CRHWA Opinion: Price Gouging Order Goes too Far - CRHWA
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CRHWA Opinion: Price Gouging Order Goes too Far

In early April, facing a crisis, Governor Newsom signed a host of executive orders designed to mitigate the negative consequences of Covid-19 on Californians. Order N-44-20 addressed existing price gouging laws and attempted to fill some gaps that became evident during the recent wildfires. This order demonstrated a strong stance against abhorrent behavior. It also included a very problematic definition. 

Unlike most existing price-gouging legislation this order contained a simple formulaic definition of gouging, designed to make enforcement easier for District Attorneys. Gouging was now clearly defined. Except the definition appears to be erroneous. Instead of reflecting “unconscionably excessive” high prices, the order set a bar well below the ordinary margin typically used by retailers. Overnight, the same essential retail businesses that were being praised for helping their communities were now facing a new risk.  A business could now be labeled a price gouger just for selling newer products at the same margins of comparable products already on the shelves. 

Making things worse, in an attempt to further crackdown on gouging, State Senator Thomas Umberg introduced SB 1196 which not only cement the law in place for an extended period of time it carried over the same flawed definition and raised some violations to a felony.  

Upon first learning of the executive order, we reached out to members of the state legislature to obtain verification of the wording. In these conversations, we learned about the new bill and immediately shifted our attention and efforts to correct the language so it would not unfairly target all independent hardware stores across the state.   

We explained our concerns to Senator Umbergs office and our voices were echoed by many other trade associations and businesses which all expressed the same concern, the faulty definition used to define gouging. Over the course of a month while we discussed solutions the bill easily made its way through the Senate. On June 26th the bill passed without a single no vote and without an amendment fixing the poor definition. 

The bill is now before the State Assembly and Senator Umberg’s office has agreed to include language that will preclude all but the most egregious offenders by including additional text that allows for the costs of doing business to factor into the equation. This version of the bill with these amendments has yet to be introduced and is now further complicated by the shutdown of the Assembly after several members and staff tested positive for Covid-19. So stay tuned. In the meantime, the executive order still stands and any new items brought into inventory and offered for sale after February 4th must not be marked up more than 50% of the cost to remain compliant. That is a 33.3% margin. 

The executive order will expire on September 4th and it doesn’t appear that the wording will change. Politically, telling the governor he made a mistake appears to be unpopular with the legislature. However, depending on the amended language of the upcoming bill it may be possible (politically palatable) to revise the order to match. 

As a store owner or manager, you should be very concerned about this legislation. Take a couple of minutes to contact your state representatives. Use this link to locate who represents you (your business) and give them a call. It doesn’t have to take a long time, just mention you are concerned about the wording of SB 1196 negatively affecting you. For continual updates on our efforts visit here or just keep an eye out for status reports in upcoming newsletters. 

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