Three trade unions affiliated to the ruling and opposition parties have decided to shut down all member restaurants of the Restaurant and Bar Association of Nepal for an indefinite period from Tuesday onwards, demanding to roll back the decision to scrap 10 percent mandatory service charge which is added to the meal bill of customers.

Trade unions affiliated to the Nepali Congress, the CPN-UML and the CPN (Maoist Centre) said that their protest was against “anti-worker policy”.

The union’s decision follows dissatisfaction over the Restaurant and Bar Association of Nepal (REBAN) surprise move to scrap 10 percent service charge added to the meal bill.

Last Monday, the REBAN, which has more than 170 member restaurants in Kathmandu, Chitwan and Pokhara, decided that the service charge would be left to the discretion of diners and no longer be mandatory. Pressure could build on hotels to scrap the service charge.

Consumer rights activists have backed the REBAN’s decision. They have questioned why the consumers should pay additional amount to the restaurants owners when they settle the bills for the service they use.

Nepal’s existing labour law is flexible on allowing restaurant operators to collect a service charge for workers. However, rights group said that the Consumer Act and the Constitution stipulate that consumers not be cheated on the pretext of collecting a service charge.

The service charge was made mandatory in 2007 in a bid to narrow the differences between hotel management and employees when their dispute was at its peak.

“Today [on Sunday], we organised a protest rally at Thamel against the REBAN’S ‘anti-worker policy’,” said Madhav Pandey, president of the CPN (Maoist Centre) affiliated All Nepal Hotel, Casino and Restaurant Workers Union. “All restaurants under REBAN will be closed for an indefinite period or until the restaurants owners roll back their decision.”

While restaurant patrons are happy that their bills will be slashed by 10 percent, union leaders said the decision would mean a substantial reduction in the earnings of workers.

Hotels and restaurants have been levying a service charge on food and beverage bills which is then added to the salary of their employees. “The trade unions are dissatisfied with our decision because they have lost their income,” said Pramod Kumar Jaiswal, president of REBAN.

“We have clearly stated that the service charge amount would be adjusted in the workers’ salaries by their employers. Employees will not lose out on the benefit they have been receiving.”

“We [REBAN] believe that we have taken the right decision and stand firm in our decision. The decision will not be rolled back,” he said, adding that if the unions want to shut down our restaurants they can do so happily. 

“We know that the inside story is different. The three unions will lose 1 percent each if the service charge is scrapped.”

The mandatory service charge system came into force on January 1, 2007. Since then, hotel and restaurant customers have been paying 24.3 percent extra on the menu price as 10 percent compulsory service charge, 13 percent value added tax (VAT) and 1.3 percent service tax. The VAT and service tax go to the government.

However, the service charge sharing modality was revised last June. Under the revenue sharing modality, hotel employees would get 72 percent, the hotel management would get 23 percent, Hotel Association Nepal would get 2 percent

and the three trade unions affiliated to the Nepali Congress, the CPN-UML and the CPN (Maoist Centre) would get 1 percent each. The REBAN stayed away from the negotiations.

Jaiswal said that in many countries, the service charge on food and beverage bills that hotels and restaurants levied on consumers is not backed by law, and in some cases, even been deemed illegal.

An executive member of Hotel Association Nepal told the Post that there were thousands of restaurants across the country that have not been able to pay even the minimum monthly salary of Rs13,450 set by the government. “Hence, they collect the service charge and pay the workers no matter what the service level they provide,” he said. 

According to REBAN, US fast food restaurant chain KFC has been collecting service charge from customers although it has a policy of “self service”.