If you’ve been shopping lately, it’s likely that you’ve encountered empty shelves and shortages of items, such as (for inexplicable reasons) toilet paper. This tends to happen whenever a disaster – whether that’s a hurricane or COVID-19 – strikes. In some cases, retailers respond to these shortages by increasing prices. Although there may be legitimate reasons for doing that, retailers should keep in mind that price gouging laws in many states can impact their ability to increase prices. State regulators are likely to give increased attention to price gouging issues in the coming weeks and months. For example, California Attorney General Xavier Becerra announced today that his office sent “several letters calling on large online marketplaces to intensify their efforts to combat price gouging related to novel coronavirus—or COVID-19—on their platforms.”
More than half the states have laws that prohibit charging excessive prices on certain products after a triggering event, such as a declaration of a state of emergency. What constitutes an excessive price varies by state, but many laws look at the price that had been charged for an item over a specific period prior to the emergency. Some statutes have specific thresholds. For instance, a 10% price increase is presumed to be excessive in New Jersey, while Pennsylvania assumes that a 20% increase is excessive.
Most laws have exceptions to these prohibitions. For example, in many states, a price increase is not unlawful if a company can prove that the increase was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide services. If you are a retailer and need to increase prices as a result of increases from your suppliers, make sure to check the relevant state laws and to document those increases. While generally enforced against retailers, some laws expressly apply to suppliers, distributors, and/or wholesalers – and others are broad enough to arguably apply to these entities. At minimum, this means that retailers may have leverage to request documentation to support the increase.
Civil penalties for violations generally range from $99 to $250,000 per violation. (The high end of that range applies in Texas if a consumer who is impacted is at least 65 years old.) Some states also have criminal penalties for violations. If you’re going to increase prices on goods, make sure you take a look at these laws first.
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