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COVID-19 Surcharges: Are They Legal?

side view of young woman with wine glass on the table reading the check note and having displeased expression.
By Richard Dahl on July 22, 2020 2:37 PM

If you've eaten in a restaurant or ordered food for delivery or pickup lately, you may have noticed an additional charge on the bottom of your bill.

As restaurants and other small businesses began reopening their doors, some began adding a COVID-19 surcharge to customers' bills. The surcharges take various forms; some restaurants add 4 or 5 percent to the bill and some, like Dan's Subs in Woodland Hills, California, add a flat additional amount. Many dentists are charging an additional COVID-19 fee of $10 or $15 now, as are many salons that are charging an additional few dollars for cleaning supplies.

Standards of Reasonableness

Clearly, these businesses have suffered serious economic hits as the coronavirus prompted cities and states to force shutdowns. No doubt these surcharges are intended to make up for some of the lost revenue, but many businesses also now have new additional expenses.

This is understandable. But are they legal?

The answer is yes — as long as the surcharge is reasonable.

The Illinois Attorney General's Office told ABC Eyewitness News 7 in Chicago, "Generally, if a surcharge is added due to increased costs, the business is clear and accurate about the surcharge — i.e., not labeling it as a tax and ensuring it accurately reflects any increased costs — and clearly discloses the surcharge before the transaction, then it would be okay."

Ted Rossman, an analyst for CreditCards.com, told HuffPost that the surcharges are legal, but that it's important for companies to let customers know about the surcharges on the front end.

On the other hand, there are limits to how much of a surcharge a business can tack on. And some states are taking action to protect consumers from price-gouging businesses.

Colorado, for instance, passed a law recently aimed at preventing price gouging "for a period following a declared disaster." The bill, signed by Governor Jared Polis on July 14, puts the onus on the business owner to prove that price increases are attributable to additional costs.

Why Not Just Jack Up Prices?

Of course, a business could merely just jack up its prices without saying a word — no doubt, many do — so a COVID-19 surcharge would seem to be a more honest action for them to take. After all, it implies that when we are looking at COVID-19 in our rearview mirrors, those surcharges will be lifted.

Meanwhile, there may be an even better approach for businesses seeking to recoup some of their costs with a surcharge.

Uri Gneezy, a professor of behavioral economics at the University of California, San Diego, suggested to Inc. com that businesses could always let customers opt out of the surcharge. They could even go further than that, he said, by asking customers to contribute however much they want to defray COVID-19 expenses. He said that based on his academic research, "People pay more in those situations than when you force them to pay."

It's been a difficult time for small businesses. If they ask for a bit more to cover their expenses, we can always take our business elsewhere. But maybe we shouldn't hold it against them — especially if they're clear and honest about what they're doing.

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