How to protect your referral fee when you refer cases to other attorneys


I heard from a PI lawyer who had referred a case to another lawyer and was supposed to get one-third of the fee. When the case settled, the referring lawyer heard about it not from the lawyer who settled the case but from a friend of the plaintiff.

Not good.

Even worse, the plaintiff had another accident 4 months later. The same firm handled that case, which settled for $200,000, and they never told the referring attorney about it.

When he finally spoke with someone at the firm about the second case, the referring attorney was told that they don’t pay referral fees on “second generation cases/referrals”.

He asked if I think he’s entitled to a referral fee on the second case.

My take? In equity, maybe. In law, probably not. In the world of commerce, where screwing your referral sources is a great way to kill referrals (and your reputation), I think they should take care of you.

But they’re PI attorneys so I won’t hold my breath.

The bigger question is what to do to protect your referral fee in the future.

Two things. First, you need to have a written agreement that specifies what you get, not only on the original referral but on subsequent cases with the same client. Get this signed before you make the referral.

To be enforceable, it probably has to have reasonable limits (like a non-compete agreement), something like subsequent claims within two years of the original injury. (I’d also ask for a fee on any referrals from that client during the same period.) Ask around, find out the standard in your community. And be prepared to negotiate.

Second, your agreement should specify that you have a lien interest in these cases, and you should so notify the insurance carrier and/or opposing counsel on the first case. That way, when the case settles, your name will be on the check and they have to come to you to get your endorsement.

Your agreement can also specify a lien interest (and attorneys fees if not paid) on subsequent cases, but if you don’t know about those, it’s not as easy to protect your referral fee because you have nobody to notify of that interest until after the fact. Still, better than nothing.

And without an agreement, nothing is what you’ve got.

Hey, I’ve been there. I’ve referred cases to other lawyers and was screwed out of a fee when they settled. You live and learn.

My last piece of advice? Stay in touch with the client. Because you want him to tell you when he has another case, or he has a referral.

Be his “personal attorney” for life. His advisor. The conduit of all of his legal matters.

Think “clients, not cases”. And think about the referral as, “bringing in another lawyer,” not “referring out” to another lawyer.

I’d love to hear how other lawyers handle this subject. Please post in the comments.

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What if paying referral fees to non-lawyers was legal and ethical?


Okay, time to put on your thinking cap and take a stroll with me down imagination boulevard.

We know that paying referral fees to non-lawyers is illegal and unethical for most lawyers. Some lawyers flout the rules and pay referral fees under the table. Others, if they were honest, would admit that while they never have paid referral fees, they have been tempted to do so. At some point in our careers, I think most lawyers have at least wondered why the rules are the way they are.

Rather than debate that hot potato, I’d like to ask you to think about what it would be like if the rules were changed. How would your practice be different if it was legal and ethical to offer referral fees to non-lawyers?

For the moment, forget about whether or not you would offer referral fees yourself, think about what might happen if you did.

When you meet someone new at a networking event, for example, instead of courting them and building a relationship, hoping that one day they might send you some business, you could simply tell them what you do and what percentage of your fees you are willing to pay for a referral.

Do you think you would get more referrals?

Ya think?

Your contacts would have dollar signs dancing in their brains. They’d start promoting you to their clients and customers, friends and family. They’d beat the bushes looking for potential clients, wouldn’t they? They’d refer everyone to you, not to other lawyers who don’t offer a referral fee, or who offer significantly less.

You could quickly build an army of referral sources, people not just willing to send you business but actively looking to do so.

You’d be signing up new clients every day of the week. You’d have more business than you could handle. What will you do with all that money. . .?

Okay, snap out of it. This isn’t going to happen. Not in our lifetime, anyway. And we don’t want it to happen, do we? Okay, maybe we do, maybe we don’t, but it’s won’t, so forget about it.

Let’s sit down, catch our breath, have a cup of coffee, and consider what we’ve learned.

We’ve learned that people who have the ability to make referrals to us often don’t, and that most people who have referred business in the past could probably refer more.

Where does that leave us? Back at square one. Building relationships, practicing the golden rule, serving our clients and professional contacts. In other words, doing the things we’ve learned about marketing and building a practice.

Your clients and contacts can and will send you lots of business. They will beat the bushes for you and promote you to everyone they know, and they will do this without a financial incentive. Smother them will love and attention, give them more value than they expect, stay in touch with them, and give it time.

Offering cash would be quicker, it’s true. But doing things the old fashioned way works just fine.

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