It is an everyday occurrence. Attorneys refer cases to one another and then collect the fees for those same referrals. Client referrals and the income generated from fee splitting agreements are not only an important revenue stream, but also serve to assist those clients in need of quality legal representation when the attorneys are unable to take on all prospects themselves as a result of availability, retirement, or differing practice areas. However, these fees are not simply easy and risk-free money; there are strict requirements that the referring attorney must satisfy in order to collect the referral fee, and proactive risk management pertaining to fee splitting agreements is critical. The failure to meet these requirements may result in an ethical violation, may cause the loss of the fee, and may result in vicarious liability being placed upon the referring attorney for the misdeeds or negligence of the working attorney ultimately involving the referring attorney in a legal malpractice matter or disciplinary proceeding.
Referral fees and fee sharing agreements play an important role. They incentivize lawyers to seek out or partner with other lawyers to ensure that clients obtain competent representation. They make good business sense in that an attorney cannot and should not try to handle every case that walks through the door. The attorney may have more work than she can handle at this time, the matter may be beyond the attorney’s current skill level or expertise, or perhaps the matter requires upfront costs that the attorney may not be in the financial position to bear on behalf of the client. Declining business is never easy, and the temptation to take on that representation can be difficult to resist. However, doing so may precipitate both disciplinary and legal malpractice problems. In order to derive income from the client matter, referral of the matter to another counsel and entering into a fee splitting agreement generally represents an acceptable approach. Here are some examples of situations when a fee splitting between attorneys may appear.