43% consumers surveyed paid restaurant service charge in the last 3 months while 9% got it removed

July 24, 2023, New Delhi: As the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI) prepare to present their views to the Delhi High Court today (July 24th) on the contentious issue of service charge, there are expectations that the matter will be resolved finally.

On April 12th this year, the Delhi High Court in an interim order had asked both the industry organisations to consider changing the "service charge" terminology to an alternative term like "staff welfare charges" to remove consumers’ misconception that it is a government tax. The high court in its interim order had also stayed the guidelines of the Central Consumer Protection Authority (CCPA) on July 4, 2022, prohibiting the hotels and restaurants from levying service charge on bills "automatically or by default", while clarifying that the customers should also not be misled to believe that the service charge has been approved by the court. The interim order had been issued after the CCPA filed an appeal in the Division Bench of the Delhi High Court to revoke its order on July 20, 2022, suspending the central government’s recommendations to stop restaurants and hotels from adding service charges forcefully to customers’ food bills.

The court had also asked the industry bodies to convene a meeting to ascertain the number of members who are willing to inform their customers that service charge is voluntary and pass a resolution on the percentage of its members who mandatorily impose service charge on their bills. The affidavit giving all these details was to be furnished to the court ahead of the hearing. In the interim, consumers flocking to air-conditioned eateries, whether in hotels or restaurants, in increasing numbers are having to pay high service charges even if they are not satisfied with the services.

LocalCircles has been striving to create awareness on the issue of service charges collected by air-conditioned restaurants since 2017. Consumers via LocalCircles has approached the Department of Consumer Affairs (DoCA), under the Ministry of Consumer Affairs, Food and Public Distribution, on several occasions, which resulted in the government declaring restaurant service charge as an unfair trade practice in 2017. With the issue continuing till 2020 and even post the pandemic, the CCPA reviewed the matter once again in 2021, held discussions with the restaurant associations and on July 4 released the guidelines restricting levying of forced service charge by restaurants. Generally the average service charge levied by restaurants is around 10%.

Most restaurant associations maintain the position that service charge helps employees and even the consumers as the gratuity becomes transparent. However, most consumers have been opposing the idea that restaurants are levying service charges forcefully or by default in the bills, particularly where the service experience has not been good and it should instead be a suggestive charge with an option for the consumer to provide consent, fill or check the box.

LocalCircles survey in July 2022 had revealed that 71% respondents had been forced to pay service charges in the last five years as it was included in the bill though the service was unsatisfactory. Among the respondents, 23% had stated it happened once or twice, 18% said it happened three to five times and even worse, 24% respondents revealed it had happened as many as 6-10 times, while 6% were among those who had undergone a bad service experience despite service charge being levied in the bill, more than 10 times. Through a new survey, LocalCircles has strived to gauge consumers’ experience in the last 3 months now that 12 months have passed post the CCPA guidelines. The survey received over 11,000 responses from citizens located in 303 districts of India. 66% respondents were men while 34% respondents were women. 47% respondents were from tier 1, 36% from tier 2 and 17% respondents were from tier 3, 4 and rural districts.

43% consumers who visited an air-conditioned restaurant in the last 3 months paid service charges

The survey asked consumers “When you visited an air-conditioned restaurant in the last 3 months, what was your most common experience with service charge?” Out of 11,066 surveyed 43% stated that the “the restaurant charged and we paid” while only 9% shared that they asserted their right and “got them to remove” the service charges. It appears that not all air-conditioned restaurants are automatically levying service charges going by the response of 30% of those surveyed while 18% stated that they had no knowledge of the issue as they “did not pay attention or someone else paid” the bill. This survey question reveals that 52% of the consumers who visited air-conditioned restaurants were billed “services charges” but only 9% have opposed it. In community discussions, most people highlighted that despite at times it being a poor service experience they paid the service charge because they were in a family, social or formal setting and did not want to have an argument with the restaurant staff.

A comparative study of the surveys conducted in September 2022 and now in July 2023 when the restaurant industry is back in full swing shows that consumers are still being levied service charge in a forceful manner rather than in a voluntary or optional manner as per the guidelines. With 43% consumers in the survey confirming to having paid service charge and only 9% being able to get it removed, it is wrong for the Government to expect that basis their guidelines the consumer will put up a fight when out to celebrate special moments with family and friends. The need of the hour here is for the CCPA and the courts to find a solution here such that service charge becomes a suggestive charge, if the consumer had a good experience instead of it being forced on to them. The restaurant associations, as they present their point of view in the Delhi High Court should also keep in mind that happy consumers lead to repeat business and references and service charge is not an issue they should lose a consumer to.