New Rules Regarding Referral Fees
April 28, 2017
On Thursday, Convocation of the Law Society of Upper Canada approved new rules relating to referral fees. These new rules come into effect immediately.
In summary, Convocation approved a cap for referral fees based on a percentage of the legal fee: 15% for the first $50,000 of legal fees and 5% of all legal fees thereafter, to an absolute cap of $25,000.
Related measures to increase the transparency of referral fee arrangements were also approved, including:
Convocation also approved:
- The client, the referring lawyer or paralegal and the lawyer or paralegal accepting the referral must sign a standard referral agreement, as provided by the Law Society (Click here for a Word version of this agreement, and here for a PDF version.)
- The account to the client must clearly indicate the amount of the referral fee
- The client must sign an acknowledgement for the referral payment at the time the payment is made
- Lawyers and paralegals must record referral fees paid and received in their books and records and report on referral fee practices in the annual reports they submit to the Law Society
- Prohibiting up-front referral fees
- Continuing to prohibit paid referrals when the referring licensee has a conflict of interest
- Prohibiting the payment of referral fees to licensees whose licenses were suspended at the time of referral
- The requirements do not apply to enforceable referral agreements entered into prior to April 27, 2017
Click here for an FAQ document with further details of this measure.
The cap and additional regulatory measures were recommended by the Law Society’s Professional Regulation Committee and the Advertising and Fee Arrangements Issues Working Group to address concerns that certain fee arrangement practices may be misleading or detrimental to clients. Convocation voted in principle to implement a cap and to further regulate referral fees at its meeting in February.
The Working Group continues to consider related issues including advertising and fees in real estate and contingency fees and further action by the Law Society is expected on these areas in the coming months.