Yesterday, Susan Cartier Liebel wrote about the importance of paying referral fees. As for me, I rarely ask for and give referral fees. The only time I ask for referral fees is if it is a large-dollar case. And even then I tend to refer them to people I trust. Sometimes, I ask to be co-counsel and participate meaningfully in the case rather than take a referral fee.
One reason for doing this is that I hate asking for and paying referral fees. I think it taints the business and professional relationship between attorneys. I would rather be known as the lawyer who doesn’t give referral fees rather than the one who gives the highest. Also, it just seems petty to ask for a referral fee if it will be only a few hundred dollars or less. I’d rather let the attorney keep the money but be there for me in case I had any questions or need him for a favor.
Also, I also found that collecting referral fees is not as simple as it seems.
The first potential problem arises when you suspect that the attorney you referred the client to is lowballing the referral fee. Since attorneys refer out cases that are outside their practice area, they probably know little to nothing about costs and how clients are billed. And most attorneys don’t demand copies of the attorney-client contract or their billing schedules. I think most attorneys do not question the referral fee given to them so long as the amount seems right. But if you think the referral fee is not as high as you thought it would be, it could be because the costs of the representation were higher than anticipated.
The second potential problem arises if the attorney tries to avoid paying the referral fee or refuses to pay it at all. They make all kinds of excuses for not paying: the referral fee would violate ethics rules of reasonableness and fee-splitting, or the client is suffering a financial hardship and he would be eternally grateful if you gave up your referral fee to him. When this happens, the ungrateful attorney must contemplate whether getting the referral fee outweighs losing the professional relationship and any collateral negative consequences. Most state bars do not discipline attorneys for breaching referral fee agreements, especially those that are done informally without following the state’s ethics rules. And filing a breach of contract lawsuit means paying for a plaintiff’s attorney, court costs, and time wasted going to court and filling out paperwork. And what about the cost to their reputation? While most attorneys look down on a colleague breaking a promise to pay a referral fee, this may not faze a lawyer whose clients mainly come from a select group of friends or from mass advertising.
Finally, if most of your clients come from attorneys with referral fee arrangements, trying to manage your referral fees can be a time-consuming headache. You might be spending more time trying to collect and pay referral fees and negotiate fee-splitting arrangements with lawyers rather than practicing law. In that case, you may be better off quitting law practice altogether and starting a lawyer referral service.
For these reasons, I rarely give and accept referral fees. I think that if I were to give and accept referral fees on a massive scale, they would balance each other out in the long run while creating another layer of work with the possibility of arguments and burned relationships. But it doesn’t mean I am not appreciative of referrals. I realize that sometimes it is easier to just give a referral source money as opposed to going to their kids’ birthday parties or helping with their charities. The holidays are coming up, and I remember everyone who has been helpful to my practice. For these people, there may be a gift card hidden in the holiday card. Or if I need to give away good seats to a football game or an opera, they will be the first people I offer them to.
Earlier: Thinking Of Stiffing A Referring Attorney? Think Again.
Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at [email protected] and via Twitter: @ShanonAchimalbe.
