Always Pay Your Referral Fees. Always.

This is a seldom discussed subject because it seems to reside in the house of common sense.  But as my husband is fond of saying, ‘common sense is not that common.’

The rules vary from jurisdiction to jurisdiction and it is incumbent upon you to learn what your jurisdiction allows.  If you are fortunate enough (and I do mean fortunate) to practice in a jurisdiction which allows the payment of referral fees to a colleague for either referring a client or referring and requiring you to participate in the case in order to participate in the fees, you should be taking full advantage.

This post, however, falls into the category of ‘you’ve been honored with a referral of a great case in a jurisdiction which allows you to pay the referring attorney a referral fee’.

By way of introduction, when I was practicing full time I was permitted to refer cases and receive a negotiated percentage of the attorney fees if the practice area permitted.  This usually was a personal injury case.  The common practice was a third of a third or a quarter of a quarter, etc. I know other practice areas provide for referral fees and have a different protocol. But the majority of my fees came from referring out personal injury cases.

There was a point in time when a whistle-blower case was thrown into our lap and we knew we had to refer it out.  It was big and the case turned on this one individual.  If they proceeded and provided certain documents, it would have been a multi-million dollar award conservatively! I knew someone in California who was with a large reputable firm who handled class actions.  They were very interested in the case but (red flag) refused to put our relationship of referrer/referee in writing.  Their claim was they were so big and so well known it wasn’t necessary.  Excuse me?  So, we went local.  When we told the local firm what we were told by the ‘We’re All That and a Ham Sandwich’ Law Firm they were appalled saying any reputable firm not only puts it in writing, they are obligated to tell the client.  Long story short, the whistle-blower got cold-feet and changed their mind.  Yet we learned a valuable lesson.

Any responsible ethical lawyer who accepts a referral will commit their financial obligation to you in writing and disclose to their client.

Subsequently, when I made a referral to a personal injury attorney I knew and trusted, I sat with the clients and the lawyer I was referring them to (I did this with all referrals) and this is what the lawyer said to his new clients before they ever signed the retainer agreement:

‘In our profession I am permitted to thank a colleague for referring you to me financially and will gladly pay a portion of my fee awarded to her as a professional thank you.  Whether it’s $1,000, $10,000 or $100,000 I will happily pay it because if she didn’t bring you to my attention I would never have met you and had the honor of representing you in this case.  It doesn’t impact what you are statutorily guaranteed to receive should we prevail.  However, I want you to know this understanding will be made part of our agreement when you retain me.”

This is the RIGHT way to do it.

And when the matter was concluded I immediately received my referral fee as a matter of due course. His attitude was this percentage of the award was never his and he never treated it as such.  It was a normal part of the required disbursements upon settlement of the case.

I also had an occasion where after the referral agreement was made and understood by all parties, the lawyer won the case and then said to me, ‘ you know, the award wasn’t really that big and we worked pretty hard on the case.  I’m thinking you should pass on your referral fee.’ I was too green at the time to challenge him.

All things being equal in the quality and ethics of each attorney when representing their client, can you tell who I continued to send work to?

You must understand when a lawyer refers a case to you it is a gift you would not have gotten otherwise.  When another lawyers refers to you, it is based upon your reputation, your honor, and your integrity in all matters.

Do not inappropriately take ownership of fees which are not yours.

You can get so much work you would never have otherwise from new attorneys  who choose not to handle these cases because 1) the attorney can’t handle the litigation costs, 2) it’s not their practice area, 3) there are conflicts or 4) the attorney simply recognizes they are too inexperienced. Do not take advantage of these lawyers. They may one day be opposing counsel, too.

If your jurisdiction permits and you are referred a case, even if the new or less experienced attorney says to you ‘we don’t need to put it in writing’ or ‘you don’t have to pay me just send some business my way in my practice area’ YOU should do the right thing.  YOU put it in writing and show the proper appreciation for the gift you’ve been given.  Train the new attorney to think of you first as not only an excellent lawyer but as someone who values referrals and will compensate accordingly within the bounds of professional ethics.

To not pay referral fees when agreed upon, to not offer to do so if the referring attorney is too naive (or in awe) to ask, is to wrongly take advantage of a colleague and it will ultimately cost you more business and reputation as word spreads not to feed you clients.

Many new lawyers know ALOT of people they are not equipped to service.  However, they are your colleagues and trusted by their circle. These people with great cases will go to their trusted lawyer friend for the name of a good lawyer.  Be that good lawyer to your fellow referring lawyers.

Always pay your referral fees.  Always.

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15 comments on “Always Pay Your Referral Fees. Always.

  • Great post.

    And I’d reiterate your urging to learn the rules of your state. In Texas, the referral arrangment has to be in writing and signed by the client and the referring attorney has to either participate in the case or accept liability for any conduct done by the subsequent lawyer.

    I’ve also found that updating the referring lawyer on the status of the referred case is a great networking/Top of Mind tool.

  • I don’t know why more jurisdictions don’t allow referral fees. The lawyers I know who pay referral fees love practicing law and getting cases without having to market as much. The lawyers who generate the fees are good at doing business, and in some instances, might not necessarily want to do the work on the cases. So long as the lawyers who refer cases do so by giving them to the lawyers who are most capable and best suited rather than those who will pay the highest referral fee (and increasing liability for negligent referral can help ensure that cases are steered in the right direction), I think it is a win-win for all involved.

    • Carolyn, this really frustrates me, too. However, having experienced referring business quite a lot and developing a procedure for doing so I can appreciate the poor choices made by the lawyer receiving the case and and the lawyer referring simply because there WAS an interest in the award.

      If everyone were honorable and went about it the right way, there is a lot to be gained by not just the client but both attorneys including closer working relationships, mentoring, potential collaboration and even partnerships.

      Not everyone is honorable. I had an amazing referral case. We went to the finest medical malpractice firm out of state as necessitated based upon a referral from a very reputable in-state attorney. Everything in writing, client approved, we went together to meet with the attorney as I wanted to make sure she felt comfortable with the attorney and I had to do a lot of different work on the case so I wanted to make absolutely sure the attorney was right, reputation or not. The case was settled but the chances of the client remaining in remission were 50/50. When client eventually died, there was a secondary wrongful death claim. Her executor took my advice to continue with the same attorney who not only did an extraordinary job…she did the impossible and and got the standard language waived on the original settlement leaving the door open for the wrongful death action.

      The executor was also working with a local law firm on a domestic matter regarding the decedent’s children and the estate plan. They never knew of the possible multi-million dollar wrongful death claim and never considered it in the estate plan. Once they heard of it and they calculated the potential referral fee, they tried to negate my involvement and negate the agreement signed by the executor with the original attorney with threats I was interfering with their client (the executor). Their actions delayed the filing of the suit for more than a year.

      Well, you know I’m no shrinking violet ;-)

      After the original med mal lawyer made every one of her peers aware of this case and what was going on, no one would touch it when it was shopped to them. They even baited the ‘shopping’ attorneys asking why they wouldn’t go back to the original attorney who did such a great job? Many simply said they wouldn’t take the case because the best person to handle it was her. Once attorney even got an admission the fee was a part of why it wasn’t going back to her because they knew I had a legitimate interest.

      The original lawyer always had my back. Eventually (knowing all the work she had done behind the scenes with her local colleagues – it’s a fairly small elite group) when these attorneys came back to HER saying they realized she was the best lawyer for the case and asked for a referral fee she simply said, ‘how do you suggest I tell the original referring attorney and the same attorney who helped you and your client to even understand their was a multi-million dollar subsequent wrongful death case that she’s not entitled to the referral fee but you are?

      The firm realized they were check-mated. It was revolting to watch all this play out. But this is why jurisdictions are concerned about motivations behind referral fees. In this case the absolute best attorney for the case was the previous attorney. She knew the case intimately, performed miracles, was a heavy hitter and no one had to reinvent the wheel which was the most beneficial for the client. But greed for the fee got in the way. As always, sometimes a few bad apples can ruin it for everyone else. Just not this time :-)

  • If you reffered a client and, in the course of the case, your licence expired, is the agreement then void? Can the reffered attorney get in trouble for paying you your fee?

      • In the state of Florida, I believe the lawyer who was disbarred or had a license suspended or expired is still allowed to receive the fee so long as when the agreement was entered into, they were of good standing. That being said, they attorney receiving the referral fee may not be entitled to the full 25% or whatever percent was agreed, due to their status falling into inactivity. Florida Bar Ethics Opinion 90-3

    • That sounds like an MPRE question.

      I think the answer would be to get your license reinstated. That is likely retroactive as long as there was not a large gap.

  • Hello, Great article. I am in the IT consulting business.
    Is it OK to pay a referral fee for people (say people that work at companies) that refer business to me?

    • If your industry has no professional restrictions, you can thank anyone any way you wish as long as it’s not violating any stated rules governing what you do AND the recipient is allowed to accept under the rules governing their profession.

  • Great article. In MA referral is allowed if in writing and the client is told about it. My question though, being a new attorney, is that do I have to say it out that I want the referral fee or should it be known that if an attorney “refers” a case to you that you will give the attorney the referral fee. And IF that attorney does not mention it how do I bring it up?

    • Thu, When it comes to referring, any responsible ethical lawyer understands it should not only be in writing but also communicated to the client for their approval. (Clients are not usually concerned how their lawyer splits money which will never be theirs but it is still required.) That being said, you should bring it up and discuss it with the lawyer prior to the referral. You do so by saying, ‘what is your policy on referral fees?’ This sets the tone for your expectation but allows them to outline for you how they handle it. They may tell you they don’t give them but give a different kind of value. But that should be a red flag to you. You want to make sure you are working with a colleague who respects the value you are bringing to them. In a jurisdiction where you can receive referral fees, this can be a great source of income while you develop your practice. It will also help you learn the process for when a colleague refers a case to you!

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