Lawyer referral fees to be capped in Ontario; advertising rules changing

Lawyer referral fees to be capped in Ontario

TORONTO — The body that regulates lawyers in Ontario has opted for a cap on referral fees rather than an outright ban, and made various changes to advertising rules.

In a vote Thursday, benchers of the Law Society of Upper Canada decided on a yet-to-be-determined cap after considering a report from a working group that delved into the issue of advertising and referral fees — those a lawyer pays to another lawyer for sending along a client.

“With these changes, the law society is establishing new and stronger measures to protect the public,” Treasurer Paul Schabas said in a statement. “Capping referral fees and taking steps to make certain the client is fully aware of their options will ensure that it is the client who benefits from the referral.”

While details of the cap have yet to be worked out and voted on at a later date, advertising changes effective immediately include requiring advertisers to state whether they are a lawyer or paralegal and a ban on advertising second-opinion services — often simply used to lure clients who already have an advocate.

Lawyers and paralegals are also expressly barred from advertising for work they are not licensed, competent, or intend, to do.

“The new advertising requirements reinforce the core principles that advertising must be demonstrably true, accurate and verifiable,” Malcolm Mercer, chairman of the working group, said in a statement.

Law society rules already mandated disclosure and client consent around referrals but the group concluded the process was too opaque. The issue was especially acute in the area of personal-injury law, the panel found.

“In Ontario, lawyer advertising appears to have rapidly become ‘big business’,” the group said in its report to the benchers. “There are a few high volume personal injury law firms that are leaders in mass advertising and that operate a hybrid of the ‘brokerage house’ and ‘settlement mill’ models.”

In essence, the report concluded, those firms used mass marketing campaigns in an effort to woo clients, many of whom might then be referred elsewhere. Consumers, however, may not have realized that the advertising firm didn’t necessarily have the required expertise or intention of taking on their cases, and may have known little about referral fees.

The lack of transparency had been fuelled by “misleading advertising” in which lawyers and paralegals were soliciting work that had no intention of providing themselves and the practice was fuelling bidding war from companies looking to get clients sent to them.

One major concern, the report found, was that referral fees in personal-injury law had become “unreasonable and disproportionate,” and that some firms were negotiating large, up-front flat-fee payments in addition to a 30-per-cent share of the fee once the case was settled.

“The rules were never intended to create a law firm line of business based on the selling of claims,” the report noted.

While banning referral fees would be clear and simple — some benchers voted in favour of the idea — the committee worried a ban would prompt firms to keep clients they weren’t really equipped to deal with. Capping, on the other hand, could allow “innovative” referral systems to develop and address problems raised by excessive fees.

The group made no recommendation as to what the cap should be or how it should work, saying that would come later.

Other proposed changes around regulating fees include requiring lawyers to sign a standard agreement that clearly shows how the fee is determined and that the client is free to go to another lawyer.

Colin Perkel, The Canadian Press

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