The Federation of Hotel and Restaurant Association of India (FHRAI) is presently under instructions from the Delhi High Court to refer to ‘Service Charge’ as ‘staff contribution’. The court has also ordered the contribution not to exceed 10% of the total bill. This comes after a recent interim order issued by the Delhi High Court.
Background Details of the Case
In July 2022, Central Consumer Protection Authority (CCPA) issued guidelines that service charges should not be collected from consumers under an alternative name and should be optional and voluntary. To address this, National Restaurant Association of India (NRAI) and the FHRAI contested these guidelines leading to the current case. Customers also had the option, under these guidelines, to request the removal of the service charge from the bill if they did not wish to pay it.
The Role of eDaakhil Portal
Under the guidelines, customers can also register a complaint against unfair trade practices using the eDaakhil portal. The guidelines also prohibited the automatic addition of service charges to the bill without prior information to the consumer.
An Overview of Interim Orders and their Evolution
The Delhi High Court’s first reaction to the CCPA guidelines was a stay in July 2022, with a condition that restaurants clearly display service charge on menus along with informing customers about their obligation to pay. This stay was later extended and in April 2023, the court suggested considering a change in the term “service charge” to avoid misinterpretation.
The Court’s Recent Decision on ‘Service Charge’
Despite NRAI’s opposition to rename the ‘service charge’, the court directed FHRAI members to adopt the term ‘staff contribution’ and cap it at 10% of the total bill. This decision took into account the lack of conformity among FHRAI members concerning the implementation of service charges.
The 2017 Guidelines and their Connection to the Present Case
The 2017 guidelines outlawed the levy of service charges by hotels and restaurants without the explicit consent of customers. The current CCPA guidelines were designed to supplement these 2017 rules, not to replace them.
Defining Service Charge
Service charge is a fee added by businesses, especially in the hospitality industry, to cover staff services costs. Despite its benefits, this charge often leads to issues such as lack of transparency, mandatory nature, subpar service quality, and customer compulsion.
Understanding the Central Consumer Protection Authority (CCPA)
Established under the Consumer Protection Act (CPA) of 2019, CCPA regulates abuses of consumer rights, unfair trade practices, and deceptive marketing detrimental to the public interest. Under Section 18 of the CPA, 2019, it safeguards consumers’ rights and prevents their violation. It also issues guidelines to enforce consumer rights.
Legal Insight into ‘Staff Contribution’ vs ‘Service Charge’
The term ‘staff contribution’ is seen as less misleading than ‘service charge’, as it clearly states that the charge is a contribution towards the staff’s service. This court-mandated rephrasing is aimed at ensuring more transparency and clarity in restaurant billing practices.
