neon fees sign

Referrals from other attorneys are a huge source of business for many law practices. But should those referrals prompt the payment of referral fees? Is it OK to insist another lawyer pay a referral fee in exchange for sending a client to them?


Many attorneys assume that paying referral fees to other attorneys is not just accepted, but expected practice. The amount of referral fees paid vary based on jurisdiction and practice area. For example, it is common in many personal injury actions for the retained lawyer to pay the referring lawyer a referral fee equal to 1/3 of what the law firm receives. In other areas, the referral fee can be a percentage of a flat fee or the initial retainer amount received. In some cases, the referral fee is paid to the referring attorney as soon as the client is retained, and in other instances, it is not paid until the matter is fully resolved.

Although providing a referral fee to another lawyer for sending a potential client is a common practice in many areas, it may not be ethically responsible to do so.

Ethics of Referral Fees

Many jurisdictions follow the same general principles as those contained in the ABA Model Rules. Model Rule 1.5(e), Fees, addresses the issue as follows:

A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.

First, lawyers may ask “Is payment of a referral fee actually considered a ‘division of fees?’” Most referral fees are calculated as a percentage of the money paid to the retained lawyer as a result of the representation. As such, it seems pretty clear that the fee paid to the retained lawyer is being divided with the referring lawyer. Further support for this argument can be found in that most lawyers do not pay a referral fee purely for the referral itself. A referral fee is generally only paid out if the retained lawyer receives a fee for his or her services, either on a retainer basis or as a percentage of recovery obtained in the action.

Once it is determined that the rule covering division of fees applies, the lawyers must consider whether payment of a referral fee is permissible. According to Rule 1.5(e), such a division is permissible in only two instances: (1) the lawyers may agree to divide the work involved in the representation and divide the fee based upon the proportion of the work performed by each or (2) they may both accept joint responsibility for the representation. (Rule 1.5(e) is silent on how the fee may be divided if each lawyer assumes joint responsibility for the matter.)

Assuming joint responsibility is not something to take lightly, particularly if the reason for referring the client to another lawyer is that the matter is outside of your area of expertise. Assuming joint responsibility means you’re on the hook if malpractice is committed. It also means that the client is considered your client as well as the retained lawyer’s client, with all of the associated attorney-client obligations. In fact, Comment [7] to Rule 1.5 of the New York Rules of Professional Conduct (which generally follow the ABA Model Rules) states specifically, “Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.” That’s no small responsibility.

Rule 1.5(e) also requires that the client consent not only to the payment of the referral fee but also to the way the fee will be divided. This must be confirmed in writing.

Not all states follow the ABA Model Rules, but even in states in which payment of pure referral fees is permitted, other ethical rules may impact the payment of those fees. For example, the lawyer may still be required to notify the client that a portion of the fee will be paid to the referring attorney. Rules covering competency may also apply (attorneys must refer only to other attorneys who are competent). And where no “referral fee” per se is paid, but some other exchange is made (such as an agreement to reciprocate with referrals back to the other attorney or where another gift is given to the referring attorney), ethical rules covering advertising, including Model Rule 7.2 may come into play.

A Better Approach to Referrals

Given the potential ethical minefield and potential liability issues that could arise as a result of payment of referral fees, a far better course of action may be to eschew referral fees entirely and take the approach taken by one lawyer who says:

I love knowing other attorneys who can help my clients get what they need efficiently and effectively. My clients are happy because of the great service they get, I’m happy because I can concentrate on the issues that are my niche while knowing the other issues are being handled, and the other attorney is happy because they have business. It’s a win-win-win situation.

Why not let the goodwill you engender as a result of sending clients to lawyers who are in a better position to meet the client’s needs serve as your ‘referral fee?’ You’ll be doing what is right for the client and avoiding a potential headache down the road. Not only that, but you’re likely to receive more referrals back to you as a result.

16 Comments

  1. Slorn Himmel says:

    Frankly, I think the only reason for this rule is to disadvantage the small firm / solo. Lawyers within firms do this, why can’t the rest of us do it? Of what relevance is it that both lawyers take responsibility?

    Frankly, I don’t even see why there are disclosure rules. Partners of firms never disclose their points systems to their clients.

    Pointless. Treats the client like an idiot.

    • Alberto Bernabe says:

      The distinction is that when the fee is divided within the members of a firm, the firm is still representing the client and therefore can be liable to the client if something goes wrong. By making sure the referring lawyer retains responsibility after referring the case to a lawyer in a different firm, the rule creates an incentive for the referring lawyer to make sure the client is protected. The referring lawyer will have an incentive to make sure he or she is careful when choosing who to refer the case and to make sure the client is well served by the referring lawyer.

      The part of the rule that is less important is the need for the client to consent to the terms of the division. That is a matter of contract between the lawyers and won’t affect the client.

  2. Alvin Wolff says:

    It’s the world’s second oldest profession. Referral fees were paid even before rules were made which , like magic, made them ethical. Some call it the cost of doing business.

  3. I do predominantly medical malpractice, a niche “specialty.” (Ethically in Missouri we aren’t allowed to claim that we “specialize’ but the fact is it is 90%+ of my practice. Let’s just say it is the major emphasis of my practice.) I rely on referrals from other attorneys and I do pay referral fees on a case-by-case basis. I don’t have a problem with paying proportional referral fees. I want the referring attorney to want to continue to refer cases my way. The amount of the referral fee is usually the sticking point. Attorneys who don’t “specialize” in my field are not willing to take on these high-risk cases, but a few inexperienced attorneys expect a large referral fee when they have taken no risk. I’ve found that an open and candid discussion with the referring attorney and the client eliminates these issues.

  4. Kevin Kirby, Esq. says:

    A “better approach” is to waive a referral fee? Hmm. My sense is that the author does not practice multimillion contingency fee plaintiff’s work. Taken to its illogical conclusion, an attorney is “forgoing” a six-figure referral fee under the auspices that “it is going to come back to him/her” down the road via reciprocal referrals. Talk about assuming facts not in evidence.

    As a threshold matter, most seasoned recipients of referrals rarely refer back business to their less experienced brethren. To be sure, the primary impetus for a less experienced attorney to refer a case is twofold: first, the referring lawyer does not have the jury verdicts that the trial specialist has and, as such, involving the trial specialist will (1) more likely than not help effectuate a favorable out-of-court settlement; (2) obviate the risk that the plaintiff opt to go with another lawyer altogether during the “beauty pageant” stage; and (3) help mitigate the risk to the plaintiff and referring lawyer alike of an unfavorable settlement/verdict.

    Having just earned such a $250k referral fee, I would respectfully submit that any like-minded practitioner (1) establish a good rapport with the plaintiff under the aegis that you are “their guide through the specialist selection process” ; (2) pre-negotiate the referral fee BEFORE making the introduction to the specialist and (3), to the extent practicable, try to negotiate the contingency fee down on behalf of the plaintiff, i.e., that way, you are conferring a discernible, measurable value to both parties to the fee agreement.

    Then again, it seems simpler to me insofar that (1) I have a course of dealing with some of the leading trial lawyers here in Southern California (e.g., with $223,000,000 and $55,000,000 verdicts) and (2) presumably my past referrals to each of them give me added credibility and leverage than say, a new lawyer with no such course of dealing.

  5. Jim Calloway says:

    Allison is a friend and I respect her. But I completely disagree with her Better Approach to Referrals section. The reason why referral fees and co-counsel fees were approved in the Model Rules was to better serve and protect clients. Does anyone really think a relatively new lawyer who has an existing client consult him because a family member was killed should only have the option of doing the work himself or sending it out of his office? A small town general practitioner may well have intake and referral as a significant part of her practice. If the client is not charged more (which does violate ethics rules) the client only benefits, i.e. two heads are better than one and there are two professional liability policies to collect against if something gpoes wrong. Plus the client may have a long standing relationship of trust with the referring attorney.

  6. Thanks to all for your enthusiastic comments. I hope this comment clarifies my ‘better approach’ section.

    I did not mean to suggest that it was better to completely refer a case out and pay (or receive) no referral fees than it would be to work with another lawyer, with full disclosure to the client and split the fee proportionally, where both lawyers are willing to take on responsibility for the case and it is appropriate for them to do so. However, in my experience, too many lawyers want the referral fee without expecting to be involved with the case or client and without taking on any responsibility for it. Or the referring attorney has absolutely no experience in the practice area the case involves, or there are other reasons why it wouldn’t make sense for both attorneys to take responsibility for the matter. It is those circumstances in which I suggest that lawyers should forego the referral fee entirely. (Although re-reading the article, I realize that I didn’t make that entirely clear).

    As for it ‘coming back to you,’ I do not necessarily mean that it will be a quid pro quo and that every lawyer you refer work to is going to refer work back to you. However, I do believe that a good referral policy does bring rewards. They may not come directly back from the same source, but often when a less experienced attorney refers to a more experienced one, the more experienced attorney can refer overflow work, conflicts, or smaller cases back to the less experienced attorney. Or the more experienced attorney might become a mentor, sounding board or source of information and guidance to the less experienced attorney. The referral could even ‘come back’ in the form of other work from the client or referrals from the client who appreciated that the lawyer recognized the client’s need was something better handled by someone else.

    In my experience with the firms I’ve worked with as both a lawyer and as a consultant in New York, the vast majority of referrals I’ve seen have been the type where the attorney does nothing but refer the case and then expects a referral fee in return for finding the client. In speaking with many attorneys in New York, a majority of them are not even aware that may be a violation of the ethical rules. This post was meant to highlight the issue and suggest that, rather than get in ethical hot water, it might make more sense to refer without expectation of payment, ensuring that the client receives the legal services they need.

    • Sam Glover says:

      too many lawyers want the referral fee without expecting to be involved with the case or client and without taking on any responsibility for it

      This is also my experience. In fact, I only know one law firm that even pays lip service to the need for the lawyer to take responsibility for the client, and that responsibility is limited to signing a co-counsel agreement, then checking out for the remainder of the case.

      In reality, there is no such thing as a “referral fee” for lawyers. We should just get that out of our vocabulary. There are co-counsel agreements, and that’s it.

  7. “Is payment of a referral fee actually considered a ‘division of fees?'” Allison, I’m curious as to your take on analyzing this question. I do a lot of hourly and flat rate work where I service the client in one capacity but need the services of another attorney in a different capacity. If I were to pay the other attorney to do this “other” work ‘x ‘number of dollars but bill the client for this “other” work at my regularly hourly or flat rate (more than x), would this be considered a division of fees? I see this as similar to paying a per diem, which I can’t imagine would be considered a division of fees. If you do view this as a division of fees, would making the “other” attorney Of Counsel to my firm make any difference?

  8. Eugevenmi Fellash says:

    Bullsh!t! I send you a referral…PAY ME!

  9. Paul Spitz says:

    I’d be happy if the lawyer I refer a client to had the decency to say thank you.

  10. Cesar Gomez says:

    “attorney does nothing but refer the case” …

    Typical SEO agency fees run between about 1200 – 1500 a month on the low end, and legal referral company subscriptions are not far behind. And many also pay a paralegal or legal assistant to do outreach, intake, and calendar the appointment. And finally, they have to provide a consultation and establish value and rapport with a client so they are willing to accept that attorney’s referral.

    As Eugevenmi Fellash says: “Bullsh!t! I send you a referral…PAY ME!”

  11. Alberto Bernabe says:

    Be careful when you say “if I send a referral, pay me.” Asking to be paid merely for referring the case is unethical unless it meets the requirements of rule 1.5. This is the result of the combined analysis of rules 7.2 and 1.5. (I am using the numbering of the Model Rules, which may be different in particular jurisdictions.) Thus, the “pay me” part must be either for the value of work already done or a reasonable amount to be determined but which carries with it the responsibility of shared possible liability.

    • Cesar Gomez says:

      Agreed, but I object to the phrase “merely” for the reasons stated above. And that being said, as long as you are in tune with 1.5(e)(3) the and charge a reasonable fee for services rendered and/or share responsibility with the attorney in question, and are transparent with your client, there should be no problem.

  12. Philip Franckel says:

    If the family of a brain-damaged infant went to a personal injury lawyer who does not handle malpractice or worse, a lawyer who doesn’t even handle personal injury, the family and the brain-damaged infant should be assured that they would have the best lawyer for the case. If the referring lawyer wasn’t sure that he or she would get a referral fee, it’s likely that the referring lawyer would be handling an infant brain damage case instead of referring the case.

    Referrals are far more likely to be made when a lawyer knows he or she will receive a referral fee.

  13. Mary Neal says:

    Looks like the attitude toward and ROI on paid referrals varies widely by practice area.

    As an immigration practitioner representing mostly middle-to-low income individuals, I’m not getting a huge payout from any case another lawyer refers me, and I’m not often referring out million dollar cases either. I also spend very little on advertising or lead generation. It’s a totally different calculation.

    For me the real referral engine is my existing clients. If they need the services of another attorney to accomplish something (criminal defense, divorce, real estate transaction) that facilitates a better resolution to their case or increases their wealth and happiness, then that will lead to more business from that client and their social network down the road. I’m pretty happy to refer out anything that is outside my geographic or subject-matter comfort zone.

    I have done paid referral arrangements at various times with other attorneys, but it’s not something I actively pursue–kind of a hassle to keep track of for small cases..

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