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Paying Referral Fees

By | Dec.27.12 | Business Development, Daily Dispatch, Ethics

As 2012 draws to a close, we’re taking time off to enjoy winter break. To make sure you get your daily fix of Attorney at Work between Christmas and New Year’s, however, we’re rewinding some of our most popular posts. Today, business development coach Roy Ginsburg tackles that perennial hot topic: sharing fees.

In most practice areas, a lawyer’s marketing efforts should focus on generating a strong referral pipeline—from both non-lawyers and lawyers alike. If those efforts are successful, you’ll probably need some guidance on referral fees. Here it is.

There are Clear Guidelines—Mostly

No referral fees permitted for non-lawyers. Most attorneys know they cannot share fees with non-lawyers. The ABA Model Rules of Professional Conduct, adopted by most states, are quite clear. Rule 5.4 (a) states that “a lawyer or law firm shall not share legal fees with a non-lawyer.” Rule 7.2 (b) states that “a lawyer shall not give anything of value to a person for recommending the lawyer’s services.” A referral fee is certainly something of value.

Referral fees permitted for lawyers. Attorneys can share referral fees with other attorneys, as long as they comply with the governing ethics rules. Under Rule 1.1 of the Model Rules, for example, “lawyers” can only refer to competent lawyers.

Rule 1.5 (e) specifically governs referral fees between attorneys, and spells out certain requirements, including these three:

  1. The division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
  2. The client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
  3. The total fee is reasonable.

While the last two clauses are self-explanatory, many lawyers have questions about the meaning of the first clause. Some mistakenly believe that all fee division arrangements must be proportional. The rule is clear that this is not the only option. Non-proportional arrangements are allowed if “each lawyer assumes joint responsibility.” What does this mean?

Joint responsibility implies that both the referring and receiving lawyers would be held liable for any claim of malpractice. Some interpreters of the rule believe that it is enough for a referring lawyer to simply state responsibility in the referral agreement. Others believe that the referring lawyer must actually do something—other than just making the referral—in the actual representation. Regular brief contacts with the client or an occasional review of relevant documents would probably suffice.

Better Safe Than Sorry 

Many state rules follow Rule 1.5 (e) very closely, if not verbatim, but some do not. To ensure compliance in your jurisdiction, always check the state rules and apply them rigorously. Many states have an ethics hotline to answer questions.

And always—even when a fee is not paid—remember to thank your referral source!

Roy S. Ginsburg is an attorney coach who coaches lawyers one-to-one in the areas of business development, practice management and career development. He has practiced law for more than 25 years in large to small firms and in a corporate setting. He is currently an active solo with a part-time practice in legal marketing ethics and employment law.

Illustration ©ImageZoo.

This post originally appeared in January 2012 as “Is It OK to Pay Referral Fees?” by Roy S. Ginsburg.

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