Did Commission Agreement based on Lab Client Revenues Violate EKRA?

Case: When the new federal EKRA law extending kickback laws to private payors took effect in 2019, in-house counsel advised a urinalysis lab that it had to restructure its current marketing employee arrangements basing commission payments on the percentage of tests generated by their clients. One of the affected employees was a client accounts manager caught up in a pre-existing dispute over alleged misappropriation of the lab’s trade secrets, which prevented the sides from reaching agreement on a restructured compensation agreement. And since the current agreement didn’t comply with EKRA, the lab decided to withhold his entire compensation and pay him the money retroactively if and when he signed a new deal. The sides ended up in litigation with the Hawaii federal court ruling in the employee’s favor on the EKRA issue.

Significance: In a bit of a head scratcher, the court ruled that the employee’s compensation arrangement didn’t violate EKRA. True, basing commissions on test revenues generated by clients constituted remuneration under the law. However, the court continued, it didn’t “induce a referral of an individual to” the lab. The employee’s clients were the ordering physicians rather than the individuals tested. And the lab wasn’t paid by these clients but by the test subject’s payor. And because the compensation arrangement didn’t violate EKRA, the lab’s decision not to pay him violated both the contract and state labor standards law.