Coronavirus (COVID-19), Disasters, Emergencies, and Price Gouging in California

Earthquakes, drought, wildfires, floods, and now a pandemic; for Californians, the risk of disaster is always present. When calamity strikes, destroyed infrastructure and disrupted supply lines—or even mere panic—can cause drastic shortages of basic goods and services. Unscrupulous merchants and contractors can capitalize on those shortages by exorbitantly raising prices. As fears over the emerging coronavirus threat grew, so did online prices. The cost of hand sanitizer and face masks on Ebay shot up over 500%. But price gouging can literally strike closer to home; immediately following California's 2017 North Bay fires, some landlords raised rents 80% or more.

Taking unfair advantage of consumers during a state of emergency—also called "price gouging"—is illegal under California law.

What Is a "State of Emergency?"

A state of emergency is an official declaration temporarily suspending normal governmental and constitutional procedures in response to an earthquake, flood, fire, riot, storm, drought, infestation, disease, or other natural or human-made disaster. Depending on the size of the disaster, the president, governor, or city or county governing official can make the declaration.

Price Gouging Is Prohibited

Once a state of emergency is declared, California Penal Code § 396 prohibits "excessive and unjustified increases" on a range of basic goods and services. Barring justification, an excessive increase is an increase of more than 10 percent above the price charged by the person in question for the same goods or services immediately before the declaration of emergency. In addition, a seller who didn't offer a particular product prior to the emergency cannot sell that product "...for more than 50% greater than..." what the product cost the seller. (Cal. Penal Code § 396.)

Goods Covered

Most household items that people buy for use for personal, family, or household purposes are protected under California's price gouging laws. Goods specifically listed are:

• food and drink (including for animals)
• toiletries
• emergency supplies such as water, flashlights, radios, batteries, candles, blankets, soap, and diapers
• medical supplies including bandages, gauze, isopropyl alcohol, antibacterial products, and prescription and nonprescription medications
• construction materials, tape, plywood, nails, lumber, windows, temporary shelters, tools, and anything else used to build or rebuild property, and
• home heating oil, gasoline, and motor fuels.

Cars and motorhomes requiring DMV registration are not covered by the price gouging statute. (Cal. Penal Code § 396(c), Cal. Civ. Pro. Code § 1689.5(c).)

Services Covered

The anti-gouging law protects most services that would be essential during or after a disaster:

• The statute broadly regulates transportation, freight, and storage services, including towing; along with repairs or reconstruction to residential or commercial property. (Cal. Penal Code § 396(h)(4).)
• A special 180-day rule covers "emergency cleanup" contractors: For 180 days following a declaration, a contractor cannot sell or offer to sell any repair, reconstruction or emergency cleanup services for a price greater than 10% above the price charged by that person for those services immediately before the declaration of emergency. However, the increase might be justified if it is the result of additional costs for goods or labor used in the contractor's business. Seasonal and regularly scheduled adjustments, and previously contracted rates, can also justify an increase. (Cal. Penal Code § 396(c).)
• With some exceptions, hotel and motel room rates can't exceed 10% above the regular rates advertised immediately before the declaration of emergency. Rates on hotels and motels are similarly restricted by California Business and Professions Code section 17568.5.

Justifiable Price Increases

Emergency clean-up contractors are not the only ones who can, in certain situations, legally charge more than the general 10% increase. For others, an increase of more than 10% over pre-disaster pricing is allowed if the seller can prove the increase is a direct result of higher costs for labor, materials, or of purchasing the goods from a supplier. In other words, the seller can pass wholesaler price hikes directly along to the consumer. However, the new price can't exceed the increased wholesale price plus the seller's customary pre-emergency markup by more than 10%.

Residential and Commercial Leases

Multiple federal, state and local COVID-19 declarations have been issued to help residential and commercial tenants in response to the pandemic. Learn more in this dedicated discussion of eviction moratoriums and related protections. But in general, a landlord cannot increase rent more than 10% from the pre-emergency amount, unless the increase is directly attributable to corresponding cost increases.

How to Fight Price Gouging

A violation of California Penal Code section 396 is a misdemeanor (punishable by a fine of up to $10,000, up to a year in jail, or both). California's Attorney General and local district attorneys enforce the statute. Although an emergency declaration might cover a specific geographic area, the price gouging law applies anywhere in California where consumer demand increases as a result of that emergency.

Consumers who encounter price gouging can file a complaint with their local district attorney's office or with the Attorney General. An online form is available on the California Attorney General's website.