As businesses figure out how to be creative and continue to operate during the pandemic, some have turned to “COVID surcharges” to account for new or increased costs. “Surcharges” may seem more benign than direct price increases. Still, they need to be considered with an eye towards compliance with local price gouging laws.

To the extent surcharges are put in place to reflect cost increases, they may fall within allowable price gouging exceptions. Even businesses whose products or services are covered by their relevant state price gouging laws may be able to add surcharges, since many state price gouging statutes provide exceptions for increases directly attributable to increases in the cost of labor or materials.

Consumer-facing business are experimenting with different methods to account for their new costs, such as increasing the price on specific menu items that are now more expensive to provide, or adding small fees or surcharges to a bill to offset the overall added costs of operating, to varying customer responses. Many restaurant surcharges seem to be minor, with recent examples from Florida reflecting fees around 3 percent of a total bill. There are similar reports of hair salons that have added surcharges of a few dollars to cover the costs of additional cleaning and sanitation measures.

These surcharges do not appear to have drawn many official complaints under price gouging frameworks. A spokesman for New York’s attorney general told the Wall Street Journal that, at the time of publication, the New York office had not yet received any complaints about “surcharges,” while a spokesman for the Missouri attorney general’s office reported one complaint about “surcharges” out of a total of 1,501 price-gouging complaints.

At least one state has received complaints about a particular business’s surcharge, and found the surcharge in question to be permissible. The Rhode Island attorney general’s office reportedly received numerous complaints about a business charging customers an optional 2% surcharge, which they explained was intended to cover hazard pay for their front-line employees. Because the charge was optional, and had been clearly and prominently disclosed throughout the store, the attorney general found no laws had been violated.

Health care providers may also wish to utilize such a surcharge. They indisputably have additional expenses to cover, as infection control and prevention have led to increasing personal protective equipment costs. As noted in a recent “Price Gouging Weekly Round Up,” however, local officials have noted the surcharges imposed by dentists in Maryland and Tennessee, and their responses serve as a reminder that their respective state price increase regulations still apply.

Regardless of the new costs that businesses and providers are shouldering, they are expected to comply with their state’s limitations on price increases, which may, e.g., ban “exorbitant” or “unconscionable” prices increases,” cap them at a specific percentage, or simply bar any price increases at all. A surcharge may be permissible in some circumstances, but businesses should remain cognizant of the risks and regulations when implementing any new pricing strategies.

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Visit Proskauer on Price Gouging for antitrust insights on Covid-19.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters…

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters for clients in a number of industries, including advertising, aerospace, alcoholic beverages, appliances, building materials, consumer products, defense, franchise, medical devices, metals, mining, natural resources, oil and gas, packaging, pharmaceuticals, software and telecommunications. He also has developed substantial experience advising clients regarding the application of the antitrust laws to the pharmaceutical industry, the agriculture industry, trade associations and the energy industry.

Photo of John R. Ingrassia John R. Ingrassia

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating…

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating to competition and antitrust, CFIUS or foreign investment issues.

For more than 25 years, John has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions, joint ventures, or price gouging compliance.

John’s practice focuses on the analysis and resolution of CFIUS and antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger CFIUS and HSR notification requirements. He advises clients on issues related to CFIUS national security reviews, and on CFIUS submissions when non-U.S. buyers seek to acquire U.S. businesses that have national security sensitivities.  He also regularly advises clients on international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign merger control regimes.

His knowledge, reputation and extensive experience with the legal, practical, and technical requirements of merger clearance make him a recognized authority on Hart-Scott-Rodino antitrust merger review. John is regularly invited to participate in Federal Trade Commission and bar association meetings and takes on the issues of the day.

Photo of Kelly Landers Hawthorne Kelly Landers Hawthorne

Kelly Landers Hawthorne is an associate in the Litigation Department.

While at Columbia, she served as an articles editor of the Columbia Journal of Law & the Arts and was involved with the Lawyering in the Digital Age Clinic.  She also worked as…

Kelly Landers Hawthorne is an associate in the Litigation Department.

While at Columbia, she served as an articles editor of the Columbia Journal of Law & the Arts and was involved with the Lawyering in the Digital Age Clinic.  She also worked as a judicial intern for the Honorable Sandra Townes of the United States District Court for the Eastern District of New York.

Kelly is a Teach For America alumnus and taught middle school special education and math in Washington, D.C. prior to law school.