Coronavirus surcharges: A lifeboat for small businesses or an underhanded form of price gouging?

The American economy has suffered trillions of dollars in damages since the coronavirus landed on our shores over a year ago. As we round the corner on our second coronavirus spring, some businesses that have managed to stay afloat are taking creative measures to try to stay open. One particularly common practice is that of adding a “Covid-19 surcharge” to a tab. These surcharges, which are intended to cover the added costs of running a business during the pandemic, are as controversial as they are common. Customers are dismayed to find their bills are higher than expected, and some say the surcharges are illegal.

Attorneys general respond to Covid-19 surcharges

COVID-19 surcharges have been found in a variety of businesses, some surprising. In December, the Attorney General of Massachusetts, Maura Healy, issued an advisory concerning the use of coronavirus surcharges by dental practices. The advisory notes that while “dental practices may be facing financial challenges resulting from Covid-19-related infection control measures, it is also the case that consumers should be protected from inappropriate charges. Such protections are particularly meaningful at a time when many consumers are dealing with their own financial hardships.” As with many issues during the pandemic, it is unquestionable that a burden arises — it’s just a question of who should bear the burden.

The Attorney General of Iowa, Tom Miller, also noted in December that “Medical offices, salons, long-term care facilities, restaurants and other companies are charging fees to offset costs of personal protective equipment, increased cleaning or other costs related to the pandemic.” Miller also indicated that while surcharges aren’t illegal in and of themselves, businesses must “clearly display and disclose surcharges before any service or purchase.” The Illinois Attorney General’s Office indicated a similar outlook, noting that so long as “the business is clear and accurate about the surcharge- i.e. not labeling it as a tax and ensuring it accurately reflects any increased costs- and clearly discloses the surcharge before the transaction, then it would be okay.”

Surcharges are more than a minor inconvenience. In Ohio, some seniors found themselves hit with an unexpected $1,200 bill for “extra cleaning and food because of the pandemic.” In Michigan, meanwhile, residents of a senior living facility found themselves hit with an unexpected $900 fee for coronavirus. The state responded with a cease and desist letter. This type of coronavirus surcharge is perhaps the most objectionable on a moral level. Residents of nursing homes and senior living facilities have had their lives utterly upended and even endangered by the facilities that they call home over the past year; in many cases, even those who have not suffered the effects of illness have suffered the effects of confinement and separation from family. For this distinct privilege, some facilities decided to give them the additional pleasure of paying hundreds of dollars.

Punished for openness?

It’s plausible that, if they were not permitted to add coronavirus surcharges into their bills, businesses may have simply looked for another avenue to get customers to pay for the added costs their businesses are facing during the pandemic. It may have cost $10 to make a burger at the beginning of 2020. But now, the price of that burger also needs to cover masks for employees, reduced revenue, and a whole new array of sanitation practices. Customers may, in effect, have a choice between paying $10 dollars for a burger and a $2 dollar surcharge or paying $12 dollars for a burger. However, consumer advocates will note that the $12 menu price would have a key benefit to consumers: they would know what they were paying for. By contrast, surcharges are not always announced ahead of time: they simply show up on the receipt, and businesses count on their customers not to make a fuss. In other cases, businesses may have signs posted indicating that a surcharge will be charged, but customers may not notice or pay attention until they’ve received their bill.

Businesses might worry about losing customers if they openly raise their prices, and indeed, that might be a consequence; however, the choice should be left for the consumer to make. Consumers have also borne financial burdens during the pandemic, and many have lost jobs. Even many people who might not have blinked twice at an extra dollar or two a year ago now find it a struggle to make ends meet. Surcharges only make things more difficult.

It’s possible that the increased cost of running business might mean that these coronavirus price surcharges are not price gouging in the traditional sense. The National Law Review notes that “many state price gouging statutes provide exceptions for increases directly attributable to increases in the cost of labor or materials.” A distinction can be drawn, however, from price increases which take place in the public eye and those over which a curtain is drawn. A twenty percent increase in prices which shows up on price tags is transparent — an extra fee added at the point of sale is not.

The Tennessee Attorney General’s Office, meanwhile, released a statement which hinted at another way that businesses may try to recoup their lost profits: cash discounting. It’s conceivable that in some cases, businesses might change their price structure to indicate that they offer a discount for cash—when what they are truly doing is charging an upcharge on credit and debit transactions, with the assumption that almost all customers will pay with a card. While cash discounting is permissible, businesses must make sure that they are actually offering a cash discount rather than a credit card upcharge. It can be difficult to distinguish between the two, both in practice and in theory, leading to yet another minefield that consumers must navigate.

Even setting aside the questionable ethics of Covid-19 surcharges, it’s possible that business owners could be creating problems for themselves down the road. Businesses which have spent the last year saving surcharge money without noting that the money is taxable could find themselves with a tax headache come May 2021.

It’s also possible that the practice of surcharging, if it becomes widespread across an industry, may open the door to accusations of violations of antitrust law. If all restaurants were to begin adding a $5 Covid-19 fee to each order, such that customers would be unable to differentiate between businesses based on price and choose to patronize a business without a fee, it could create the impression that businesses are working together to pass the added cost onto consumers. This need not be the case in fact; it may well be that individual business owners have examined their ledgers and determined that they can’t stay afloat without a small surcharge—nonetheless, they should avoid the appearance of impropriety.

Who should pay?

As with many issues, the question is fairly simple: who should pay? Who should pay for masks, hand sanitizer, and decreased restaurant capacity? Who should pay for extra cleanings of equipment at the dentist, or the salary costs of higher employee turnover at nursing homes? Both sides have a plausible claim to make that they’ve been dealt an unfair hand in the pandemic, and that they shouldn’t have to pay the bill — but unless consumers or businesses are given substantially more help by the government than they have received so far, at least one side is going to be left unhappy.