Pursuant to Civil Code Section 1749.5, it is unlawful to sell gift certificates or gift cards with an expiration date. It is also unlawful to refuse to redeem for cash when the certificate value is less than $10.
Different rules may apply to promotional and discount certificates, or group gift cards or certificates.
If your restaurant sells gift certificates, follow these simple rules to avoid violation of the law:
- Don’t provide an expiration date. The certificate must remain valid and redeemable until used, redeemed for cash, or replaced with a new gift certificate.
- Don’t charge a service or dormancy fee. Fees are not permissible except in limited situations and subject to strict rules as promulgated in Section 1749.5(e). If you wish to charge a fee, be sure to read the Civil Code section 1749.5(e) to ensure that it is compliant.
- If the gift certificate is for less than $10 or when the value drops below $10, the purchaser or holder is entitled to receive the face value in cash, even if no purchase is made.
If the certificate or gift card is part of a block of unaffiliated sellers of goods or services (for example, a card that can be used at all or some of the stores at a particular mall), then it can have an expiration date if it is printed on the card.
To avoid potential confusion or error, it may be effective to implement internal policies to not issue gift certificates for less than $10 increments and always offer cash back when the value drops below $10. By doing so, you can avoid confusion when a customer asks for cash back.
Promotional and discount certificates may contain an expiration date if the expiration date appears in capital letters in at least 10-point font on the front of the certificate and:
- The certificate is provided for free as part of an awards, loyalty or promotional program or
- Is donated or sold below face value at a volume discount to employers or nonprofit charitable organizations for fundraising purposes with an expiration date not more than 30 days after date of sale.
The California law on validity of gift cards and gift certificates does not apply if the card can be used anywhere, such an American Express, Mastercard, or Visa gift card.
Currently there are no guidelines affecting the right to use a gift card to pay tips. If a restaurant wants to limit the use of gift cards on tip, then it should clearly denote the restriction on the back of the gift card in no less than 10 pt. font. Remember though that a customer has a right to take cash for any values less than $10, and thus could cash out a gift card and use it for tips. Since California laws are always changing it is important that owners regularly review their policies and procedures to see if there is a change in law regarding restrictions and rules applicable to gift cards.
Christine H. Long is Partner, and Department Chair at Berliner Cohen, LLP. She maintains a diverse litigation practice in employment, hospitality, business litigation, and real estate. Ms. Long is the Chair of the Employment Law Practice Group and Hospitality Practice Group.
For questions on how these Law and Ordinances affect your work place contact Christine Long, Partner at Berliner Cohen at 408.286.5800 or by email at Christine.Long@berliner.com.