The Storm Surcharge That Became a Price Gouging Complaint

Why this matters

After a windstorm and a governor's disaster declaration, a tree and storm-cleanup shop added a flat 30 percent "storm surcharge" to every invoice for three weeks. Its costs had genuinely gone up, its crews worked brutal hours, and the owner considered the surcharge modest next to what he heard others were charging. Six weeks later the state attorney general's office sent a letter asking for the shop's pre-declaration prices, every invoice since, and documentation of any cost increase. The shop could justify some of the surcharge on some of its jobs and none of it on others, and the problem was never intent. It was one number applied to work whose costs had moved by different amounts or not at all. This is not legal advice; the shop worked it through with its attorney, and the order below is how the defenses fell.

The setup

The shop works in Pennsylvania, whose Price Gouging Act (73 P.S. 232.1 and following) applies during a declared state of disaster emergency and prohibits unconscionably excessive prices for consumer goods and services. As the act reads, a price more than 20 percent above the average price for the same or similar goods or services in the affected area during the seven days before the declaration is prima facie evidence of an unconscionably excessive price, meaning the price is presumed unlawful unless the seller rebuts it, and the seller can rebut it by showing the increase is attributable to additional costs for supplies, labor or materials. Re-check the current text before relying on any figure here; declarations get extended and acts get amended.

Other states draw the line elsewhere. California uses a flat 10 percent cap with its own cost defense, and Alabama's statute uses 25 percent over a 30-day average; New York and Florida use gross-disparity tests with no fixed percentage. How the three shapes work, and what a cost defense allows in general, is owned elsewhere; see related: Emergency Pricing and State Price Gouging Laws.

Over the three weeks the shop issued 146 invoices in three job types:

• 52 storm removals: a downed tree or large limb off a house, a car or a driveway.
• 71 routine cleanups: gutter clearing, yard debris raking and hauling, small-limb pickup.
• 23 after-hours removals: the same work as a storm removal, dispatched at night or on a weekend.

52 plus 71 plus 23 is 146. Every one carried the 30 percent line.

Defense one: "the act doesn't cover what we do"

The owner's first instinct was that a price gouging law means bottled water and generators. The act's definition of consumer goods and services reaches goods and services used for personal, family or household purposes, which describes clearing a homeowner's driveway or a roof. Repair and cleanup after a disaster is close to the center of what these statutes were written for.

Eliminated. All 146 jobs were for households, inside the declared area, inside the period.

Defense two: "we were under the line on average"

The office manager proposed comparing the shop's average ticket in the three weeks against the average before the storm, which looked better because the job mix had shifted toward larger removals. That is not how the test works. The comparison is per good or service, and a flat surcharge of 30 percent puts every individual price 10 points over the 20 percent line before any cost is counted.

Eliminated. Every invoice sat at 130 percent of its pre-declaration price, above the presumption threshold of 120 percent, so the shop's position on every job depended on the cost defense.

Defense three: "our costs went up"

This was the real defense, and it split by job type. The attorney asked for one thing first: the shop's pre-declaration price for each job type, from invoices dated in the seven days before the declaration, plus the cost build behind it. The office rebuilt each type on an index of 100 points of pre-declaration price.

Storm removal, before the storm. Crew labor cost 40 points, equipment 15, disposal fees at the landfill 10, for 65 points of cost and a price of 100.

Storm removal, after the declaration, from documents.

• Labor. Payroll showed half of all removal-crew hours paid at time-and-a-half. Half the hours at 1.0 and half at 1.5 averages 1.25, so labor cost went from 40 to 50 points, up 10.
• Disposal. The landfill's posted tipping fee for storm debris rose 40 percent the week of the declaration, with dated receipts. 10 points times 1.4 is 14, up 4.
• Equipment. Shop-owned saws, chipper and truck; no documented change. 15 points.
• Fuel. The owner estimated "fuel's up maybe 15 percent," but the shop's fuel card statements showed the per-gallon price within a few percent of the pre-storm weeks, and the extra gallons burned were already inside the labor hours driving them. No documented change.
• A hotel for an out-of-area crew. Receipts existed, but that crew worked only removals and only for the first eight days. The attorney treated it as real cost on those jobs, small enough per job that the shop left it out of the general build rather than argue it job by job.

New cost: 50 plus 15 plus 14 is 79 points, up 14 from 65. Passing the documented increase through point for point puts the cost-supported price at 100 plus 14, which is 114. The surcharge charged 130. 130 minus 114 leaves 16 points per removal with no cost behind it. Whether a shop may apply its customary markup to the added cost, rather than passing it through flat, is exactly the kind of question the attorney answered for this statute and this set of facts; the shop took the conservative path.

Routine cleanup. Those crews ran normal hours, no overtime. Their disposal was bagged yard waste at a transfer station whose fee had not changed. No documented cost increase at all. Cost-supported price: 100. Charged 130: 30 points per cleanup unsupported. This was the job type the complaint came from, a homeowner billed a storm surcharge for gutter clearing a week after the storm, and it was the hardest to explain because nothing about the work had been affected by the storm.

After-hours removal. The shop's price book from before the storm already carried an after-hours rate of 1.5 times the daytime price, and pre-declaration invoices showed it being charged. So the baseline for night and weekend work was 150 points, not 100. That rate already priced the overtime labor, so labor added nothing new. Disposal added the same 4 points. Cost-supported price: 150 plus 4 is 154. The shop had applied the 30 percent on top of the after-hours rate: 150 times 1.3 is 195. 195 minus 154 leaves 41 points per job unsupported.

The defense held partly. Of the 30 surcharge points on a removal, 14 were supported and 16 were not. On a cleanup, none of the 30 were. On an after-hours removal, 4 of the 45 points the surcharge added (195 minus 150) were supported.

Defense four: "everyone was charging this"

The owner had picked 30 percent because two competitors' trucks carried similar signs. Neither the act nor the attorney cared. The baseline is the price before the declaration, and other sellers' storm prices are not that baseline; if anything, they were other prices the attorney general could be looking at. A storm surcharge sold as a flat line item also raised a separate problem under the state's general consumer protection law, because "storm surcharge" on a gutter job told the customer the storm had raised the cost of their job, which was not true. See related: Unfair and Deceptive Practices Laws Behind Every Complaint.

Eliminated.

How it resolved

The attorney answered the attorney general's letter with the pre-declaration invoices, the cost build for each job type, the payroll and landfill records, and a proposed refund of the unsupported portion on every invoice. As a share of what each customer paid:

• Removals: 16 of 130 points, about 12.3 percent of the invoice, on 52 invoices.
• Cleanups: 30 of 130 points, about 23.1 percent, on 71 invoices.
• After-hours removals: 41 of 195 points, about 21.0 percent, on 23 invoices.

The office's matter closed with the shop's agreement to refund those amounts to all 146 customers and to stop applying a flat surcharge in future declared emergencies. The regulator side of that process (what the letter is, what the shop's answer has to contain, how agreements of this kind are usually documented) is owned elsewhere; see related: The Attorney General Complaint: What Happens Next.

What would have changed the outcome. Had the shop priced removals at 114 and left cleanups at 100 from the first day, every invoice would have carried documented cost behind its increase, and the removal increase of 14 percent would have sat under the 20 percent presumption line in this state even before the cost defense, though in California the same 14 percent would exceed the flat 10 percent cap and rest entirely on the cost defense, so the arithmetic that cleared it here is Pennsylvania's. Had the fuel claim been backed by statements showing a real increase, it would have joined the build. And had the shop's after-hours rate been something it advertised but rarely charged, the baseline argument for 150 points would have been much weaker, because the act looks at what was actually obtainable before the declaration.

What the shop does now when a declaration issues

On day one, freeze the baseline. The office saves the price book and a sample of invoices from the seven days before the declaration, by job type. That file is the comparison every later price is measured against, and in this case reconstructing it took a week.

Build each job type's increase from documents. Overtime from payroll, disposal and material costs from receipts, equipment and subcontract rates from invoices. A job type with no documented cost change gets no increase.

Name the line truthfully. The adjustment appears on the invoice as "storm cost adjustment: overtime labor and disposal fees," with the job type's figure, only on job types that carry it.

End it with the period. The adjustment comes off when the documented cost does or when the declaration ends, whichever is first, and the office checks the governor's site weekly for extensions.

Keep the file. The baseline, the builds and the receipts stay together for the life of the declaration plus the period a regulator could still ask, which the attorney set at four years for this shop. See related: The Difference Between Fair Surge Pricing and Price Gouging Perception.

References

• Pennsylvania Price Gouging Act, 73 P.S. 232.1 and following, as currently amended
• Your own state's emergency pricing statute and its declaration and duration provisions
• See related: Emergency Pricing and State Price Gouging Laws
• See related: The Attorney General Complaint: What Happens Next
• See related: Unfair and Deceptive Practices Laws Behind Every Complaint