Navigating Ontario's referral fee landscape: A guide for personal injury lawyers

The evolution of Ontario’s referral fee regulations

Referral fees have long been a staple in the legal profession, supporting collaboration between lawyers and helping clients get the specialized representation they need. Referral fees are of benefit to the client in that they discourage “dabbling” by inexperienced counsel in areas outside of their core practice, thereby ensuring they get to a specialist in the relevant field.

However, unchecked referral fees sometimes resulted in excessive charges or confusing, hidden costs for clients, and these practices drew attention from regulators and the public alike. This also meant that sometimes a client would be referred not to the best lawyer for their case, but rather, to the lawyer who was paying the highest referral fee.

In 2017, the LSO responded by overhauling its referral fee policies, implementing caps, requiring clear client disclosure, and setting limits to ensure fairness and transparency. These rules now dictate how lawyers can ethically and legally structure referral fee arrangements in Ontario.

Breaking down the referral fee rules

The LSO’s referral fee rules cover three main areas: caps on fees, transparency measures with clients, and specific situations where referral fees are outright prohibited. Here is how these requirements play out.

1. Caps and payment structures

Ontario has specific fee caps:

• Percentage caps: The LSO sets a limit on how much can be charged in referral fees. It is capped at 15% of the first $50,000 of legal fees generated and then 5% on any additional fees, up to a total absolute maximum referral fee of $25,000. The goal here is to strike a balance, allowing referring lawyers to be compensated while keeping costs manageable for clients.
• No up-front fees: Strictly forbidden.
• Must not increase the client’s fee: This is an obvious rule, and one we have always followed at Bergeron Clifford. When a referral fee is payable, it is important that it only comes from the receiving lawyer’s fees and not from the client’s funds. Put another way, the fee account is split according to the LSO rules between the sending and receiving lawyers, but the client’s net recovery must not be affected in any way by reason of the referral.
• Restrictions based on license status: Referral fees cannot be paid if the referring lawyer’s license was suspended when the referral was made. Also, if there is a conflict of interest, referral fees are prohibited.
• Non-eligible licensees: Lawyers who work within civil society organizations (like charities or nonprofits) are not eligible to pay or receive referral fees.

2. Transparency and client disclosure

The LSO’s transparency requirements are central to its referral policy, ensuring clients fully understand and consent to referral arrangements. Here is what lawyers must keep in mind:

• Informing clients with clear language: Before finalizing a referral, the client needs to receive an informational sheet, titled What Clients Need to Know, which explains the basics of referral fees. Clients must have the time to review and ask questions if needed.
• Offering multiple referrals: If possible, the referring lawyer should provide the client with at least two referral options. This gives clients choices and prevents any perception of favouritism. If only one referral is available, the lawyer must explain why this is the case.
• Explaining relationships and disclosure: Any relationship between the referring and referred lawyer should be disclosed to the client to avoid conflicts of interest. Transparency builds trust and ensures clients are making informed decisions about their representation.

3. Client acknowledgment and documentation

Every referral should be documented thoroughly to meet compliance standards and ensure clarity:

• Standard referral agreement: The LSO requires a written referral agreement, signed by the client, the referring lawyer, and the receiving lawyer, using the LSO’s standard form. This formalizes the arrangement and helps avoid misunderstandings later.
• Client acknowledgment on fees: When the referral fee is ultimately paid, the client’s account statement should clearly list the referral fee amount, and the client must sign off acknowledging this payment.
• Tracking fees: Referral fees must also be recorded in the law firm’s books and reported in the annual report submitted to the LSO. Proper documentation not only keeps firms in compliance but also provides a paper trail in case any issues arise.

Practical tips for ethical referral practices

Navigating referral fees can feel complex, but following best practices can help lawyers remain ethical and compliant. Here are some straightforward principles:

1. Put the client first
   At its core, a referral should be about matching the client with the best lawyer for their needs—not about maximizing profit. Consider the receiving lawyer’s experience, resources, and history with similar cases to ensure a good fit for the client.

At Bergeron Clifford we believe client fit is also important. This can mean considering a client’s race, sex, background such as farming or hobbies, and geographic location. At Bergeron Clifford, we practice law throughout Canada and the US but have a special focus in Eastern Ontario, where we have five offices. We routinely receive referrals within the rural locales that we call home.

2. Be Transparent and communicative
   Keep the client fully informed throughout the referral process, particularly around fees. It is not just about meeting LSO requirements; it is about building a relationship of trust, which is essential in personal injury law, where clients are often dealing with sensitive and challenging issues during a vulnerable time in their lives.
    
3. Stay updated on policies
   Regulatory landscapes change, and the LSO’s policies may evolve over time. Staying informed through LSO updates or continuing professional development (CPD) courses ensures you are always compliant with the latest rules.
    
4. Keep comprehensive records
   Documenting every step of a referral, from the initial recommendation to the final payment, is invaluable. Detailed records protect both lawyers involved and are an essential part of ethical practice.

Debunking common myths about referral fees

There are some misconceptions around referral fees in Ontario and clearing them up can help lawyers make informed decisions.

• Myth 1: Referral fees are inherently unethical
  Referral fees are not inherently problematic; when handled transparently and ethically, they are a standard, accepted part of legal practice. It is only when client interests are sidelined or LSO requirements are ignored that ethical issues arise. As noted, the referral should always be a very positive occurrence for the client, because it will result in them finding the best lawyer possible for their case and their unique circumstances.
• Myth 2: Small referrals do not require disclosure
  All referral fees, regardless of size, require full disclosure and a signed agreement. Transparency is non-negotiable, no matter how minor the fee.
• Myth 3: Verbal agreements are sufficient
  Verbal agreements for referral fees are not permitted. The LSO mandates that all referral agreements be in writing. This protects everyone involved and minimizes the risk of misunderstandings.
• Myth 4: Referral fees can be paid to non-licensees

Referral fees cannot be paid to police, tow-truck drivers, physiotherapy clinics or court staff. No exceptions.

Non-compliance: What is at stake?

Failing to adhere to referral fee rules can result in disciplinary action from the LSO, including fines or even suspension. It can also lead to reputational harm, which can be challenging to recover from in the close-knit legal community. Violating LSO policies might even result in legal consequences, including malpractice claims or disputes with clients over fees.

When managed carefully and ethically, referral fees can be an effective way to connect clients with the right expertise and grow a law practice. As Ontario personal injury lawyers, our responsibility is to stay informed, keep clients’ interests at the forefront, and comply with the Law Society’s standards. By following these guidelines, we are not only staying within the legal bounds but also reinforcing the professionalism and integrity that clients expect and deserve.

At Bergeron Clifford, we have always believed that the work we do for clients referred to us is an extension of the goodwill and good practice of the lawyer who sends us the client in the first instance. By serving these people with integrity and excellent personal injury law representation, we are providing a service to the client, the referring firm, and the public at large.

For more information on the Law Society of Ontario's referral policies, visit their official website or consult the latest professional conduct guidelines.

The ability to make a meaningful change in people’s lives is what attracts Kanon Clifford to injury law. For Kanon, the clients’ right to fair compensation is the pillar of his deep commitment to improving the lives of injured persons and their families. Kanon started at Bergeron Clifford as a summer student learning the ins and outs of injury law. He then completed his articles at our firm before being called to the Ontario bar in 2020. He holds a B.Soc.Sc. from the University of Ottawa. He graduated with his LL.B. (Honours) from the University of Exeter in Devon, England and also holds an LL.M. (Conflict Resolution) with Distinctions from the University of Law in London, England. He is currently studying part-time for his Doctor of Business Administration (D.B.A.), where he studies the intersections of law, business and technology.

Warren WhiteKnight is a partner at Bergeron Clifford LLP. For over a decade Warren’s entire legal practice has been dedicated to nothing but representing injured people and their families. Warren specializes in catastrophic claims, medical malpractice, orthopedic injury claims, brain injury and concussion cases, and chronic pain. Warren prides himself on becoming an expert in the medicine and law needed to pursue each individual case. Warren routinely appears in court on behalf of his clients and has an excellent track record of wins. The settlements he obtains for his clients have helped many families rebuild their lives and take care of their pressing medical and financial needs after serious accidents.