Legal Matters with Chris Richard – Understanding Referral Fees

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The topic of Ontario lawyer referral fees has been a hot topic in the news in the last year with stories highlighting the practice of certain law firms referring our clients to other firms in return for large fees.

Chris Richard, Managing Partner of Lancaster Chown & Welch LLP, a well-known personal injury law firm serving St. Catharines and the Niagara Falls area, sat down with host Lee Sterry of Niagara’s 610 Newstalk Radio, on a recent episode of Legal Matters, and discussed referral fees and recent measures the Law Society of Ontario has taken to protect the interests of clients.

What are referral fees?

Referral fees are payments made from one lawyer to another lawyer in return for referring a client. For example, if a real estate lawyer is approached by someone who was injured in a car accident, they would say that they don’t practice personal injury law but could suggest the name of someone who does. In exchange for this referral, the personal injury lawyer would financially compensate the real estate lawyer. This is common in the legal industry because each area of practice demands particular expertise and level of experience.

Calculation of referral fees

The Law Society of Ontario recently introduced some rules governing how referral fees are calculated.
Effective April 27, 2017, a cap of 15 percent of the first $50,000 in legal fees was introduced. If a lawyer refers a client to another lawyer, and $50,000 in legal fees is incurred advancing the claim, the referring lawyer would receive a maximum of $7,500. For any fees over $50,000, the referral fee is restricted to five percent and capped at $25,000.
The Law Society also introduced the compulsory creation and use of a formal referral agreement, which must be signed by the referring lawyer, the lawyer accepting the referral, and the client.

Why the Law Society of Ontario made these new rules

Prior to the April 2017 changes, referral fees were significantly higher, being often double the amounts allowed now and sometimes exceeding more than 25 percent. These high referral fees encouraged the creation of certain law firms that operated primarily as brokerage houses, advertising both locally (for example, as personal injury lawyers in Welland) province-wide to attract personal injury clients for the sole purpose of referring these clients to other lawyers in exchange for an attractive referral fee.

This created a system where clients were not getting the lawyer they thought they retained,and were commonly unaware that the reason they were being referred to a particular lawyer was because an attractive referral fee was being received.

What is the intended effect of the changes?

The changes introduced by the Law Society of Ontario are likely to change the brokerage house-style business model, so long as there is effective enforcement, as it will no longer be economically viable.

The intended effect of the introduction of the formal referral agreements is transparency, consistency, and clarity in the referral process to protect clients’ best interests. Now a client is fully aware whether a referral fee is being paid by a lawyer to whom they are referred, and how much is being paid. This affords a client an opportunity to fully evaluate whether their best interests are being looked after.

The Law Society of Ontario has taken some effective steps toward restricting the use of referral fees, and restoring the public’s faith in the personal injury system. With these new measures, a client will know that if they see a law firm advertising assistance with their personal injury matter, it is that law firm that will be handling their claim.

We Handle Your Injury Claim Directly

Lancaster Chown & Welch LLP are a highly experienced team of personal injury lawyers in Welland, St. Catharines and the Niagara Falls region. If you or someone you know has been injured, contact us today to arrange your complimentary consultation and learn how we can help you.