April 02, 2020

NJ Businesses Need Price Gouging Guidance

When Governor Phil Murphy declared a state of emergency on March 9, he triggered New Jersey’s emergency pricing law, which blocks sellers from increasing prices on emergency-related goods. The unprecedented scope and duration of the COVID-19 emergency will raise unprecedented questions about this law’s application.

The emergency pricing law, N.J.S.A. 56:8-107 to -109, precludes sellers from charging prices that are:

  • more than 10 percent [higher than] 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 [a declared] 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.

The law applies to “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.”

If a supermarket had a shelf full of hand sanitizers, and repriced those products 1000% higher, or even just 111% higher, during the present emergency, that supermarket pretty clearly violated the law, barring some extraordinary circumstance.

In an interview on March 23, Gov. Murphy said, “there is a special place in hell for people who take advantage of” the COVID-19 crisis by violating the emergency pricing law. On March 24, Attorney General Gurbir Grewal said his office already had received 1,400 consumer complaints and vowed strict enforcement of the law. Clearly, sellers in New Jersey need to be mindful of their legal and moral obligations during this crisis.

In emergencies, we sink or swim together. Many of our neighbors are out of work, hopefully just temporarily. The aim of New Jersey’s emergency pricing law is clear: Emergencies are not times to let the laws of supply and demand operate normally. Instead, government steps in and tells merchants to keep their prices basically fixed where they were prior to the emergency, at least for food and other products we need for daily living or public health.

We must remember, however, that “usual” states of emergency are regional in nature and short in duration. During Hurricane Sandy, New Jersey declared an emergency on October 27, 2012, and had rescinded the emergency declarations by November 19.

In these kinds of emergences, the emergency pricing law primarily impacts goods already on store shelves or in suppliers’ warehouses. The government is not asking consumer-facing resellers to lose money. The emergency pricing law only removes the seller’s temptation to take advantage of the situation by seeking excess profits for items the seller already has.

The COVID-19 crisis is different. States of emergency exist throughout the country and appear likely to remain in place for months.

This emergency, therefore, threatens to be the first that impacts not only items for sale that had been manufactured prior to the COVID-19 outbreak, but wave upon wave of new manufacturing to replace goods already sold.

This means that the Attorney General’s Division of Consumer Affairs (DCA) should move quickly beyond “special place in hell” soundbites and begin providing real guidance to New Jersey businesses and national sellers who do business in New Jersey.

Neither New Jersey’s anti-gouging law nor the similar laws of other states were designed with a COVID-19-style emergency in mind. Unlike laws in other states, New Jersey’s emergency pricing law does not well define what kinds of “additional costs” arising from the emergency are legal to pass to purchasers, or what the “usual course of business” means when thinking about goods with seasonal pricing patterns.

As an example, if a store was running a sale on ground beef the day before the emergency, other states’ anti-gouging laws make clear that the store need not continue the sale during the emergency. New Jersey’s law does not say this explicitly, but the “usual course of business” provision probably means that “unusual” discounts need not persist. Businesses should be able to go back to normal, non-sale prices during the emergency.

But what about a business that was intentionally selling a product at a loss during the winter months, with the expectation of being able to raise prices during the spring and summer Examples of this abound, fresh beef and chicken among them.

It cannot have been the Legislature’s aim to require food purveyors to sell meats at money-losing prices in April and May, just because they did so in early March. Without guidance from enforcement authorities, however, sellers’ obligations under the law are uncertain.

Equally unclear is what “additional costs” can lawfully be considered “attributable” to the emergency, and therefore passed on to purchasers without violating the law.

Think of a toilet paper company with two sales forces, one that sells to supermarkets for resale to consumers, and the other that sells to restaurants and other public-facing businesses for use in their restrooms. Consumer-facing sales may be booming in this emergency, but the business-to-business line has dried up completely.

Assume this company thinks it inhumane to lay off the salespeople who focus on the temporarily moribund business line. Are those salaries—which obviously benefit the employees who keep their paychecks, but which are deadweight to the company as a whole—“additional costs” attributable to the emergency that the company can pass on to supermarket purchasers in the consumer-facing business?

If the answer is yes, consumers will pay a slightly higher price for toilet paper during the emergency, and more employees of the manufacturer will be able to keep their jobs during the emergency. If the answer is no, manufacturers will face the choice between selling their product at a price that amounts to a loss, or else cutting costs by laying off more workers.

Another issue that will arise is manufacturers offering new products that they did not sell before the emergency, in order to meet high consumer demand. Fair or not, nothing in the law explicitly prohibits manufacturers from pricing these new products in any manner they choose.

Businesses around the state and throughout the country are asking their lawyers how to comply with New Jersey’s and other states’ emergency pricing laws as the state of emergency enters its second month with no immediate end in sight. The most conservative advice would be to hold the line on pricing through the April 30 social-distancing period the Centers for Disease Control announced on March 29 and hope that the Governor’s Office and DCA will provide additional guidance about the pricing law.

Admittedly, this is a tough time to ask authorities for guidance. The hard-working attorneys of the New Jersey Division of Law, and their counterparts in the DCA, have been hit by the COVID-19 crisis the same as the rest of us. Under these tough circumstances, the Attorney General’s Office has been racing just to keep up with the daily demands of the crisis, with little time remaining to think about tomorrow, and the next day.

With an already uncertain business climate in New Jersey and nationally, however, and no way to know how long the crisis will last, the best thing the DCA can do is send a clear message to the business community: We will police true “gouging” vigilantly, but if you are making a good-faith effort to comply with the emergency pricing laws, we will work with you.

DCA should be encouraging employers to keep more workers on their payrolls. If that means temporarily allowing businesses to treat unproductive salaries as emergency-related “costs,” so be it. DCA should say so.

DCA also should make clear that the anti-gouging law is not a command to lose money. N.J.S.A. 56:8-108(2) allows sellers to increase prices up to 10% of the usual “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.” This section explicitly contemplates a seller’s ability to make a profit during an emergency—just not an unconscionable profit. DCA should say this, too.

New Jersey was “Stronger Than the Storm” in 2012, and will be stronger than a virus in 2020.  The law meant to protect us from profiteering in emergencies, however, should not end up making problems worse.

Reprinted with permission from the April 1, 2020 edition of the New Jersey Law Journal© 2020 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 - reprints@alm.com.
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