Exploring the Legalities of Referral Fees: Can Law Firms Pay Them?

can law firms pay referral fees

If you’re a law firm looking for new business, you may be wondering if you can pay referral fees to those who help you bring in new clients. Referral fees can be an effective way to generate new business, but they can also be a legal minefield. In this article, we’ll explore the legalities of referral fees and how law firms can stay on the right side of the law when it comes to paying them.

First, it’s important to understand that referral fees are generally illegal in the US. The American Bar Association (ABA) has strict rules against the payment of referral fees, and most states have similar laws. The ABA’s Model Rules of Professional Conduct states that lawyers should not “give anything of value to a person for recommending the lawyer’s services.” This includes both direct payments and indirect payments, such as discounts or other benefits.

However, there are some exceptions to this rule. For example, in some states, referral fees are allowed if they are paid to a lawyer or law firm that is not engaged in the practice of law. This means that a law firm can pay a referral fee to a non-lawyer who helps them find new clients, as long as the fee is not used to influence the recommendation of the lawyer’s services.

In addition, some states allow lawyers to pay referral fees to other lawyers in certain circumstances. For example, in California, lawyers can pay referral fees to another lawyer if the fee is based on a percentage of the legal fees earned by the referring lawyer. This is known as a “fee-sharing agreement,” and it must be in writing and approved by both lawyers.

Finally, it’s important to note that referral fees are not allowed in all states. For example, in New York, it is illegal for lawyers to pay referral fees to anyone, including other lawyers.

Referral fees can be a useful way for law firms to generate new business, but it’s important to understand the legalities of paying them. Law firms should be aware of the laws in their state and make sure they comply with them before engaging in any referral fee arrangements. Doing so can help ensure that the firm stays on the right side of the law and avoids any potential legal issues.