Attorneys who refer cases to other attorneys may accept fees from the referred attorney. Usually those fees are in the form of a portion of the attorney's fee, and do not affect the client's award. The question is whether the fee sharing system actually helps clients, as it is intended to do.
What is the point of attorney referral fees?
An attorney who refers a case to another attorney may ask for, and may receive, a part of that atotrney's fee. The purpose of the attorney referral fee is to ensure that attorneys make thoughtful referrals to competent colleagues. In practice, the referral fee system can result in a great deal of unearned income for the referring attorney. Not surprisingly, there are "law firms" that have been established solely for the purpose of accruing referral fee income.
How are attorney referral fees calculated and paid?
The most common referral fee is based on a portion of a contingency fee recovery. In other words, if the referred attorney does not succeed, the referring attorney also does not recover. Less commonly, an attorney may share an hourly rate or flat fee with a referring attorney.
How does a referral fee affect the client?
In theory, a referral fee does not affect the client. The referral fee comes solely from the attorney's part of the award. The client remains with the same recovery he or she would have had without the referral fee.
How do referral fees work in the real world?
All states regulate attorney referral fees. Some states do not allow them at all. Most states do, but require the referring attorney to have some ongoing stake in the case. In Illinois, the referral fee was at one time required to be proportional to the referring attorney's effort. That proved to be virtually unenforceable and impracticable. The rule now is that the referring attorney must remain financially responsible for the case. Clients must be informed of and consent to referral fees, for the most part. For the most part, clients consent to these fee shares because they do not appear to affect the client's share of the recovery.
On balance, do referral fees hurt or help the client?
The biggest downside to the client is that it may be harder to find an attorney willing to take the case, if that attorney has to share the fee. In theory, higher quality attorneys may be out of the running, because they will not accept a reduced fee. A client would, then, be better off finding the referred attorney for him or herself. That is, after all, the whole point of Avvo and similar directories. Clients are now supposed to be in a better position to find the best attorneys, without a referring attorney middleman. At some point in the future, this may prove to be as true in practice as it is in theory. For now, though, on balance the referral fee system works well for the client and the consuming public. Until there is a better allocation of information than exists today, even with internet resources and client reviews, the "insider information" inherent in referral fees works to the client's benefit.