Emergency Pricing and State Price Gouging Laws

Why this matters

After a hurricane, an ice storm, a wildfire or a flood, a shop's costs really do rise: materials jump, suppliers ration, crews work overtime and travel farther. Raising prices to match is ordinary business on most days of the year. On the days after an emergency is declared, in most states, it becomes regulated, and the rule is not "charge what is fair." It is a specific statutory test, often with a percentage cap, and it reaches the repair and cleanup work home service trades do. A storm surcharge applied across every ticket can turn a shop that worked hard through a disaster into the shop on the attorney general's press release.

What triggers these laws

There is no general federal price gouging law. The rules are state statutes, and most states have one; a minority have none. They share a structure:

• A trigger. Almost always a formal declaration of emergency or disaster, by the governor, and in some states by the President or by a county or city official. Without the trigger the statute names, the price gouging law generally does not apply, though the general UDAP statute still does.
• A covered area. The area named in the declaration, sometimes with a buffer.
• A covered period. Fixed by the statute, often extended automatically while the declaration stays in effect.
• Covered goods and services. Some statutes list necessities; others reach nearly everything. Many expressly include repair, reconstruction and cleanup services.
• A pricing test and a cost defense.

Whether your work is covered is the first question, and the declaration's text plus your state's statute are the only ways to answer it. Check the state attorney general's website the day a declaration issues; most post the effective dates and a plain-language summary.

The three pricing tests

States use one of three shapes, and the difference matters more than the number:

• A fixed percentage cap over the pre-declaration price. California is the best-known example: Penal Code 396 makes it unlawful, after a declaration, to charge more than 10 percent above the price the seller charged immediately before the declaration. For most covered goods and services the period is 30 days; for repair or reconstruction services and emergency cleanup services it is 180 days. Declarations and extensions can lengthen both.
• A gross-disparity or unconscionability standard. New York's General Business Law 396-r forbids unconscionably excessive prices during an abnormal disruption of the market, and treats a gross disparity from the pre-disruption price as evidence of it. Florida's statute (Florida Statutes 501.160) compares the emergency price against the average price in the 30 days before the declaration, looking for a gross disparity. No bright line: what counts as gross is argued case by case.
• A freeze or near-freeze. A few states forbid any increase over the pre-emergency price unless it is cost-justified.

Do not carry California's 10 percent into a state that uses another shape. A 10 percent increase can be lawful in a gross-disparity state and a 9 percent one unlawful in a freeze state.

The cost defense, and what it actually allows

Every version allows some increase that tracks real cost. California's text is the clearest: a price above the 10 percent cap is not a violation if the increase is directly attributable to additional costs imposed by the seller's supplier or additional costs for labor or materials used to provide the service, provided the new price is no more than 10 percent above the seller's total cost plus the markup the seller customarily applied before the declaration.

Three things follow from that wording, and they are where most shops go wrong:

1. It is per good or service, not per business. A rise in lumber cost justifies a higher price on jobs that use lumber. It does not justify a surcharge on a job that uses none.
2. The markup is the one you customarily applied before. You can pass on cost; you cannot widen your margin. If you marked materials up 50 percent before the storm, the defense is built on 50 percent, not on what the market will bear now.
3. You have to be able to show it. Supplier invoices before and after, payroll showing the overtime, and your pre-declaration price list. A cost defense you cannot document is a cost defense you do not have.

Worked example: one surcharge, two storm jobs in California

A roofing and restoration shop works through a declared storm emergency in California. Before the declaration, its standard emergency dry-in (tarp, battens, four hours on site) was priced at what we will call 100 index points: billed labor 64 points and billed materials 36 points. The materials cost the shop 24 points and were marked up its customary 50 percent (24 times 1.5 is 36). The labor was billed at the shop's customary multiple of 2.0 over its labor cost of 32 points.

After the declaration, the supplier raises tarp and batten prices 30 percent, and the shop's payroll shows about half of storm-job hours are paid at time-and-a-half. The owner proposes a flat 25 percent "storm surcharge" on every ticket, which makes the dry-in 125 points.

DRY-IN, cost-justified ceiling (index points)

materials cost   24.0 x 1.30          = 31.2
billed materials 31.2 x 1.50 markup   = 46.8
labor cost       32.0 x 1.25 avg rate = 40.0
billed labor     40.0 x 2.0 multiple  = 80.0
cost + markup    46.8 + 80.0          = 126.8
ceiling          126.8 x 1.10         = 139.5

proposed price   100 x 1.25           = 125.0
result           125.0 under 139.5   -> within

no cost defense  100 x 1.10           = 110.0

The 1.25 labor factor is the average of half the hours at 1.0 and half at 1.5. On the dry-in, the surcharged price of 125 is under the 139.5 cost-justified ceiling, so it can likely stand, if the supplier invoices and payroll records are kept on the job file. One assumption in that math deserves your attorney's eye before you rely on it: applying the shop's customary labor multiple to the overtime cost treats the multiple as a markup, which is a reasonable reading but one to confirm.

The second job. Same week, same surcharge: a storm-damaged garage door opener replaced during normal hours, with a part whose cost has not changed. Before the declaration it was a 100-point job. There is no additional cost, so the cost defense has nothing to work with, and the cap is the plain 10 percent: 110 points. The surcharge puts it at 125, 15 points over the cap, on a repair of storm-damaged property, which is inside the 180-day window for repair services.

What the owner should do instead. Price per job type: let the dry-in and other materials-heavy or overtime-heavy jobs carry a documented, cost-built increase, and hold every other covered job within 10 percent of its pre-declaration price. Write down, on the day the declaration issues, the pre-declaration price of each common job, because "the price immediately before" is the baseline and memory is not evidence.

What changes the answer. In a gross-disparity state such as New York or Florida, there is no 10 percent line: the 125 on the opener job might or might not be gross, and the shop's evidence of cost and of the 30-day pre-storm average is what decides it. In a freeze state, even a 10 percent increase on the opener job could be a violation without cost justification. If the job is new work the shop never priced before the declaration, California's statute uses a different test (a cap measured from the seller's cost), so a brand-new storm service is not a free pass either. And a job outside the declared area or after the covered period is outside the statute, but not outside the general deception and unfairness tests; see related: Unfair and Deceptive Practices Laws Behind Every Complaint.

Things that look like a loophole and are not

• Renaming the increase. "Storm response fee", "emergency mobilization" or "fuel surcharge" are all part of the price the statute measures.
• Refusing the small jobs. Declining to do low-margin work is lawful, but offering it only bundled with a marked-up service can be treated as raising its price.
• Out-of-area crews at out-of-area rates. The covered price is what the customer in the declared area pays, regardless of where your crew came from. Travel and lodging cost can feed the cost defense if documented; a premium for being from elsewhere cannot.
• Raising prices the day before. Many statutes measure from the price immediately before the declaration, and a jump the day a storm is forecast is the kind of fact an attorney general notices.

Storm work also attracts contractors who are not licensed in the state, and some states tighten licensing and contract rules in a declared area. See related: Home Improvement Contractor Laws and What They Usually Require; How to Handle an Emergency Repair Under the Cooling-Off Rule.

Keep a storm pricing file

On the day a declaration issues, save: the declaration and its dates, your price list as it stood the day before, current supplier price sheets, and from then on every supplier invoice and the payroll overtime report. If you change any price, write one line explaining which cost moved and by how much. Most complaints in this area are resolved by the file; the ones that are not are resolved by your attorney using it.

This is not legal advice. Price gouging statutes are criminal in some states and civil in others, and if a complaint or an attorney general inquiry arrives during or after a declared emergency, call your attorney before responding.

References

• California Penal Code 396
• New York General Business Law 396-r; Florida Statutes 501.160
• Your state attorney general's emergency price gouging guidance for the current declaration
• See related: The Storm Surcharge That Became a Price Gouging Complaint; Trip Charges, Diagnostic Fees and Disclosure