Minneapolis - St. Paul Metro

Minnesota restaurants are grappling with how to adapt to a new state law that will ban them from adding fees to customers' checks.

Why it matters: The so-called junk fees law begins Jan. 1 and prevents businesses from tacking on all kinds of charges at the end of a transaction.

The one most people will quickly notice is at restaurants, where adding a 3%-5% health and wellness fee has become common in the Twin Cities.

The new law allows restaurants to add an automatic gratuity, but it must be clearly labeled and go to the wait staff. It also allows taxes, shipping and delivery charges to be added.

State of play: California this year became the first state to ban junk fees, but Gov. Gavin Newsom exempted restaurants at the 11th hour. That means Minnesota will be the first state to ban restaurant fees.

DFL backers say the measure provides price transparency and allows consumers to make informed decisions by seeing the total cost of a good or service upfront.

The intrigue: Restaurant owners told Axios they are faced with this question: Do they eat the lost revenue or increase menu prices during the dead of winter, when dining slows in Minnesota?

Restaurateur David Fhima (Maison Margaux, Fhima's and Mother Dough Bakery) said he hasn't decided what to do. He uses a 5% fee to help pay for employees' health insurance, which he said is set to rise 40% this year.

What they're saying: Fhima agrees with banning hidden fees, but said they're labeled on restaurant menus ahead of time, unlike, for example, fees for hotel resorts or concert tickets.

Kim Bartmann (Barbette, Pat's Tap, Book Club and others) said she was the local first restaurant operator to offer health care to employees back in 1993. Her costs have risen at least 10% a year, she said, but more like 20%-30% most years.

She's planning to raise menu prices.

Larkin Hoffman attorney Matthew Bergeron, who advises operators, said he expects most restaurants to do the same, but many of them will communicate to customers that the increased prices are to cover benefits for their employees.

Friction point: Big questions remain about catering and banquets. Typically, customers sign a contract that includes several fees, but operators don't know if they can add those to the bill afterward — even though they were agreed on up front, said Angie Whitcomb, CEO of Hospitality Minnesota.

Whitcomb said her organization is going to be asking for changes to the Minnesota law once the Legislative session begins Jan. 14.

What we're watching: How customers perceive menu price hikes at restaurants that have removed fees.

A $15 cheeseburger will still cost $15, but the menu won't say it's $14.25.