Price Gouging Laws That PA and NJ Businesses Must Know Amid COVID-19

Price Gouging

While there is no federal law prohibiting price gouging, many states have laws deeming price gouging during a time of emergency to be a violation of unfair or deceptive trade practices. Most of these state laws provide for civil (monetary) penalties – Pennsylvania and New Jersey both utilize civil remedies for violations – although some states, like California, also enforce criminal penalties for price gouging. As explained below, in Pennsylvania, a twenty percent (20%) increase during an emergency generally is deemed unlawful, although some lesser price increases could be unlawful, depending on the circumstances. In New Jersey, a ten percent (10%) price increase during an emergency generally is deemed unlawful. Both Pennsylvania and New Jersey price gouging laws take effect where the government has declared states of emergency, which now has formally occurred in both states. Both states’ laws are explained below.

Pennsylvania

Pennsylvania’s law regulating price gouging during an emergency, 73 Pa.Stat. § 232.4, requires the following:

• During and within 30 days of the end of a state of emergency, it is a violation of PA law for any party within the chain of distribution of consumer goods or services, or both, to sell or offer to sell the goods or services, within the geographic region that is the subject of the declared emergency, for an amount which represents an “unconscionably excessive price.”
• Prima facie evidence of a price being “unconscionably excessive” exists if the price, during and within 30 days of the end of a state of emergency, exceeds an amount equal to or greater than 20% of the average price at which the same or similar consumer goods or services were obtainable in the affected area during the seven days immediately before the declared state of emergency.
• Importantly, the price gouging laws do not apply if the price increase is substantially attributable to additional costs that arose within the chain of distribution in connection with the sale of consumer goods or services, including replacement costs, credit card costs, taxes, or transportation costs.

See 73 Pa.Stat. § 232.4(a)-(e). Any violation of Pennsylvania law regarding price gouging exposes the violator to a civil penalty up to $10,000 for each violation, as well as other relief, including injunctive relief, restitution, and costs. 73 P.S. § 232.5.

Notably, the PA AG’s Office has already seen a significant number of reports of price gouging related to the COVID-19 coronavirus pandemic as of the time of this publication: a total of 373 reports have been made, resulting in the PA AG’s Office issuing 24 cease and desist letters to date.

New Jersey

NJ’s Consumer Fraud Act, N.J.S.A. 56:8-107 et seq., makes it unlawful to sell merchandise at an “excessive price” during an emergency as follows:

• It is unlawful for “any person” to sell or offer to sell during a state of emergency, or within 30 days of the end of a state of emergency, in the area for which the state of emergency has been declared, any merchandise which is consumed or used as a direct result of an emergency, or which is consumed or used to preserve, protect, or sustain the life, health, safety or comfort of persons or their property, for a price that constitutes an “excessive price increase.”
• An “excessive price increase” occurs when a price is excessive as compared to the price at which the consumer good or service was sold or offered for sale by the seller in the usual course of business immediately prior to the state of emergency.
• NJ law deems a price “excessive” if: (1) the price exceeds by more than 10 percent the price at which the good or service was sold or offered for sale by the seller in the usual course of business immediately prior to the state of emergency – unless the price charged by the seller is attributable to additional costs imposed by the seller’s supplier or other costs of providing the good or service during the state of emergency; or (2) where the increase in price is attributable to additional costs imposed by the seller’s supplier or additional costs of providing the good or service during the state of emergency, the price represents an increase of more than 10 percent in the amount of markup from cost, compared to the markup customarily applied by the seller in the usual course of business immediately prior to the state of emergency.

The NJ Attorney General has indicated that claims of price gouging will be thoroughly investigated, with significant resources being assigned to guard against consumer abuse. Approximately 270 reports of price gouging have been reported to the NJ AG as of the time of this publication.

Businesses Should Protect Themselves In The Event Of Legitimate Price Increases

PA and NJ businesses that plan to implement legitimate price increases should consider the impact to reputation and customer goodwill in doing so during the COVID-19 coronavirus pandemic.

Being accused of price gouging by state authorities during or after the COVID-19 pandemic could bring long-term brand and reputational damage – whether warranted or not – along with serious financial consequences in the event of a state investigation and/or enforcement action. Being aware of state laws regarding price gouging is important – and following such laws is paramount. If your business plans to increase prices, your business should follow the following guidance:

• You must be transparent with customers about the reasons for the increase, via signage or written explanation to customers. Doing so will help customers understand the valid reason for the increase – as well as prevent a potential report or referral to state authorities.
• Businesses should also document with particularly any anticipated or actual cost increases – including when and how such cost increases went into effect, along with how such increases were explained to customers – in order to protect themselves in the event of a potential state investigation or enforcement action.
• Legitimate reasons under PA and NJ law should include costs arising within the chain of distribution such as replacement costs, credit card costs, transportation or shipping costs, storage-related costs, taxes, increased price of goods, or other legitimate reasons relating to rising costs of acquiring, shipping, storing, marketing, and/or selling goods.

Closing Thoughts

These are unprecedented and scary times for everyone – businesses and business owners included. Businesses must do what they can to continue to operate and earn profit – but they must be careful to do so without inviting price gouging scrutiny and related reputational harm, along with potential investigative and/or enforcement action by state authorities. In the event that your business has questions or concerns regarding compliance with PA or NJ laws pertaining to price gouging, please contact the author for guidance and compliance-related legal advice.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.