In New Jersey, a 10% price increase during a state of emergency generally is deemed unlawful, pursuant to NJ’s Consumer Fraud Act, N.J.S.A. 56:8-107 et seq.
And this week, on April 15, 2020, NJ Attorney General Gurbir S. Grewal announced that the NJ Division of Consumer Affairs’s enforcement of the state’s price gouging laws was in full gear, with NJ having issued approximately 514 cease-and-desist letters and 89 subpoenas to businesses reported by consumers to have engaged in price gouging or other consumer protection violations related to the COVID-19 pandemic. These cases include investigations of brick-and-mortar retailers, companies located in other states that allegedly have been increasing prices for New Jersey consumers, and sellers located in New Jersey who have been accused of raising their prices on online marketplaces. NJ had, as of April 15, received a total of 2,978 complaints related to the COVID-19 emergency, against approximately 1,800 business locations. Notably, 90% of the complaints involve price increase on items including surgical masks, hand sanitizers, disinfectant sprays and wipes, food, bottled water, and other items in demand by consumers concerned about protecting their health and maintaining supplies for their homes.
Further, AG Grewal announced that approximately 40 merchants based in New Jersey are currently under investigation by the Division of Consumer Affairs for engaging in price gouging or other consumer protection violations related to COVID-19 through their use of online marketplaces like Amazon, Craigslist, and Facebook Marketplace. NJ is also investigating other allegations of consumer fraud, including several reports of companies falsely marketing products as effective to prevent the spread of COVID-19 or overstating the effectiveness of their products. One company has been accused of falsely claiming that its sanitizer and disinfectant products are more than 99.9% effective against COVID-19.
NJ’s price gouging laws prohibit excessive price increases during a declared state of emergency and for 30 days after its termination. A price increase is considered excessive if the new price is more than 10% higher than the price charged during the normal course of business prior to the state of emergency. Price-gouging violations in NJ are punishable by civil penalties of up to $10,000 for the first violation, and $20,000 for the second and subsequent violations. Violators may also be required to pay consumer restitution, attorney’s fees, and investigative fees, and be subject to injunctive relief. Notably, each sale of merchandise is considered a separate violation.
Businesses based in New Jersey and Pennsylvania, as well as businesses in other states selling to NJ- and PA-based consumers, must be aware of and conform with state laws prohibiting price gouging. There are legitimate reasons to impose price increases during the pandemic, including but not limited to increased costs arising within the chain of distribution, replacement costs, credit card costs, transportation or shipping costs, storage-related costs, taxes, increased price of goods, insurance increases, labor and wage increases, and other cost increases related to acquiring, shipping, storing, marketing, and/or selling goods.
If price increases are to be implemented, businesses should consider (1) being transparent with customers about the reasons for the increase via signage or written explanations to customers, which will help customers understand the valid reason for the increase, as well as prevent a potential report or referral to state authorities; and (2) businesses should 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.
Businesses must do what they can to continue to operate and earn a 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 Klehr Harrison LLP’s white-collar defense team for guidance and compliance-related 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.
Author James A. Petkun is a partner in the Litigation Department at Klehr Harrison.