Thinking about a referral fee? Think “fee sharing” instead.

Every now and then lawyers make comments that remind me that there are common misconceptions about some of the Vermont Rules of Professional Conduct.  In turn, the reminders remind me to send out reminders. 

Here’s a reminder on referral fees: as I read Vermont’s rules, straight referral fees are prohibited.

First, V.R.Pr.C. 7.2(b) prohibits a lawyer from “giving anything of value to a person for recommending the lawyer’s services.”  While paragraph (b)(4) authorizes lawyers to make referrals and enter into reciprocal referral arrangements, Comment [8] states that:

  • “[e]xcept as provided in Rule 1.5(e), a lawyer who receives referrals from a lawyer or nonlawyer must not pay anything solely for the referral . . .” (emphasis added).

That’s not necessarily the end.

V.R.Pr.C. 1.5(e) authorizes lawyers who are not in the same firm to share fees if certain requirements are met.  Two requirements are simple:

  • The overall fee must be reasonable; and,
  • The client must agree in writing to the division of the fee.

The final requirement is a bit trickier, but not too difficult.  Fee sharing is only allowed:

  • in proportion to the services that each lawyer performs, OR,
  • each lawyer assumes joint responsibility for the representation.

With respect to the latter, here’s Comment [7] is instructive and includes this statement:

  • “Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”

In April 2016, the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 474.  The opinion reaches the same conclusion about the Model Rule as I have about Vermont’s and also endeavors to shed some light on “joint responsibility for the representation.”  The ABA Journal summarized Formal Opinion 474 here.

Finally, Comment [8] clarifies that the rule “does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm.”

As always, let’s be careful out there.

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