LSUC Responds to Criticisms of Referral Fee Practices

May 11, 2017, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Recent news articles that featured the referral fee practices of a select few personal injury legal firms have cast a negative light on personal injury lawyers specifically, but on lawyers as a whole. In response to the widespread criticisms made in the press, by the government, and the public of these few large corporations the Law Society of Upper Canada (LSUC) has undertaken a careful review of the situation, and in my opinion they have reacted in a fair and measured way.

Some larger firms, and some smaller lawyers were using a questionable practice which saw the referral fees being charged back to the client rather than to the lawyer. Many clients were left unaware of this practice paying the fees unknowingly. This is patently unfair to the client increasing their overall cost of litigation. It also encouraged referrals to the ‘highest bidder’ lawyer firms. It appears that there are some firms who engaged in wide scale advertising of personal injury services, but whom handled very few of their own cases, relying instead on the fees from referrals to other lawyers to run their business.  These are not practices that I have engaged in.

The LSUC has reviewed the referral fee practices and has established a cap on the fees in an attempt to increase fairness and transparency to victims, and establish clarity of the billing process. In their April meeting the Society set a referral fee cap of $15,000 limited to 15% on the first $50,000 of the settlement and 5% thereafter.  These fees must be taken directly from the acting lawyer’s portion of the settlement, not billed back to the client who would effectively pay twice for the same service.

The new guidelines include requirements that the client be made fully aware of the referral fees, how they are collected, who is handling their case, and that all three parties sign an agreement.  Lawyers will also be required to record the fees in their account ledgers and to submit the information to the LSUC annually. Another significant change to the referral system is the prohibition of ‘shopping a case around’ in order to find a lawyer who will bid the highest referral fee. This prohibition should align interest of clients and the referring lawyer.

Additional changes made include rules around advertising including the requirements that ads include information on whether they are lawyers or paralegals, and on lawyers advertising services that they have no intention of performing but that they are immediately farming out. They also banned second opinion advertising which is essentially aimed at clients encouraging them to switch lawyers midstream. The LSUC intend to attack real estate bar issues in the upcoming year.

Opponents of the caps on referral fees fear that if the referral fee is too low it may encourage lawyers to take on cases that they are ill equipped to handle, thereby doing a disservice to their clients.

These changes represent a real step forward for personal injury law in Ontario. There remain questions however around how these new guidelines will be enforced.

About Deutschmann Law

Deutschmann Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.deutschmannlaw.com or call us at 1-519-742-7774.

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