi High Court’s order to rename Service Charge levied by restaurants as Staff Contribution; 77% want Service Charge to be abolished or made optional

October 3, 2023, New Delhi: William Shakespeare’s famous lines in Romeo and Juliet ‘What’s in a name? That which we call a rose by any other name would smell as sweet’ could apply in the case of the recent Delhi High Court’s interim order in the long drawn issue of “service charge” levied in air conditioned restaurants.

On September 5, the high court directed 3,300 members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term ‘service charge’ with ‘staff contribution’. Justice Pratibha Singh in her order said, “It is directed that the members of FHRAI shall use the terminology ‘staff contribution’ for the amount of service charge that they are currently charging. The same shall not be more than 10% of the total bill amount, excluding GST. The menu card shall specify in bold that after the payment of staff contribution, no further tip is to be paid to the establishment.”

The order was passed on pleas filed by the National Restaurant Association of India (NRAI) and the FHRAI, challenging the July 4, 2022, guidelines issued by the Central Consumer Protection Authority (CCPA), which stated that no restaurants or hotels should automatically add service charge to the bill or collect it from consumers under any other name. CCPA wants consumers to be given a choice to decide if they want to pay service charges. The Ministry of Consumer Affairs, which has been supporting the CCPA stance, set up a National Consumer Helpline after the guidelines were issued, to register complaints about unfair levying of service charge. Hundreds of complaints have been filed so far about the unfairness of the extra charge when the service was not up to expectations.

In April 2023, the High court clarified that the interim order should not mislead consumers and suggested exploring alternative terminology for "service charge" to prevent confusion. The court had also sought information on what percentage of FHRAI members mandatorily imposed service charges and if there were objections to renaming it. Customers are often not informed about the inclusion of service charges until they receive the bill. In response, the FHRAI submitted before the High Court that its members were ready to change the terminology from “service charge” to “staff contribution”. However, the NRAI has refused, arguing that service charge has been imposed, considered, and upheld in a number of decisions passed in the past and thus required consideration. Taking note of NRAI’s affidavit stating that 80% of its members impose service charge on its customers as a mandatory condition and that its members did not agree to the changed terminology, the court has listed the matter for hearing on October 3.

LocalCircles has been the primary platform in the country where consumers have been expressing restaurant service charge related issues since 2016. Given the recent developments, LocalCircles conducted a survey to find out consumers' views on the latest High Court’s interim order. The survey received over 23,000 responses from citizens located in 304 districts of India. 62% respondents were men while 38% respondents were women. 45% respondents were from tier 1, 32% from tier 2 and 23% respondents were from tier 3, 4 and rural districts.

77% of respondents want service charge to be abolished or made optional

When visiting a restaurant, particularly air conditioned restaurants, consumers generally tend to leave a reasonable tip for the service staff unless they are unhappy with the food served or the quality of service. The first question in the survey asked respondents “The Delhi High Court has ordered that Restaurant Service Charge be renamed Staff Contribution when it is being levied in bills. According to you, is this a satisfactory resolution of the issue?” This query received 11,032 responses with 53% stating “Not at all, Service Charge needs to be banned completely”; 24% of respondents stated “No, Service Charge should be optional”; 10% stating “Yes, this renaming will help”; and 13% of respondents giving no clear response. In sum, 77% of respondents want service charge to be abolished or made optional and only 10% of consumers going to air conditioned restaurants are fine with renaming “service charge” and charging it as “staff contribution”.

Only 11% of respondents indicated that the service charge collected from customers is “entirely distributed among staff”

As there isn’t a transparent way for the customers to know whether the restaurant staff get all or a portion of the service charge, the survey asked respondents about their perception. It asked, “Per your experience/knowledge, in what way is Service Charge collected by hotels/restaurants being used?” This query received 12,773 responses with 34% of respondents indicating that part of service charges is likely “used to cover breakage, restaurant maintenance, some distributed among staff, remaining kept by management or used for bribes/tips to local authorities”. Of the remaining, 11% of respondents indicated optimism that it is “entirely distributed among staff”; 13% felt “Some used to cover breakage, restaurant maintenance, rest distributed among staff”; while 42% of respondents indicated that they are not sure or “can’t say”. A few respondents in the community discussions indicated that at times the staff still tends to expect a tip despite the service charge being levied has raised doubts in their mind if it is entirely going to the staff.

To summarize, the survey makes it clear that among those surveyed only 10% restaurant goers support Delhi High Court’s interim order to rename Service Charge levied by restaurants as Staff Contribution; 77% want Service Charge to be abolished or made optional. This demand emerges from the fact that while 42% of those surveyed are unsure of what the service charge is used for and whether it benefits the staff, 34% restaurant goers believe that a portion of Service Charge collected by restaurants is being kept by management and used to pay bribes to local authorities. The court and the government and should also take into account the consumers' views. After all, a majority of them would be willing to pay extra if the food, service and experience is good or fair. For the most part, in the last couple of years, rising inflation, particularly food and fuel, is getting reflected in the prices on the menu or the portion size being served. For many families, going out to eat in restaurants is a way of life, which is likely to lose charm if they are forced to pay extra, under any name, for a poor experience.