City Attorney Cracks Down on Restaurant Health Insurance Fraud

Categories: Talking Points

If you've ever wondered whether the healthcare surcharge on your restaurant bill is actually going toward health insurance for the restaurant's employees, there's good news and bad news. The good news is that the vast majority of S.F. restaurants are in compliance. The bad news is that a handful of them have been pocketing the money instead of putting it toward health insurance -- though San Francisco City Attorney Dennis Herrera is getting tough on the offenders.

Today Herrera sent a letter to several dozen restaurants under investigation for consumer fraud, outlining the steps they must take by April 10 to come into legal compliance and avoid civil litigation.

"I want to emphasize that this problem should not reflect on the restaurant industry at large. The overwhelming majority of businesses in San Francisco play by the rules," Herrera said in a press conference this morning announcing the amnesty initiative, adding that his office is only investigating several dozen restaurants in a city with more than 3,000.

In the letter, he outlines four steps the restaurants must take to avoid litigation, including providing accounting to City Attorney investigators for all health care surcharges collected between 2009 and 2011; distributing 50 percent of unallocated health care surcharge funds to employees who worked at the company during the time those charges were imposed on customers between 2009 and 2011; remitting amounts unredeemed by eligible employees to the San Francisco City Attorney's Office; and attesting that they will refrain from committing further consumer fraud in the future.

Right now the 50 or so restaurants that received letters are anonymous. What about Paxti's, you ask, the pizza chain that made a $320,000 settlement last week with the city over this same issue?

"There's an example of a restaurant that stepped up and did the right thing," Herrera said. "I would encourage all restaurants to handle this like Paxti's did. They came in, they wanted to understand the scope of the problem, they were apologetic, they said that they were under the impression that they were in compliance in a variety of areas. Unfortunately they were not, but they stepped up and did the right thing. And that's what I would encourage all restaurants to do."

When we learn more about the restaurants involved -- and if they've decided to take the Paxti's approach or not -- we'll let you know.

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