Post Delhi HC's order to rename service charge, Survey shows 77% want abolition

New Delhi: In wake of the Delhi High Court's recent interim order directing 3,300 members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term 'service charge' with 'staff contribution', 77 per cent of restaurant goers prefer its abolition (53 per cent) or making it optional (24 per cent).

LocalCircles conducted a survey to gauge consumers' opinions on Justice Pratibha M Singh's interim order, which aimed to resolve the longstanding issue surrounding the levying of service charges in air-conditioned restaurants.

The survey received over 23,000 responses from citizens across 304 districts in India.

Asked about their satisfaction with the high court's order to rename service charges as staff contributions, 53 per cent of respondents stated that it was unsatisfactory and called for the complete banning of service charges.

An additional 24 per cent of respondents believed that service charges should be optional.

Only 10 per cent of respondents supported the renaming of service charges to staff contributions, and 13 per cent did not provide a clear response.

Of the respondents, 62 per cent were male, while 38 per cent were female. Geographically, 45 per cent were from tier 1 cities, 32 per cent from tier 2, and 23 per cent from tier 3, 4, and rural districts.

The survey clearly indicates that the majority of respondents (77 per cent) support either abolishing or making service charges optional. This demand arises from concerns about the transparency and use of service charges, with 34 per cent of respondents suspecting that a portion of these charges is used for purposes other than staff remuneration.

Justice Singh's order, issued on September 5, mandates FHRAI members to use the term 'staff contribution' for the amount of service charge they charge customers. However, this charge should not exceed 10 per cent of the total bill amount, excluding GST. The menu cards of these establishments must clearly state that no further tip should be paid after the staff contribution.

The survey also probed respondents' perceptions regarding how service charges collected by restaurants are utilised. Of the respondents, 34 per cent believed that some of the service charges are used for purposes such as covering breakage, restaurant maintenance, and being distributed among staff, with the remainder potentially kept by management or used for bribes/tips to local authorities. Only 11 per cent of respondents expressed optimism that service charges were entirely distributed among staff.

Another 13 per cent believed that some service charges were used for various purposes, while 42 per cent admitted uncertainty regarding the use of service charges.

The court's decision came in response to pleas filed by the National Restaurant Association of India (NRAI) and FHRAI, challenging the guidelines issued by the Central Consumer Protection Authority (CCPA) on July 4, 2022. CCPA's guidelines stated that restaurants and hotels should not automatically add service charges to bills or collect them under any other name, advocating giving consumers the choice to decide whether they want to pay service charges.

In April 2023, the high court stressed on the need for clarity and suggested exploring alternative terminology for "service charge" to avoid confusion. The court also sought information on how many FHRAI members imposed service charges as a mandatory condition and whether there were objections to renaming it.

In response, FHRAI members expressed readiness to change the terminology to "staff contribution." However, the NRAI disagreed, citing past decisions that upheld the legitimacy of service charges.

The court has listed the matter for further hearing on October 3.