As the COVID-19 pandemic continues to spread, in addition to responding to government closure orders, many retailers and their suppliers are grappling with the impact on supply chains, and corresponding implications for pricing of products and services to consumers. Given spikes in demand and some consumers’ willingness to pay any price for personal hygiene and safety products in particular, some retailers have taken advantage of the situation by drastically increasing the price of these and other products and services, leading to calls for government to take action to protect consumers.
In Canada, the practice of raising prices to unjustifiably high levels, commonly known as price-gouging, is generally not prohibited or otherwise regulated under federal competition laws. Generally speaking, retailers and suppliers alike are free to set prices in response to market supply and demand. That said, in some provinces, including British Columbia, Alberta, Nova Scotia, and most recently Ontario, the practice of “price gouging” may be subject to express prohibition and potentially significant fines under emergency management statutes, which allow governments to fix or regulate prices during a state of emergency of goods or services deemed essential or necessary. In certain provinces, excessive pricing is also addressed in applicable consumer protection legislation. While well-intentioned, these laws, modelled on price-gouging statutes in certain US states, are intended to capture egregious pricing practices, but run the risk of capturing legitimate pricing behaviour as well. As there are some key differences between the provincial definitions of both essential services and excessive pricing, ensuring compliance with these laws often requires close analysis, particularly in products and services with dynamic pricing.
In Ontario, an order prohibiting price gouging was issued on March 28, 2020 under the Emergency Management and Civil Protection Act (“Ontario Act”); the province had previously declared a state of emergency on March 17, which has now been extended until April 13. The order, which will remain in place for the duration of the state of emergency, prohibits all retail businesses and individuals in Ontario from charging “unconscionable prices” for “necessary goods”. An “unconscionable price” includes a price that grossly exceeds the price at which similar goods are available to like consumers. In addition to referring broadly to “necessary goods”, defined under the Ontario Act to include food, water, electricity, fossil fuels, clothing, equipment, transportation and medical services and supplies, the order also specifically calls out the following health and safety products:
- masks and gloves used as personal protective equipment in relation to infections;
- non-prescription medications for the treatment of the symptoms of the coronavirus (COVID-19), as those symptoms are described by Public Health Ontario;
- disinfecting agents intended for cleaning and disinfecting objects or humans; and
- personal hygiene products, including soap products and paper products.
What does this mean for businesses?
- The penalties under the Ontario Act for violating the new Ontario order are steep. If convicted, a company director or officer could face a fine of up to CAD 500,000 and up to one year in prison, while corporations may be fined up to CAD 10 million. Any individual engaged in price gouging may face a ticket of CAD 750, or, if charged and convicted, a fine of up to CAD 100,000 and up to a year imprisonment.
- The language of the Ontario order, which was swiftly drafted, is not very clear. It broadly refers to “necessary goods”, but then includes “for greater certainty language” that calls out specific personal health, safety and hygiene products. In light of this, businesses providing products or services potentially falling within the broad “necessary goods” category should assume the order may apply to them. That said, as a practical matter, it appears the government’s intention is that the primary emphasis and enforcement focus will be on retailers supplying the specifically listed goods.
- Given a lack of judicial precedent on the interpretation of either “unconscionable” or “grossly excessive” prices, any assessment will likely be fact-specific. Businesses should carefully assess their pricing practices based on their own and market realities, including constraints on supply chains, input costs and competitors’ pricing (obtained in compliance with competition laws, which remain in effect).
- Businesses may be the subject of opportunistic complaints from consumers or competitors and, even if the pricing strategy is ultimately defensible, the reputational damage may be significant.
- Businesses considering unavoidable price increases (due, for example, to rising costs) may want to implement transparent pricing policies to pre-emptively manage and mitigate potential public relations concerns. It is also important to develop public communication strategies for both customers and suppliers.
- Retailers with operations in multiple Canadian provinces should review pricing strategies under all relevant provincial laws, or determine and apply the most stringent law.