On March 4, 2020, California Governor Gavin Newsom declared a state of emergency in response to the COVID-19 public health emergency. Price gouging is illegal in all California communities during the declared state of emergency.

Executive Order N-44-20 makes it unlawful to increase the price of food items, consumer goods, or medical and emergency supplies by more than 10 percent of what a seller charged for that item on February 4, 2020. Exceptions exist if the seller has experienced increased costs in labor, goods, or materials, or if the seller sold the item at a discount on February 4, 2020, in which case they may sell the item for no more than 10 percent greater than the price at which they ordinarily sold the item. If the seller did not offer the item for sale on February 4, 2020, the seller may not sell the item at a price that is 50 percent greater than what they paid for it, or, if the seller produced the item, they may not sell it for a price that is 50 percent greater than the cost to produce and sell the item.

In addition to Executive Order N-44-20, Penal Code section 396 generally prohibits charging a price that exceeds, by more than 10 percent, the price of an item before a state or local declaration of emergency. This law applies to those who sell food, emergency supplies, medical supplies, building materials, and gasoline. The law also applies to repair or reconstruction services, emergency cleanup services, transportation, freight and storage services, hotel accommodations, and rental housing. Exceptions to this prohibition exist if, for example, the price of labor, goods, or materials has increased for the business. California's price gouging law also applies to transactions between manufacturers, wholesalers, distributors, and retailers as it does between retailers and consumers.

The statute's effective period lasts 30 days after a declaration of emergency, and it can be extended by state or local officials. The state, and most local agencies, have extended this period in connection with the COVID-19 public health emergency. Local governments can also pass their own laws that prohibit price gouging, and a number of California cities and counties have done so.

Violators of the price gouging statute are subject to criminal prosecution that can result in a one-year imprisonment in county jail and/or a fine of up to $10,000. Violators are also subject to civil enforcement actions including civil penalties of up to $2,500 per violation, injunctive relief, and mandatory restitution. The Attorney General and local district attorneys can enforce the statute. Persons or entities that have been the victim of price gouging, or have information regarding potential price gouging, in California can file a complaint at oag.ca.gov/report.

Although this post focuses most specifically on California law, numerous other states and jurisdictions have their own similar but distinct and somewhat varying price gouging laws. In California and in jurisdictions across the country and across the world, price gouging can have a profound impact across commercial business and supply chains. Affected and potentially affected industries include, but are certainly not limited to, healthcare, insurance, employee benefits, labor and employment, retail, hospitality, real estate, construction, manufacturing and distribution, transportation and logistics, and government contracts.

As businesses resume operations and employees return to work, and as judicial courthouses resume operations, there is likely to be a spike in price gouging claims, disputes, and lawsuits filed by consumers or businesses under state and federal consumer protection and unfair competition laws. Additionally, alleged actual or perceived anti-competitive practices, collusion or price fixing among market competitors, participants, or employers could lead to an uptick in state and federal antitrust claims and litigation. Likewise, there may be an increase in state and federal qui tam false claim actions initiated against employers by employee whistleblowers, accompanied by claims personal to the employee against his or her employer for retaliation and wrongful termination. And of course, businesses and employers are not immune from impacts of criminal prosecutions and convictions. These are just a few of the many possibilities. 

Actual or perceived price gouging presents tremendous challenges, litigation risks, and potential exposures for commercial businesses and employers. Stay tuned

Originally published by Seyfarth Shaw, April 2020

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