The Latest Restaurant Buzz From San Francisco? Healthcare Fraud

City officials allege that more than 90 establishments have been pocketing money meant for employees’ care.
The extra money customers have paid for employee healthcare has ended up in the pockets of some restaurant owners, say San Francisco city officials. (Fuse/Getty Images)
Jan 30, 2013
Megan Bedard is a sucker for sustainable agriculture and a good farmers market, she likes writing about food almost as much as eating it.

"Healthy San Francisco" started off as a feel-good concept: The city program required businesses with more than 20 workers to set aside money to provide employees with basic services.

When the program launched in 2007, most restaurant owners took it in stride, albeit with a few grumbles, tacking on a surcharge to customers' tabs to cover the costs. Patrons would pay a little extra, restaurants would set the money aside, and restaurant workers would get basic healthcare. Win-win-win, right? In theory, yes. But a new investigation says the plan has soured to the tune of $9 million, reports the SF Gate.

That's allegedly how much restaurant owners have collected from customers and pocketed for themselves, according to a new investigation of 93 San Francisco restaurants. An audit by the Office of Labor Standards Enforcement (OLSE) revealed discrepancies between what business said they collected in surcharges and what they reported allocating to employee healthcare costs. City Attorney Dennis Herrera now plans to further investigate at least 50 of those restaurants.

Herrera has launched a surcharge fraud enforcement program, which includes a one-time partial amnesty offer for accused businesses that voluntarily comply with the law and cooperate immediately. He has also mailed a letter detailing the terms of the program to several dozen restaurants suspected of being the most serious offenders.

"The importance of this program isn't just to protect employees and consumers from surcharge fraud," Herrera said at a City Hall news conference on Friday. "It's also to protect the vast majority of restaurants that follow the law, and that provide healthcare benefits to their workers. Those businesses shouldn't be forced to compete with cheaters."

Speaking to TakePart, Herrera stressed that the list of restaurants suspected of committing fraud is "a very small subset" and not the norm. "The vast majority of the industry are in compliance and do what they need to do to adhere to the law," he says. 

So who's on the blacklist? The Cheesecake Factory, Burgermeister, Umami, Moshi Moshi, Flour + Water, Cafe Flore, Johnny Foley's Irish House, and a host of other establishments. Offenses range from small amounts of cash to hundreds of thousands of dollars. Establishments run by such high-profile chefs as Michael Mina, Tyler Florence, Nancy Oakes, and Hubert Keller are all on the list. 

The Mina Group, which showed the greatest disparity between what it collected and what it spent on healthcare, collected $539,806 in 2011, reports the SF Gate, but only spent $211,809 on workers' healthcare needs, according to the city's labor office.

Like many of the companies on the list, however, the Mina Group has denied allegations of wrongdoing.

"Funds collected have not been misappropriated and all funds remain available to all current San Francisco employees," Kristen McLarty, vice president of public relations for the company, tells TakePart in a statement. "This surcharge is segregated in a cash reserve available for our employees to use toward health benefits. Mina Group provides a very robust health benefit plan that allows employees to roll over benefits year over year; it is not a use-it-or-lose-it plan. Unapplied funds are held and will continue to be held in a reserve solely for our employees."

Herrera isn't concerned that restaurants may have been wrongfully accused; he believes the city is taking appropriate measures to allow restaurants to plead their cases. "From our perspective, [the OSLE report] just raised red flags that there was fraud going on, and we want to give everyone the opportunity to come into compliance with the law.” 

He says that when the Healthy San Francisco program was launched, the city had hopes the program would be faithfully adhered to, and abuse of the program wasn't an initial concern. Now that the issue has arisen, Herrera says the fallout for restaurants that committed fraud could serve as a lesson to others. 

"I'm hopeful that with the attention that's been paid to this issue, there will be an educational effect," he says. "I think those in city government are more than happy to work with the industry to make sure everyone's in compliance."

See the full list of restaurants that made the OSLE's list on SF Gate. 

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