TORONTO — Lawyers in Ontario should have their fees for referring clients to another lawyer capped at a maximum of $25,000, a report released on Monday recommends.
In addition, the report says lawyers should have to record referral fees paid or received in their books, and report on their referral-fee practices in their annual reports to the body that regulates the profession in the province.
The recommendations, to be voted on Thursday by the governing body of the Law Society of Upper Canada, come from a working group that has been looking into the issue after serious concerns were raised that "certain fee-arrangement practices are misleading or detrimental to clients," the regulator said.
In February, the law society voted in principle to implement a cap and to further regulate referral fees to protect the public.
"While unlimited referral fees are problematic, capped referral fees may facilitate access to legal services by allowing innovative referral systems to develop," the working group said in its report. "A cap on referral fees addresses the problem raised by the excessive referral fees that can be demanded as a result of significant 'brand' investment through direct advertising."
Putting a cap in place would help restore "proportionality" between the amount of the referral fee and the nature of the service provided, the panel said. However, setting the limit too low would be tantamount to a ban, while setting it too high would do little to address the problems identified, among them pushing overall costs higher and having referrals go to the highest bidder rather than to someone with the necessary expertise.
The recommended cap arrangement — which would also apply to paralegals — strikes a reasonable balance that should lead to lower referral fees while still providing an incentive to make referrals where appropriate, the working group said.
"Referral of a client must be in the client’s best interests," it said.
The recommendation calls for referral-fee cap of 15 per cent for the first $50,000, and five per cent above that — with a hard cap $25,000. A standardized form for referral fees should have to be used and payment of upfront referral fees would be barred, the working group recommends.
Transparency was another key issue for the panel, which makes several recommendations to meet that aim.
"The account to the client must clearly indicate the amount to be paid out," the working group recommends. "The client must sign an acknowledgment of the referral payment at the time that payment is made."
The working group also calls for a ban on the payment of referral fees to lawyers and paralegals whose licences have been suspended, and a continuance of the current ban on paid referrals in cases in which the referring lawyer has a conflict of interest.
At its last meeting, the regulatory body opted for the cap on referral fees rather than an outright ban. It also made changes that included requiring advertisers to state whether they are a lawyer or paralegal, and implemented a ban on advertising second-opinion services — often simply used to lure clients who already have an advocate.
"The working group continues to consider related issues, including advertising in real estate and contingency fees, and further reports are expected," the law society said in a statement.
Colin Perkel, The Canadian Press