Almost a year into the business disruptions caused by the pandemic, businesses continue to find ways to adapt and to comply with new pricing restrictions. Some of these changes relate to additional costs that businesses may need to pass along to consumers — at least in part. Given what we have seen in recent months, it is worth revisiting how businesses can implement these surcharges with an eye towards compliance with local price gouging laws.

Whether a surcharge is permissible generally depends on a number of factors, including: the industry, how and when the surcharge was disclosed to consumers, and the amount of the surcharge.  Legal surcharges are not uncommon, though, as a spokesperson for the Michigan Attorney General’s Office recently noted, “determining if a COVID-19 surcharge is legal or illegal is ‘no quick and easy answer.’”

Industry: It is hard to imagine an industry that has not been impacted by the challenges of the past year in one way or another. Different industries may face different levels of scrutiny, however, and may bear different kinds of additional costs.  We have discussed a number of industries that have been experimenting with surcharges to offset their increased costs, and they range from health care providers to hair salons to restaurants.

Disclosure: Disclosure is often a key consideration when surcharges are being challenged or investigated. Concerns are likely to be raised—and complaints and investigations are more likely to follow—when these fees are perceived as “hidden,” as reflected in a recent Washington Post article.  In some instances, disclosing a surcharge in advance is an explicit requirement, such as for the “COVID-19 Recovery Charges” restaurants are permitted to pass on to customers in New York City.

Amount: It remains true that, to the extent surcharges are put in place to reflect cost increases, they may fall within allowable price gouging exceptions.  An important consideration is whether the contemplated surcharges are related to increase costs because of the pandemic. This could look like increased transportation costs, procurement costs, or labor costs due to new or increased expenses to cover, such as for testing, disinfection, personal protective equipment, or infection control.

Businesses that are otherwise subject to pricing restrictions under current emergency orders and the attendant regulations may be able to justify such surcharges. But that may not always be the case. Even if they bear new costs, businesses may be constrained by the language of the particular price gouging laws that apply to them. Some businesses may find themselves subject to local price gouging laws, which, e.g., bans “exorbitant” or “unconscionable” prices increases,” caps them at a specific percentage, or simply bar increases outright. The Massachusetts Attorney General, for example, issued an advisory in December with information for consumer and dental practices, noting that contracts between a consumer’s insurer and their provider may prohibit any additional fees.

The takeaway is that business often are able to legitimately recover cost increases and pass them on as surcharges or price increase, but must remain mindful of the limitations that remain in place, and maintain strong compliance measures when implementing surcharges.

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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

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years has counselled businesses facing the most challenging antitrust issues and…

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years 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 or joint ventures.

John is a senior counsel at the Firm, advising on the full range of antitrust matters in diverse industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services and health care, among others.  His practice focuses on the analysis and resolution of antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger notification requirements. John has extensive experience with the legal, practical, and technical requirements of merger clearance and is regularly invited to participate in Federal Trade Commission and bar association meetings regarding Hart-Scott-Rodino practice issues.

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.