Let’s talk about the mandatory referral fee checklist prescribed by the Law Society of Ontario. Since the LSO’s rules about limits on referral fees have been around since 2017, most licensees already know that certain maximum limits apply to the amount of money that can be paid or received as a referral fee. That being said, as you can imagine, there is so much more to referral fee compliance than simply staying within these limits. That’s why we created something called Referral Fee Matter pages, or RFMs for short.
When you open a new RFM, you are given all of the tools needed to comply with the regulatory framework that governs referral fees between licensees in Ontario. In this article, we’ll focus on the referral fee checklist aspect of RFMs.
According to the LSO’s website, the checklist provides lawyers and paralegals with a framework for complying with the referral fee requirements. It applies to referrals made on or after April twenty eight, twenty seventeen, and to referrals made before or on April twenty seventh, twenty seventeen where there was no enforceable agreement for the payment of a referral fee as of that date.
The checklist does not apply to the payment of a referral fee pursuant to an enforceable agreement to pay and receive a referral fee that was entered into before or on April twenty seventh, twenty seventeen.
For information about the requirements that apply in such cases, licensees should consult the Rules of Professional Conduct, and the Paralegal Rules of Conduct. We know you didn’t come here to listen to us cite a bunch of sections and sub sections, so we’ll just say that the exact references can be found on the LSO’s website.
Importantly, however, on February twenty eight, twenty nineteen, Convocation created rules relating to “Civil Society Organizations”, or CSOs for short. As a result of these amendments, licensees providing legal services to clients through CSOs, for example, charities or not-for-profit organizations, are prohibited from accepting or paying a referral fee. Again, the relevant sections can be found in the Rules of Professional Conduct, the Paralegal Rules, and By-Law 9.
Now let’s turn our attention to how TrustReq can help you comply with the requirement to use the standardized checklist.
To begin, make sure you’ve already created the relevant RFM. As we mentioned earlier, each RFM is the place where your referral fee compliance data will live, on a matter by matter basis. Consequently, when you’re filling out your referral fee checklist, you’ll be doing so within the confines of a particular referral fee matter. If that’s still not entirely clear, it will become more clear as you work through this tutorial.
Starting from your TrustReq dashboard, click on “Referral Fees” on the left hand sidebar. Then, find the relevant RFM in the table that appears. If the RFM doesn’t yet exist, then click on the green “Create Referral Fee Matter” button, and fill out the popup that appears.
Once you’ve created or located the relevant RFM, click on “Details” on the far right hand column.
On the following page, you’ll see a sidebar with your various referral fee compliance topics, such as the mandatory checklist, the standard referral fee agreement, and transaction logging.
For the purposes of this tutorial, click on “Referral Fee Checklist”.
You will now see an interactive, cloud based version of the LSO’s checklist. Since your checklist exists in your TrustReq portal, you’ll enjoy the convenience of being able to fill out portions of it, and then return later, as you proceed along the referral journey. You’ll also enjoy the convenience of team collaboration, which means that your support staff and co-workers can assist you in monitoring and filling out the checklist. This approach will keep you far more organized compared to just keeping a PDF saved somewhere on your computer.
And, as we’ve mentioned in other articles, you can invite LSO auditors to view your TrustReq data, which means that you won’t have to go searching for a printed or PDF checklist to show your auditor.
If you aren’t entirely familiar with the anatomy of the LSO’s standard checklist, we’ll walk you through that now. Although the document mostly speaks for itself, this part of the tutorial will serve as a useful guide for articling students, new lawyers, or lawyers who haven’t had a need to use the checklist before.
You’ll notice that your online checklist closely mirrors the content, style and formatting of the LSO’s PDF checklist. Consequently, you can start by identifying the licensee referring the client, the licensee receiving the client, and the client, just as you normally would.
The checklist contains 6 parts, each containing one or more questions that must be considered. The sections are:
- Prior to making the referral;
- At the time of the referral;
- At the time of the referral or as soon as practicable after the referral;
- When the referral fee is paid or becomes payable (only for the licensee receiving the referral);
- Following the referral and the retention period set in By-law 9;
- And a blank “notes” section where the licensee can make additional comments. We’ll talk about what the LSO recommends about the “notes” section later.
Prior to making the referral
Starting with the first part, turn your attention to the question, “Can I make this referral?”. For the purposes of this question, you are permitted to make the referral if all of the following conditions are met:
The person making the referral and the person receiving the referral are lawyers or paralegals as defined by the Rules of Professional Conduct and Paralegal Rules of Conduct.
The licensee receiving the referral has the expertise and ability to handle the matter. The referral was not made because the referring licensee had a conflict of interest and, as a result, was not permitted to act in the matter.
The referral was not made because the referring licensee’s license was suspended when the referral was made and the referring licensee was not permitted to act in the matter.
The licensee making or receiving the referral fee is not providing legal services through a civil society organization, as that term is defined under the Rules and Paralegal Rules.
At least two licensees have been recommended to the client. If not, then disclosure has been made of the reason or reasons that it has not been reasonably possible to do so.
After completion of this question, you’ll see a space for the responsible licensee to sign and date that this part has been completed. You’ll notice such spaces multiple times throughout the checklist.
Moving onto the second question in part 1, you’ll need to consider the question, “Does the amount that I will be charging as a referral fee comply with the Rules or Paralegal Rules?”
The answer is “Yes” if three conditions are met:
First, the amount of the referral fee does not exceed fifteen percent of the legal fees paid for the first fifty thousand dollars of fees for the matter, and five percent of the remaining balance of fees for the matter, to a maximum referral fee of twenty five thousand dollars.
Second, the referral fee is fair and reasonable and does not increase the total amount of the fee payable by the client.
And, third, no referral fee will be paid or payable until the licensee receiving the referral is paid by the referred client for the legal services provided.
Again, after completion of this question, you’ll see a space for the responsible licensee to sign and date that this part has been completed.
At the time of the referral
Next, let’s move on to part 2, entitled, “at the time of the referral”. This part contains one question, and it is “Have I made the required disclosures to the client?”
This question has 8 conditions, which are divided into 2 components. The first component requires you to explain the following five things to the client:
- The client has no obligation to accept the referral.
- The client is free to retain a licensee other than the licensee receiving the referral, and the reasons that the specific licensee receiving the referral was recommended to the client.
- The relationship between the referring licensee and the licensee receiving the referral, if any.
- The circumstances in which the fee is payable.
- The amount of the referral fee, including the basis on which the amount of the referral fee is calculated.
If you’ve read our article about how to prepare a Referral Fee Agreement, you’ll notice that much of this information is also contained in the agreement. Consequently, if the client has received an explanation from you, and the client has had a chance to read through a properly drafted referral fee agreement, it is likely that you’ll be found to have complied with your obligations regarding this information.
The second component to this question has three conditions. You’ll be able to answer “Yes”, if you did the following three things:
First, you gave the client or ensured that the client has been provided with the document known as the “Law Society’s Requirements for Referral Fees”. To help you stay compliant, TrustReq automatically includes this document in all generated referral fee agreements.
Second, you referred the client to at least two licensees, or provided the reasons why the referral to two licensees was not possible given the circumstances.
And, third, you confirmed that the client had a reasonable opportunity to review and consider the Law Society’s Requirements for Referral Fees.
If all of the previously mentioned 8 conditions have been complied with, then you can check off the boxes in this part, sign off on it, and move on to part 3.
At the time of the referral or as soon as practicable after the referral
This next part has to do with “at the time of the Referral or as soon as practicable after the Referral”.
This part has one question, and it is “Have I administered the Referral Fee Agreement in accordance with the lawyers’ Rules or Paralegal Rules?”
You can answer “Yes” if you have complied with the following five conditions:
First, you completed the Law Society of Ontario’s Referral Fee Agreement.
Second, you reviewed the Referral Fee Agreement with the client, discussing the particulars added for each of the disclosure requirements.
Third, you provided the client with a reasonable opportunity to review and consider the Referral Fee Agreement. You also signed the Referral Fee Agreement and had the client and the other licensee sign.
Fourth, you considered requesting that the client initial the Law Society’s Requirements for Referral Fees to confirm that the client has received and reviewed it.
And, fifth, you ensured that each party to the Referral Fee Agreement has a fully signed copy of the Referral Fee Agreement, including the Law Society’s Requirements for Referral Fees, for their records.
Again, after completion of this question, you’ll see a space for the responsible licensee to sign and date that this part has been completed.
When the referral fee is paid or becomes payable.
The next part is only for the licensee receiving the referral, and it has to do with “When the Referral Fee is paid or becomes payable”.
The relevant question at this part is, “Have I complied with the billing requirement regarding the referral fee?”
You may answer “Yes”, if the following two conditions have been met:
First, you noted the referral fee on the account sent to the client.
Second, you obtained the client’s acknowledgment of the referral fee. If not, you confirmed in writing to the client that the client has been asked to provide an acknowledgement but has declined to do so.
Following the referral and the retention period set in By-law 9
The next part is about “following the Referral and for the retention period set in By-Law 9”
The question at this part is, “Have I complied with the record keeping obligations with respect to the referral fee?”
Again, there are 8 conditions divided into two components. The first 6 conditions require you to confirm that, in addition to the records required under Section 18 of By-Law 9, you have created and maintained a record showing the following:
- The referral fees received or paid;
- The date on which the referral fee is received or paid;
- The method by which the referral is received or paid;
- The amount of the referral fee;
- The licensee from whom each referral fee is received or to whom it is paid;
- The client in connection to whom each referral fee is received or paid.
The last two conditions, contained in the second component, require you to confirm that you have also retained:
- A fully signed copy of the Referral Fee Agreement;
- All other documents related to the referral fee transaction.
Notes
Now, we finally arrive at the “Notes” part that we mentioned earlier in this article.
According to the LSO, you should consider making notes at the end of the checklist. They state that you may wish to include notes about the following:
- How you concluded payment or receipt of a referral fee was permissible;
- How the referral fee will be calculated;
- Who provided the required information to the client and how;
- The date upon which the referral was made;
- When the Referral Agreement was signed;
- Or, the steps taken to meet the record keeping obligations.
If you choose to leave notes in this checklist, you can write them directly into the space provided, and then click the “Save notes” button. You’ll notice that this button is just for your additional notes, since the checkboxes that you were checking off in the previous parts automatically updated your checklist without the need for pressing “Save”.
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