Referral fees: the cap, the form, and the line on the account

Paying for a referral is allowed. Quietly is not.

A lawyer who sends a file to another lawyer may be paid for it. That surprises people who assume the practice is prohibited outright, and the surprise cuts both ways: because it is permitted, it is also regulated in detail, and the details are where firms come unstuck. The rule sets a ceiling on the amount, prescribes the document, and requires the client to know.

None of the three is optional, and none is satisfied by an arrangement between two lawyers that the client never sees.

The cap is a sliding scale, not a flat percentage

The ceiling is calculated on the legal fees earned on the matter, in two tiers, with an absolute cap over the top:

• 15% of the first $50,000 of legal fees.
• 5% of any legal fees above $50,000.
• A total maximum of $25,000, however large the matter.

A matter billing $40,000 in fees therefore supports a referral fee up to $6,000. One billing $200,000 supports $7,500 plus $7,500, or $15,000. A matter billing $2 million still supports $25,000, because the absolute cap bites long before the percentages would.

Three signatures on a prescribed form

The agreement is a standard form, and it is signed by both licensees and by the client. The client signature is the part most often missing, and the part carrying the most weight: it is what converts a private arrangement between two firms into something the person paying for the work has actually agreed to.

An exchange of emails between the two lawyers, however clear, is not the prescribed form. Neither is a clause buried in a retainer agreement signed before any referral was contemplated.

It goes on the account

The referral fee is disclosed on the client account. The client is entitled to see, on the bill, that part of what they paid went to the lawyer who sent them. A firm that has the signed form but bills without the line has completed the paperwork and missed the point of it.

What a firm should be able to show

• The signed standard-form agreement, carrying all three signatures.
• The legal fees the matter actually earned, as the base for the calculation.
• The arithmetic, showing the fee sits within the tiered cap and under the absolute maximum.
• The line on the client account disclosing the fee.

That is four artefacts, all of which exist anyway if the referral was handled properly at the time. Assembling them a year later from memory is the situation the rule is designed to prevent.