The Breakdown

Explaining Southern California's economy

Health care surcharge riles customers at top LA eatery

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Since opening less than three months ago in Hancock Park, the French-inspired bistro and bakery, Republique has been packed every night. It’s been called the city’s hottest new restaurant, but it also might be the most controversial, because of a three-percent surcharge that’s added to every tab to pay for workers’ health care.

“It’s a little odd,” said Jessica Leblanc, who was eating pastries at Republique on a recent morning. “I’m kind of stunned. I don’t know how I feel about it.”

“I was very surprised,” said a customer sitting nearby, sipping a latte. (She asked not to be identified) “Quite honestly, I had an immediate reaction that was not positive.”

On Yelp, online reviewers have been less kind, calling the surcharge “obnoxious” and “tacky.”

“It is not MY responsibility to take care of YOUR employee's health care. That is YOUR job,” wrote one reviewer, continuing, "I will not be returning because of the 3% charge." Another simply asked, “Are they crazy?”

No, says Republique managing partner Bill Chait.

“This was a big decision, and it wasn’t taken lightly,” said Chait, sitting in the back of the cavernous two-story restaurant, which was once where Charlie Chaplin’s offices were located and more recently was home to Campanile, the well-known eatery founded by Mark Peel and his then-wife Nancy Silverton.

RELATEDAnother delay in health law's employer requirement

Chait is something of a legend in the L.A. food scene. He manages more than half a dozen high-end restaurants around town including Bestia, Picca, and Petty Cash. So, a lot of other restaurateurs pay attention to his business decisions.

“I would be lying to you if I didn’t tell you this has been an aspiration to solve this issue over the years, so you don’t get ruined by rising health care costs,” said Chait.

A staff of fulltime employees

Under Obamacare, businesses like Republique with more than 50 full-time employees have to offer affordable health care benefits or pay fines. (This week, that mandate was delayed again, to 2016)

That’s had the effect – it’s hotly debated how much of one – of employers shedding fulltime workers.

The U.S. Chamber of Commerce found in a survey last year that half of small businesses would reduce hours or add more part-timers in response to Obamacare.

“There’s an inherent incentive to put people in the exchanges and not through the restaurant and their employers if they’re part-time employees,” said Chait.

But Chait and chef Walter Manzke wanted all of Republique’s 80-plus workers to be fulltime, right down to the dishwashers.

"Cutting employees has never been a good option to me, which is the option that everyone's taking," said Manzke. "You don't have dedication and commitment."

Starting this month, everyone at Republique has the option to enroll in an H.M.O. and the restaurant claims 95 percent of workers have done so.

Barista Dawn Bassett says she’s never seen anything like it.

“I’ve worked in the service industry my whole adult life and it’s laughable to think you could have insurance,” said Bassett. “It’s because we’re in this industry where we want to serve other people. We enjoy it and we like what we do but it sometimes makes it difficult financially and in other ways.”

A troubled model in San Francisco

Republique’s owners got the idea for a health care surcharge from San Francisco, where many restaurants did a similar thing in 2008 after the city passed a law requiring businesses to provide health care to workers, but there was a big problem.

“People were collecting all these surcharges, but they weren’t necessarily using all the funds to pay for health care for the employees,” said Angelica Pappas, spokeswoman for the California Restaurant Association, which advises restaurants to proceed very carefully when implementing surcharges.

In 2011, San Francisco restaurants collected more than $14 million in health care surcharges, but only about a third of the money went towards health care, according to a report by the Office of Labor Standards Enforcement.

The city attorney recently reached a $2.1 million settlement with 38 restaurants.

Republique promises all of the money it collects from the surcharge goes to health care - the owners might even have to chip in more - but how can customers be sure?

“In the same way that you assure them that the 28-day dry aged côte de boeuf is actually 28-day dry aged côte de boeuf,” explained Taylor Parsons, Republique’s sommelier and beverage director. “There’s a certain element of trust that’s required in this business, and ultimately the integrity that you show in your operation has to carry through.”

If you don’t like the health care surcharge, Republique says to just deduct the amount from your tip. But for all the griping, the restaurant says only a couple customers out of about 10,000 – have taken that option.

Poll: What do you think about the surcharge? Let us know:


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