LSUC to implement cap on referral fees

New rules approved by the Law Society of Upper Canada to further regulate advertising and referral fees are a good step in repairing any damage that may have been done by misleading advertisements to the public’s confidence in the legal profession, some lawyers say.

Convocation — the governing body of the law society — decided to implement a cap on referral fees between lawyers at its February meeting.

The recommendation was floated as an option in a long-anticipated report on how the law society should further regulate advertising and referral fees in the legal profession in order to clamp down on misleading advertisements, particularly in the personal injury bar.

Adam Wagman, president of the Ontario Trial Lawyers Association, says a 10-per-cent cap on referral feels would provide the appropriate balance between compensating lawyers who need to refer cases to others and eliminating high fees.

“We think that as long as referral fees are disclosed and they’re transparent to the client and that they are set at a reasonable level, then the public is informed and well served,” Wagman said, before Convocation voted on the recommendations.

The working group examining the issue has found that clients of some personal injury firms do not always know about the existence of referral fees or that they are being referred to another lawyer, even though the law society’s current rules require lawyers to disclose such information.

Convocation voted to adopt the cap limiting how much lawyers could pay each other for referrals, rather than an outright ban of referral fees.

“The working group thought that there were two plausible choices that Convocation should make,” says Bencher Malcolm Mercer, who is chairman of the Advertising and Fee Arrangements Issues Working Group Report.

“And when there was not consensus within the working group as to which of the two answers was the right one, the better course was to put it to Convocation.”

The working group found that some referral fees have crept up to more than 20 per cent. Some who gave feedback to the working group have advocated for a 10-per-cent cap on all referral fees, while others have asked for a 30-per-cent level.

The working group has now been tasked with coming up with an appropriate amount for the cap, as well as additional measures to ensure greater transparency.

Mercer says these measures could include a requirement of a formal written agreement between the referrer and the client. Another transparency measure could be a requirement that lawyers make it clear in their advertisements when some of the work will be referred out to other lawyers or firms, he says.

Mercer says the working group has not made a decision on what the cap would be, but he expects it would be “in the lower range.” David Sterns, president of the Ontario Bar Association, says 30 per cent would be too high.

“That can create an entire industry around referrals and that is not something that is in the interest of the profession or the public,” he says.

“Lowering the permitted amount would deter referral operations — ones that would exist primarily for the purposes of referring work to others. And that we don’t think is something that the profession should condone.”

Convocation also approved additions to its rules on advertising, which already included requirements that lawyers advertise in a way that is accurate, not misleading and is in the best interest of the public.

The new rules will also require licensees to identify whether they are a paralegal or a lawyer in their advertisements. The law society will also amend the Rules of Professional Conduct to “guide licensees as to the appropriate use of awards and honours, and to protect the public from misleading use of awards and honours when necessary.”

Licensees will also be banned from advertising work that they are not permitted to do or do not intend to do.

The working group flagged the issue in its interim report that said some firms have advertised legal services that were referred out without any intention of doing that work.

The proposed changes also include a ban on second-opinion advertising, which entices a potential client that already has a lawyer to retain the advertiser instead.

Other rule changes include a ban on lawyers referring to third-party awards and rankings in their ads that are “not bona fide or are likely to be misleading, confusing or deceptive.”

Sterns says that the report provides more clarity to the rules surrounding advertising.

“It brings greater fairness to the profession,” he says.

“There will always be people who will push the boundaries and I think it was high time for the law society to say exactly where those boundaries are.”

The working group’s interim report from the summer also tackled issues concerning advertising in the real estate bar as well as contingency fees, but the committee has not finished its work in those areas.

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