With the headlines dominated by hurricanes Harvey and Irma, it will be important for companies to make sure that they don’t join the negative headlines with reports about systemic price gouging. Many states have enacted statutes designed to prevent excessive price increases during emergencies like those affecting the states along the Gulf and Atlantic coasts. While each state’s statutes will vary, most come into effect only when an emergency has been declared by the governor.
While most statutes will not prohibit price increases due to downstream business conditions (consider, for example, an increase in gasoline prices in Georgia due to some reduction in production in Saudi Arabia that drives up prices globally), companies can expect any local increases spurred on by demand from consumers desperate for emergency supplies to be quickly investigated by attorneys general and other local authorities. When storms are imminent, companies should anticipate increased consumer demand, and this is a prime opportunity for companies to show their best side of corporate citizenship. If there is a need to increase prices, companies should consider not only the impact on consumers affected by the emergency, but also the basis for the increase. An increase due to the natural forces of the market (the gasoline example above) should be carefully documented in order to establish the basis for the increase in case a regulator makes any inquiries.
Many statutes, it is important to note, hold that the state of emergency lasts for a fixed number of days; in other words, it is entirely possible that a state of emergency—with related constraints on prices—may last for up to 60 days after a storm has passed. Most price-gouging statutes will have a reasonableness test associated with prior prices before the state of emergency was declared, so it will be very hard to come up with a hard-and-fast rule as to what price increase will or will not be declared price gouging. Also, such statutes frequently apply only to increases on essential goods; while specific references to the pertinent state’s statute should be undertaken, in most states increased prices for cigarettes, for example, will not incur any of the legal entanglements that would accompany an increase in gasoline prices.
In moments such as these, the best practice is to remember that these communities have been the company’s loyal customers and have kept the company going, and now is the time to return the favor.