Recent District Court Opinion Allows Commission Payments Under EKRA | King and Spalding

On October 18, 2021, a U.S. District Court in Hawaii ruled that vendors subject to the federal Eliminating Kickbacks in Recovery Act (EKRA) are permitted to pay employees and independent contractors sales commissions for clinical laboratory sales. . The lawsuit was brought by a lab account manager to enforce payment of wages under his employment contract under which his lab employer agreed to pay him a base salary plus percentages of the net profits of his own. client accounts and those of the laboratory employees he managed. The lab argued that the commission-based compensation plan under the employment contract would violate EKRA and was therefore illegal and unenforceable. The court, however, disagreed.

EKRA is a criminal statute that prohibits bribes or any other form of compensation for referrals for services by a convalescent home, clinical treatment facility, or laboratory that are paid under any benefit program health care, including private and government programs. Specifically, EKRA prohibits paying or offering compensation “(A) to induce a person to be referred to a…laboratory; or (B) in exchange for the person’s use of the services of that…laboratory”. 18 USC §§ 220(a)(2)(A),(B). While the EKRA is a relatively new law, for which implementing regulations have yet to be issued, a number of commentators have interpreted the EKRA as prohibiting convalescent homes, clinical treatment facilities or laboratories from paying sales commissions to employees or independent contractors. However, this recent decision deviates from this view and provides a narrower interpretation of EKRA’s prohibitions.

The interpretation of the word “individual” by the statute in the statute was crucial to this conclusion. Since this term is not defined in EKRA, the court considered the meaning of this term in the federal anti-bribery law and interpreted the word “individual” in section (A) as referring to the patient undergoing testing, and in section (B) to refer to the account manager himself. In finding that the terms of the employment contract did not violate EKRA, the court held that with respect to the prohibition in section (A), the director’s sales efforts were directed to doctors and other customers. of the lab and therefore the account manager was not being paid to induce referrals. Further, with respect to section (B), there was no violation of the EKRA, according to the court, because compensation was not paid in exchange for the account manager’s use laboratory services.

The court agreed that the commission-based compensation scheme undoubtedly induces the account manager to bring more business to the lab, and that the arrangement would not satisfy EKRA’s exception for payments to employees. or independent contractors, which does not apply to payments based on the volume or value of tests performed or invoiced. However, these findings proved irrelevant, as the court found that the severance provisions of the account manager’s employment contract did not violate EKRA at first instance.

The case is S&G Labs Hawaii vs. Graves, civil. No. 19-00310, 2021 WL 4847430 (D. Haw. 18 Oct. 2021). The full review is available here.

Aurora J. William