Lawyers now need client consent for referral to another lawyer
Ontario’s lawyers will have to get a client’s signed consent to refer their case to another lawyer — and the fees for doing so must be capped and transparent.
The Law Society of Upper Canada voted Thursday to approve several measures to bring the referral process “into the sunlight,” including a “sliding cap” on referral fees, which limits their amount, and a mandatory agreement that all parties will have to sign before a referral can take place.
Until now, clients, including accident victims, have often been in the dark about referrals and the fees associated with them.
“We’re addressing a particular type of mischief and getting back to historic referral fee levels that were not seen as a problem,” said Malcolm Mercer, chair of the law society working group that has been studying the matter.
“There was a serious public interest issue that needed to be addressed and what we did was designed to change all of that.”
At a convocation meeting Thursday, the law society’s elected “benchers” voted 44 to 8, with two abstentions, in favour of these recommendations released by the working group earlier this week in a report.
While there was discussion about having a grace period before implementation of the new rules, Mercer said they will go into effect immediately because “the people that are actually involved in referral fees in a significant way are watching.”
Mercer said the new measures are just part of reforms intended to protect the public and the law society will now turn its attention to the remaining puzzle piece: contingency fee agreements — “you don’t pay unless we win.”
The law society is considering creating a standard agreement for all Ontario lawyers to use.
The focus on contingency fee agreements comes on the heels of the Star’s ongoing investigation into Ontario’s personal injury lawyers.
The Star has found that for years, lawyers working on contingency for accident victims have been “double dipping” — taking more money from their clients than the law allows. As a result, the Star found, many Ontario residents have been overcharged thousands of dollars and likely do not know it.
The Star has also found that some law firms advertised so heavily that they received more business than they could handle. These files were farmed out to other law firms for a fee that was not regulated or controlled. Clients who called one firm would learn they had been shunted to another firm only when a new lawyer called them to arrange an appointment or when they were sent a bill.
Some personal injury lawyers take hefty referral fees, the Star found, including “up front” fees paid when the referral is made — and long before a settlement has been reached. Often, the accident victim was unaware that a referral fee had been paid, the Star found.
In February, the law society voted to ban “up front” referral fees in addition to cracking down on lawyer marketing, including mandating that lawyers can no longer advertise for services they don’t intend to provide.
Thursday’s meeting drew hearty debate about the new measures, which include requiring that lawyers report to the law society the total referral fees paid and received annually.
The rationale for the enhanced reporting, Mercer said, was that it increases accountability and “brings the issue into the sunlight.” When lawyers know attention is being paid to their billings, “they are more likely to be careful,” he said.
In addition to the mandatory referral contract that must be signed by all parties involved in the referral — the client, the referring lawyer and the lawyer who gets the case — the new measures also require lawyers to provide a document to their clients that explains their rights and warns that when it comes to referral fees, these fees are “not permitted to increase the amount of the legal fees charged to you.”
While some benchers took issue with the new income reporting measures, many who spoke at the meeting said they saw the merit of the new cap. Referral fees are now limited to 15 per cent of the first $50,000 in legal fees and 5 per cent of any fees above that, to a maximum of $25,000.
Historically, referral fees were in the 10- to 15-per-cent range of the entire legal fee.
Under the new rules, in a case that settles for $100,000, for example, the legal fee would be about $33,000 and the referral fee would total about $5,000. The calculations assume that lawyers are working on contingency and charge 33.3 per cent of the settlement as their legal fee.
Acase would have to settle for more than $1million for a lawyer to receive the maximum referral fee. Those cases are rare; most claimants receive settlements less than $100,000, according to the law society. In cases where the client recovers $50,000, the referral fee would be about $2,500.
Many benchers who spoke Thursday took issue with the need to have referral fees at all.
John Callaghan, a lawyer at the firm Gowling WLG, said “clients aren’t chattel to be sold.”
Calling a $25,000 referral fee “outrageous,” lawyer Bradley Wright said the new referral fees are “too lucrative and people can make a living just doing referrals.”
Michael Lerner, a partner at the firm Lerners, said that it is “disconcerting” to know that the law society is dealing with referral fee issues today only because some members have abused rules intended for the public interest.
“It’s a sad commentary upon us,” he said.
“There was a serious public interest issue that needed to be addressed and what we did was designed to change all of that.”
MALCOLM MERCER CHAIR OF THE LAW SOCIETY GROUP THAT HAS BEEN STUDYING THE MATTER