On January 28, 2025, California's Attorney General announced that it had charged two realtors and sent more than 650 warning letters to hotels and landlords regarding suspected violations of the state's price-gouging prohibitions (Penal Code section 396).

Though many think of price-gouging laws in the context of expensive water bottles or gasoline in the immediate wake of a disaster, California's enforcement efforts underscore the true breadth and duration of its laws.  As Southern California continues to recover and begins to rebuild, businesses of all forms should ensure that they are up-to-date on the following frequently asked questions:

1. What is price gouging under Penal Code § 396?

Answer: Price gouging refers to increasing prices on essential goods or services by more than 10% following a declared state of emergency

2. When does the law go into effect? How long does it last?

Answer: The law automatically takes effect once an emergency is officially declared. It remains in effect for 30 days for most goods and services and 180 days for repair, reconstruction, or emergency cleanup services. These periods can be extended if the emergency declaration is renewed.

3. Which goods and services are covered?

Answer: The law applies to a broad range of essentials, including:

• Consumer food items (groceries, beverages, etc.)
• Medical supplies (e.g., masks, sanitizer, medications)
• Repair or reconstruction services (to fix disaster-damaged property)
• Emergency cleanup services
• Building materials
• Housing and storage services  (rent, hotel rooms, motels)
• Transportation and fuel (gasoline, essential travel needs)

If the seller is new or did not previously offer the product or service, it may not charge a price that is more than 50 percent greater than its costs.

4. Are there any exceptions to the 10% price increase limit?

Answer: Potentially—a limited exception exists if a business can demonstrate legitimate cost increases. For example, if a supplier’s wholesale costs or labor expenses have risen due to the emergency, a price above 10% may be allowed. The burden is on the seller to document and prove these costs.

5. What are the penalties for violators?

Answer: There is a 4-year statute of limitations for bringing price gouging complaints. Penalties for violating Penal Code § 396 can lead to:

• Misdemeanor charges, punishable by: 
  • Up to one year in county jail,
  • A fine up to $10,000, or
  • Both jail time and a fine.
• Civil enforcement: Courts can grant injunctions (to stop the unlawful conduct) and order restitution to compensate consumers who were overcharged.

6. I'm subject to the law, what should I do?

Answer: Given the scope of the disaster, certain of these pricing restrictions could last through the remainder of the year.  Accordingly, it is critical for businesses to maintain good records that document all relevant cost and pricing data. Sellers should consult with knowledgeable counsel prior to making any material price increases.