'Service charge' by hospitality industry is unjust
THE Delhi High Court’s interim order of September 5 comes as a huge disappointment to consumers, who were hoping for relief from the highly exploitative practice of restaurants and hotels forcibly making them pay an illegal ‘service charge’ of 10 to 20 per cent, over and above the legitimate charges.
Usually, when there is a conflict between the interests of consumers and that of trade and industry, courts leave out dry technicalities and tilt the scales in favour of the citizen or the consumer. Here, too, the real question was not about whether the guidelines issued by the Central Consumer Protection Authority, prohibiting the forced imposition of ‘service charge’ by the hospitality industry, had the force of law. The real issue was whether the industry had the right to force a consumer to pay a charge for which there was no justification and thus constituted an unlawful levy.
Unfortunately, the guidelines, issued on July 4, 2022, after more than a decade of consumer complaints on the forced levy, were stayed by the court on July 20, 2022, in response to the petitions filed by the hospitality industry associations. And, on September 5, if consumers hoped that the stay would be vacated, that did not happen. On the other hand, the court gave legitimacy to the mandatory collection by allowing a levy of up to 10 per cent and changing the nomenclature from ‘service charge’ to ‘staff contribution’. The court did clarify that this should not be construed as an approval of the charges being collected, as its legality was yet to be adjudicated by the court. But for consumers who have had to face humiliation from the industry for standing up against the levy and refusing to pay, the court proceedings have not brought forth much hope. The case has now been posted for October 3.
When a consumer eats at a restaurant or a hotel, the bill that he gets completely covers the cost of the food as well as the service, including staff salaries, overheads, profit margin of the owner and the applicable taxes. That is legitimate payment for eating at the restaurant, and as per the contract, the consumer has to pay that bill. However, by no stretch of imagination can the ‘service charge’ be a legitimate charge payable by the consumer, because there is no basis for that charge. If it is still incorporated in the service contract of the hospitality industry, then it very obviously is an unfair term in the contract. And the Supreme Court has clearly held in many cases that any unfair term in a contract between two unequal parties has to be struck down. Thus, the expectation of consumers from the court is that it would strike down the illegal ‘service charge’ that the hospitality industry is so blatantly imposing on them.
The associations of hotels and restaurants argue that they wish to levy a mandatory, pre-determined ‘service charge’ on their customers so that they can distribute the largesse among all their employees equitably! Surely, their employees are not beggars seeking alms? Besides, payment of decent salaries, bonus and staff welfare are all duties and responsibilities of the employer. They cannot transfer that responsibility on to their customers. Besides, what is the proof that the amount is going to the staff, and is not being appropriated by the industry?
In the United Kingdom, several studies have shown how restaurants and hotels enriched themselves by pocketing either fully or partially the money collected from service charges as well as tips and gratuities paid through credit cards. So much so that now the UK has passed the Employment (Allocation of Tips) Act 2023 to make it unlawful for businesses to hold back service charges from their employees. It also gives the employees the right to seek details of the accounts from the employer and go to the employment tribunal, if necessary.
Coming back to the Indian situation, consumers want the mandatory ‘service charge’ to go. If the court does not come to their rescue, the Union Ministry of Consumer Affairs must bring in a stringent regulation prohibiting the levy. Afterall, such forced collection by the industry violates several rights of consumers and constitutes an unfair trade practice, besides attracting the provisions of Section 2 (46) (vi) of the Consumer Protection Act that defines an unfair contract such as this.
— The writer is a consumer rights and safety expert
