Frequently Asked Questions about Referral Fees

 

Important Note:

The referral fee requirements described below apply to all referrals made on or after April 28, 2017 and to referrals made before or on April 27, 2017 where there was no enforceable agreement for the payment of a referral fee as of that date. 

For information about the referral fee requirements for referrals made before or on April 27, 2017, lawyers and paralegals should consult r. 3.6-6.1(3) of the Rules of Professional Conduct (“lawyers’ Rules”) and r. 5.01(17) of the Paralegal Rules of Conduct (“Paralegal Rules”).

Regardless of when the referral was made, lawyers and paralegals should review r. 3.6-6.1(2) of the lawyers’ Rules or r. 5.01(16) of the Paralegal Rules, as applicable, and s. 19.1 of By-Law 9. These requirements apply to all referral fees payable or paid on or after April 28, 2017 and are summarized below under “Statement of Account” and “Recordkeeping”. 

 

The questions about referral fees below are grouped by topic and follow the same progression as the Referral Fee Checklist:

In these resources, “referring lawyer or paralegal” means a lawyer or paralegal who refers a client to another lawyer or paralegal; “lawyer or paralegal who receives the referral” means a lawyer or paralegal who receives the referral of a client from another lawyer or paralegal.

 

The Referral

What is a referral?

A referral includes the recommendation of another lawyer or paralegal to do legal work for anyone. It does not include a referral where the work is done through the same firm in which the referring lawyer primarily practises or the referring paralegal primarily provides legal services [rule 3.6-6.0 of lawyers’ Rules; rule 5.01(14) of the Paralegal Rules].

What is a referral fee?

A referral fee includes a financial or other reward paid for the referral of a matter, whether the referral fee is direct or indirect and whether the referral fee is past, present or future. An example of an indirect referral fee is entering into a transaction at non-market prices (specifically, a non-market lease or cost-sharing arrangement) between the referring lawyer or paralegal and the lawyer or paralegal who receives the referral. Similarly, indirect referral fees may include a lawyer or paralegal entering into a counsel, consulting or other relationship with the lawyer or paralegal who receives the referral for consideration that does not reflect the work done.

A referral fee does not, however, include a referral of other work by the lawyer or paralegal who received the referral.

[Rule 3.6-6.0 and commentary [3] of rule 3.6-7.1 of the lawyers’ Rules; rule 5.01(14) of the Paralegal Rules; and section 17 of Guideline 13 (Fees) of the Paralegal Professional Conduct Guidelines (Paralegal Guidelines)].

To whom can a lawyer or paralegal pay a referral fee?

A lawyer or paralegal may only pay referral fees to a lawyer or paralegal as defined in the lawyers’ Rules and Paralegal Rules [rules 1.1, 3.6-6.1(d)(ii) and 3.6-7 of the lawyers’ Rules; rules 1.02, 5.01(12) and 5.01(15)(d)(ii) of the Paralegal Rules].

The lawyer or paralegal receiving the referral must have the expertise and ability to handle the matter [rule 3.6-6.1(c) of the lawyers’ Rules; rule 5.01(15(c) of the Paralegal Rules].

A lawyer or paralegal is prohibited from accepting or paying a referral fee where the referring lawyer or paralegal had a conflict of interest or where the referring lawyer or paralegal’s license was suspended when the referral was made and who was accordingly not permitted to act on the matter [rule 3.6-6.1(d) of the lawyers’ Rules; rule 5.01(15)(d) of the Paralegal Rules].

This rule does not apply to

  • making an arrangement respecting the purchase and sale of a law or legal services practice when the consideration payable includes a percentage of revenues generated from the practice sold
  • entering into a lease under which a landlord directly or indirectly shares in the fees or revenues generated by the law or legal services practice
  • paying an employee for services, other than for referring clients, based on the revenue of the lawyer or paralegal's firm or practice

[Commentary [1] to rule 3.6-7 of the lawyers’ Rules; section 14 of Guideline 13 (Fees) of the Paralegal Guidelines].

When making a referral, how many lawyers or paralegals must be recommended to the client?

Generally, the referring lawyer or paralegal must recommend to the client at least two lawyers or paralegals.  However, the lawyers’ Rules and Paralegal Rules recognize that there may be circumstances where this is not reasonably possible and there is only one suitable referral, for reasons such as the expertise of the lawyer or paralegal or geographic location. Where the referring lawyer or paralegal is unable to recommend at least two lawyers or paralegals, the referring lawyer or paralegal must advise the client of the reason(s) that it has not been reasonably possible to do so and note this in the referral agreement. 

[Rule 3.6-6.0(c) and commentary [3] of rule 3.6-6.1 of the lawyers’ Rules; rule 5.01(14)(c) of the Paralegal Rules; section 20 of Guideline 13 (Fees) of the Paralegal Guidelines]

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The Referral Fee

What is the maximum amount that can be paid as a referral fee?

A referral fee cannot exceed 15% of the fees paid to the lawyer or paralegal who received the referral for the first $50,000 of such fees for the matter and 5% of any additional fees for the matter up to a maximum referral fee of $25,000 [rule 3.6-6.1(e) of the lawyers’ Rules; rule 5.01(15)(e) of the Paralegal Rules].

The referral fee must also be fair and reasonable and not increase the total amount of the fee payable by the client [rule 3.6-6.1(a) of the lawyers’ Rules; rule 5.01(15)(a) of the Paralegal Rules].

 

Is there an example of how the maximum permitted referral fee would be calculated?

If $100,000 in legal fees were paid, the maximum permitted referral fee is

15% of the first 50,000.00             =               $7,500.00

5% of the balance                          =               $2,500.00 
                                                                        ___________

Maximum Referral Fee                 =               $10,000.00

Lawyers and paralegals should note that the referral fee calculation above illustrates the maximum referral that may be paid or received on $100,000 in legal fees.

 

Are up-front referral fees permitted?

No. A referral fee may only be paid to the referring lawyer or paralegal after the lawyer or paralegal who received the referral has received payment of their fees for legal services [rule 3.6-6.0(g) of the lawyers’ Rules; rule 5.01(14)(g) of the Paralegal Rules].

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Disclosure to the Client

What duties do the referring lawyer or paralegal and the lawyer or paralegal who receives the referral owe a client in making or accepting a referral?

The referring lawyer or paralegal and lawyer or paralegal who receives the referral both have fiduciary duties to the referred client.  The referral must be in the client’s best interests. 

The decision about who to retain is that of the client. The referral fee requirements under the lawyers’ Rules and the Paralegal Rules are intended to ensure that the referring lawyer or paralegal and the lawyer or paralegal who receives the referral provide the client with all of the relevant information to make the decision about who to retain, including information about referral fees. 

[Commentary [1] and [2] of rule 3.6-6.1 of the lawyers’ Rules; sections 18 and 19 of Guideline 13 (Fees) of the Paralegal Guidelines]

What must be explained to a client who is being referred by a lawyer or paralegal to another for a referral fee about the Law Society referral fee requirements?

The referring lawyer or paralegal and the lawyer or paralegal who receives the referral must ensure that the Law Society’s requirements for payment and receipt of referral fees are explained to the client, including

  • that the client has no obligation to accept the referral
  • that the client is free to retain a lawyer or paralegal other than the one to whom he or she is referred
  • the reason that the referring lawyer or paralegal has recommended the specific lawyer or paralegal to the client
  • the relationship between the referring lawyer or paralegal and the lawyer or paralegal who receives the referral
  • that no referral fee will be paid or payable unless and until the lawyer or paralegal who receives the referral is paid his or her fee for legal services in the matter
  • the circumstances in which the referral fee is payable, and
  • the referral fee, including the basis upon which the amount of the referral fee is determined.

This information is confirmed for the client in writing in the Referral Agreement and the Law Society Requirements for Referral Fees – What Clients Need to Know. Both of these documents are available on the Advertising and Fee Arrangements page of the Law Society website.

[Rule 3.6-6.0 of the lawyers’ Rules; rule 5.01(14) of the Paralegal Rules]

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The Referral Agreement

Is the Law Society’s form of referral agreement mandatory?

Yes. Lawyers and paralegals must use the Referral Agreement provided by the Law Society. The Referral Agreement must be provided to the client at the time of the referral or as soon as practicable after the Referral. Where a referral was made before or on April 27, 2017 but there was no enforceable agreement for the payment of a referral fee as of that date, the requirement that the Referral Agreement has been entered into may be met by entering into the Referral Agreement at any time prior to the payment of the referral fee [Rule 3.6.-6.1(b) and (c) of the lawyers’ Rules; rule 5.01(15)(b) and (c) of the Paralegal Rules].

Along with the Referral Agreement, lawyers and paralegals are also required to provide clients with the document entitled Law Society Requirements for Referral Fees. The client must be provided with a reasonable opportunity to review and consider the information [Rule 3.6-6.0 of the lawyers’ Rules; rule 5.01(14) of the Paralegal Rules].

Both the Referral Agreement and the Law Society Requirements for Referral Fees document are available on the Advertising and Fee Arrangements page of the Law Society website.

What provisions does the Law Society’s Referral Agreement contain?

The Law Society’s Referral Agreement includes the following provisions:

  • confirmation that the client has been advised and understands that the client has no obligation to accept the referral
  • confirmation that the client has been provided with information about the Law Society’s requirements for payment and receipt of referral fees and a reasonable opportunity to review and consider that information
  • confirmation that the referring lawyer or paralegal has recommended at least two lawyers or paralegals to the client and, if not, the disclosure of the reason that it has not been reasonably possible to do so
  • a provision that the client is free to retain a lawyer or paralegal other than the one who receives the referral
  • the reason(s) that the referring lawyer or paralegal has recommended the specific lawyer or paralegal to the client
  • full and fair disclosure of the relationship between the referring lawyer or paralegal and the lawyer or paralegal who receives the referral
  • confirmation that no referral fee will be paid or payable unless and until the lawyer or paralegal who receives the referral is paid his or her fee for legal services for the matter
  • full and fair disclosure of the referral fee including the circumstances in which the referral fee is payable and the basis upon which the amount of the referral fee is determined

[Rule 3.6-6.0 of the lawyers’ Rules; rule 5.01(14) of the Paralegal Rules].

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Statement of Account

Is the lawyer or paralegal who received the referral required to show the referral fee on the statement of account?

Yes. For referral fees paid or payable on or after April 28, 2017, a lawyer or paralegal who received the referral must note the referral fee on the account sent to the client at the time the referral is paid or payable and obtain the client’s acknowledgement of the referral fee. If the client refuses to provide an acknowledgment, the lawyer or paralegal must confirm in writing to the client that the client has been asked for the acknowledgment, but refused to provide it.

[Rule 3.6-6.1(2) of the lawyers’ Rules; rule 5.01(16) of the Paralegal Rules].

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Recordkeeping

What are the recordkeeping obligations with respect to referral fees?

For referral fees paid or payable on or after April 28, 2017, in addition to maintaining the records above and those required under section 18 of By-Law 9, every lawyer or paralegal who pays or receives a referral fee must also maintain the following in accordance with sections 21, 22 and 23 of By-Law 9, a record showing

  • the referral fees received or paid
  • the date on which the referral fee is received or paid
  • the method by which the referral is received or paid
  • the amount of the referral fee
  • the lawyer or paralegal from whom each referral fee is received or to whom it is paid
  • the client in connection to whom each referral fee is received or paid

Lawyers and paralegals must also retain all documents related to each referral fee transaction, including the referral agreement.

[Section 19.1 of By-Law 9]

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Additional Resources

Referral Fees
Referral Fee Checklist