LAW FIRMS FACE CRACKDOWN
Regulator moves to rein in hefty referral fees charged to clients by personal injury lawyers
“There appears to be a substantial lack of transparency when injured people are looking for a lawyer,” said Malcolm Mercer, chair of a law society working group proposing new rules of conduct for lawyers.
What Ontario’s law society is recommending:
Banning or capping lawyers’ referral fees Making changes that would in effect shut down brokerage houses posing as law firms
Curbing the use of ads that cite paid-for ‘awards’ and make misleading claims to rake in clients Ontario’s legal regulator is proposing significant changes to the fees lawyers take when they refer clients and to the way legal services are marketed to the public.
ALaw Society of Upper Canada committee released a report Tuesday recommending referral fees — money paid when one lawyer refers a client to another lawyer — either be banned outright or be capped.
The report, by the Advertising & Fee Arrangements Issues Working Group, also proposes curbing or banning the use of paidfor, often misleading awards, and for prohibiting practitioners from marketing services they don’t intend to provide — a practice critics say would put an end to so-called brokerage houses that draw in clients with flashy ads only to refer them out for a fee to lawyers at different firms, often without the client’s consent. “(Lawyers) should not be advertising a service that they are not intending to perform,” the report states.
Malcolm Mercer, the chair of the law society working group, said “the principal concern about referral fees was about the effect on injured people.”
“There appears to be a substantial lack of transparency when injured people are looking for a lawyer. It is not clear to them that referral fees are earned in that process.”
These referral fees, paid by the lawyer who will ultimately handle the case, can range as high as 30 per cent of the overall fee, according to the committee, and its members have concerns that those payments limit the lawyer’s ability to properly represent the client.
The working group’s proposals, which will be voted on during the law society’s convocation meeting Thursday, come on the heels of a Star investigation into the referral fee and marketing practices of Ontario’s personal injury lawyers.
In one story, the Star looked at law firm Diamond & Diamond and found that for many years it has been attracting thousands of would-be clients and then referring cases out to other lawyers in return for sometimes hefty referral fees. Along the way the firm’s marketing, which has included women in tight T-shirts and ads above the urinals at the Air Canada Centre, has raised the ire of the law society, clients, and some lawyers. Diamond & Diamond maintains it has a growing number of lawyers working cases at the firm, but would not say how many cases are referred out.
In another story, the Star showed that the world of personal injury advertising is like a “wild west” with many lawyers apparently breaking the rules designed to prevent false and misleading marketing. The Star found that more than two dozen Ontario personal injury law firms described themselves as the “best” or “No. 1.”
The Star also found that for years, lawyers working on contingency for accident victims — “you don’t pay unless we win” — have been “doubledipping,” taking more money from their clients than the law allows. As a result, the Star story said, many Ontario residents have been overcharged thousands of dollars and likely do not know it.
The law society report on advertising and fee arrangements does not make recommendations on contingency fee agreements and states that the working group continues to explore that issue.
When it comes to referral fees, the working group’s view is that there are “significant issues” with the current operation and “apparent non-compliance” with existing rules. Currently, the law society allows referral fees if the client consents and the fee is reasonable and does not increase the client’s bill.
In its December investigation, the Star heard from some clients who called Diamond & Diamond after an accident and alleged the firm passed their personal details to other firms without permission — something that, if it happened, would be a breach of professional rules. Diamond & Diamond has denied these allegations and through its lawyer stated that the firm abides by all law society rules.
The law society report, which does not name any lawyers, says the working group’s information suggests that “clients are not sufficiently aware of the fact that they are being referred to another lawyer, that there is a referral fee, or the quantum of the fee” and the committee recommends either banning the fees altogether or regulating the practice, possibly capping referral fees at 10 per cent of the total fee.
One concern about banning fees altogether would be that it would lead to undisclosed “cash” referral payments, the report says.
Referral fees, which can today range from 15 to 30 per cent of what the lawyers charge when the case settles, can vary depending on the seriousness of the client’s injury, the report says.
But the severity of injury doesn’t necessarily mean more work for the lawyer and in many cases, the report says, the amount received by the referring lawyer could be “seriously disproportionate” to the value provided to the client. The working group favours a fee cap in the range of 5 to 10 per cent of the net legal fee.
The report states that the working group has “significant concerns” that the lack of transparency” about referral fees has been fuelled by misleading advertising and recommends modifications and additions to the Rules of Professional Conduct that govern how lawyers behave.
One lawyer the Star researched made impressive sounding claims on his website, informing visitors he had been voted “#1in Client Satisfaction” and “#1 Personal Injury Law Firm” by a group called “Elite Lawyers Ontario.”
The Star discovered there was no registered business with that name. There was, however, a website called elitelawyersontario.com that was registered in 2015 by the lawyer who made the claims.
Rather than scrapping the existing rules and starting over, the committee recommends giving clearer guidance to lawyers on how to advertise in ways that don’t mislead, confuse or deceive the public. The committee’s recommendations include modifications and additions to the Rules of Professional Conduct, which govern lawyer conduct.
The modifications include providing examples of marketing that contravenes the rules, for instance, failing to disclose “a practice that the lawyer has of referring clients for a fee,” failing to disclose what type of professional — lawyer or paralegal — will provide the services, and “bait and switch” techniques where clients are drawn by prices or services that differ from those provided.
Particular care should be taken when it comes to using awards in marketing, the report says.
Awards that contravene the rules are ones that do not genuinely reflect the performance and quality of services provided, are not part of a “reasonable evaluative process,” are “conferred in part as a result of payment of a fee” and contain superlatives, such as “best” and “#1.” One solution, the report suggests, is to have lawyers inform the public when an award the lawyer received has been paid for.