I've heard of this happening with number over a certain point but more they just charge a one off fee if its cancelled. But if only half the number turns up they are usually fine either way.
Think they are well within their rights. As PPs said, it's December, so lots of parties happening. At least he was upfront at booking.
I would then ask everybody to pay upfront, or the organiser could get left holding the bill.
Should they charge you? I waitressed one night where a table was booked for 20 for a work do. Only the organiser and wife turned up. A forty seat restaurant had turned down other bookings, had to pay for food and extra staff member etc.
If you were going to a game, show etc you would usually still have paid even if you didn't show up.
Their restaurant, their rules. But there is no chance I would go anywhere that did that.
If there are 8-10 of you then you will probably spend at least $400 (working on their $40 per head theory) plus tips. If they want to risk losing that money for the sake of charging an extra $40 I don't think they care about their customers so I doubt their food/service/restaurant would be very good.
A minimum spend would be a nicer way of doing the same thing.
You could always book for 8 and then add chairs if there are 10?
Or find somewhere else that is happy to serve you?
Some of the more expensive restaurants have had a credit card when booking rule for a while. They have costs even when people don't turn up and they may also be forgoing other bookings.
It may be a Tuesday but it is Christmas/end of year party season.
If it were me I'd be cancelling the booking for another restaurant! I'm pretty sure they can make up what ever rules they like, so long as they tell you upfront. There is no way in hell I'd be going to a restaurant that tried to pull that on me though!