Capping referral fees not beneficial to the public: Singer

By Staff

A “robust and transparent” referral fee system is beneficial to the public, ensuring clients receive advice from a lawyer who has the right background and knowledge to handle their case, Toronto civil litigator Darryl Singer writes in The Lawyers Daily.

The referring lawyer avoids losing the client’s other work and referrals and makes a fee for facilitating the introduction. Referring lawyer, client and specialist lawyer all win under this scenario,” says Singer, principal of Singer Barristers Professional Corporation.

As the article notes, the Law Society of Upper Canada (LSUC) has recommended a cap on referral fees, after concerns were raised that some personal injury lawyers were making the bulk of their income from referring out large amounts of work rather than taking on those cases themselves.

“While the LSUC spent considerable time getting all knotted up over the allowable referral fees, the recommendations said nothing about what would be done to clamp down on the under-the-table referral arrangements that go on all the time: real estate lawyers who pay finders’ fees to real estate agents; and personal injury lawyers who pay doctors, emergency room nurses and tow truck drivers hefty cash fees in the range of $2,000 to $4,000 per referral,” he writes.

“These are the kind of referral fees which violate the LSUC rules precisely because they do not protect the client, as a non-licensee will steer the potential client to the highest bidder.”

Singer argues it's not in the best interest of referring lawyers to send cases to whatever firm will pay the most because it would reflect badly on them.

“If that lawyer will not competently handle the file and provide adequate client service, clients will end up blaming the referring lawyer and it will be his or her reputation that suffers in the long run. That practical business reality, combined with the regulator’s powers through the existing Rules of Professional Conduct and the bylaws, provide sufficient protection to the public,” he says.

Restricting referral fees would not benefit the public, he adds, because the outcome will mean lawyers may take on cases that they are not properly equipped to handle. For example, he says family lawyers may take on the odd personal injury case.

There is also an incentive to maintain “reasonable” referral fees, he says.

“If a lawyer sets her referral fees too high, there will be no takers. Moreover, the referral fee comes out the lawyer’s profit on the file and does not increase the cost to the client. To implement significant changes to the current system will result in access to justice issues in areas of law where none presently exist; loss of business for many smaller law firms; reduction in public education; and a potential threat to the public interest, as lawyers lose any real incentive to refer out files.”

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