Referral fees are commonplace in the legal profession where an attorney who refers a client to another practitioner will receive a “fee” at the conclusion of the matter for the case referral. While the practice is beneficial for both attorneys and clients, it is subject to compliance with explicit ethical rules designed, in part, to ensure competent representation and transparency. Under this mechanism, whether the payment of a referral fee is permissible will frequently hinge on the ethical rules of a given jurisdiction. This article discusses legal and ethical considerations for paying and receiving a fee as well as recent developments regarding the payment of referral fees to out-of-state attorneys without regard to any legal work performed.
Understanding Referral Fees
A referral fee generally takes the form of a percentage of the total fees collected at the conclusion of a referred matter. Subject to jurisdictional specifics, the fee may be earned by the referring attorney without performing legal services. In that instance, it is compensation for directing the client to another practitioner. There are a variety of reasons for referring a case to another attorney, including, without limitation:
- Jurisdictional limitations
- Lack of expertise in legal area or subject matter
- Caseload management
- Positional conflicts
For example, an employment law practitioner may refer a client with a medical malpractice case to a lawyer that is specialized in that particular field. The referring attorney would then be entitled to receive a “fee” at the end of the matter in return for the case referral.
Legal and Ethical Considerations
ABA Model Rule 1.5(e) sets forth the requirement for the sharing of fees, including the permissibility of paying a referral fee to another attorney. As a comment to the Rule explains, lawyers may “divide a fee either on the basis of the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole.” Comment [7] to ABA Model Rule 1.5. In addition, “the client must agree to the arrangement, including the share that each lawyer is to receive, and the agreement must be confirmed in writing.” Id. Attorneys are cautioned that they “should only refer a matter to a lawyer whom the referring lawyer reasonably believes is competent to handle the matter.” Id.
A majority of states have adopted a form of Rule 1.5(e) that is in accord with “the modern trend [that] permits a lawyer to receive a portion of the fees generated by a matter solely in consideration for a referral if the lawyer assumes joint responsibility.” N.Y. Cnty. Ethics Op. 715 (1996). While a referring attorney may not be required to perform any legal services in order to receive a referral fee, the meaning of “joint responsibility” in the context of Rule 1.5(e) varies depending on the jurisdiction. See, e.g., Ariz. Ethics Op. 04-02 (2004)(determining that “joint responsibility” is satisfied if referring attorney assumes financial responsibility for any malpractice during course of the representation, and need not have substantive involvement in the case); N.Y. State Ethics Op. 745 (2001)(“Joint responsibility” cannot be assumed by attorney who is otherwise disqualified due to conflict of interest, and attorney may not receive referral fee); Evans & Luptak, PLC v. Lizza, 650 N.W.2d 364 (Mich. Ct. App. 2002)(finding an agreement was unenforceable where it purported to allow a law firm to receive payment for referring a client with which it had a conflict of interest)).
Unlike most other jurisdictions, however, New Jersey also permits the payment of a referral fee to another lawyer when the recommended attorney is certified under N.J. Ct. R. 1:39-6(d). New Jersey’s attorney certification program requires attorneys seeking certification to pass a rigorous written exam and to demonstrate significant trial experience. The rules attendant to this program permit attorneys to receive referral fees without reference to any work performed or responsibility assumed if the matter is referred to a certified attorney. Where a referral fee is allowed under N.J. Ct. R. 1:39-6(d), the total fee charged to the client must relate only to the matter referred and cannot exceed reasonable compensation for the legal services rendered. Under a referral fee arrangement, the client must also be made aware of and consent to the division of fees.
Referral Fees and Out-of-State Attorneys
On March 7, 2024, the New Jersey Advisory Committee on Professional Ethics (“ACPE”) issued Opinion 745 in response to inquiries received by the attorney ethics research hotline “about out-of-state lawyers seeking payment of referral fees from New Jersey certified attorneys.” The ACPE determined in Opinion 745 that certified attorneys are not permitted to pay referral fees to out-of-state referring attorneys under N.J. Ct. R. 1:39-6(d) unless the latter “is licensed and eligible to practice law in New Jersey.” Opinion 745 rested on the principle that referral fees are a division of the legal fee, paid for legal services rendered. See id.
The New Jersey State Bar Association (“NJSBA”), joined by other state bar associations and interested entities, filed a petition for review and requested that the Court stay enforcement of Opinion 745, which request was granted. The authors of this article submitted a supporting brief on behalf of the NJSBA, contending, in part, that Opinion 745 misinterpreted the plain language of N.J. Ct. R. 1:39-6(d) and conflated the payment of a referral fee under that Rule with the division of a legal fee under RPC 1.5(e). In an unanimous opinion issued on February 18, 2025, the New Jersey Supreme Court held that certified attorneys could properly pay referral fees to out-of-state lawyers not licensed in New Jersey, that the payment of referral fees does not raise concerns about the unauthorized practice of law, and vacated Opinion 745 which reached the opposite conclusion. See In re Opinion No. 745 of the Sup. Ct. Advisory Comm. on Pro. Ethics, 2025 N.J. LEXIS 142, 2025 WL 517809 (N.J. 2025). The Court found that N.J. Ct. R. 1:39-6(d) directly authorizes certified attorneys to pay referral fees including to out-of-state lawyers, that those fees are not for legal services but are for recommendations to retain a particular lawyer, and that the plain language of the Rule makes that clear. Id.
Jurisdictions other than New Jersey have addressed similar issues about the payment of referral fees to out-of-state attorneys. See, e.g., Ill. State Bar Ass’n Pro. Conduct, Advisory Op. No. 21-04 (2021) (agreement to pay a referral fee to out-of-state attorney is permitted under the rules); Phila. Bar Ass’n, Op. No. 93- 15 (1993)(payment of referral fee to out-of-state attorney is permissible provided the lawyers comply with Pa. RPC 1.5(e)). A Michigan ethics opinion provides that an attorney may pay an out-of-state law firm a referral fee for a divorce case to be litigated in Michigan “so long as the terms of the referral fee comply with the ethics rules of both jurisdictions.” Mich. State Bar Comm. on Pro. & Jud. Ethics, Op. RI-199 (1994). In Opinion RI-199, the State Bar of Michigan determined that among the goals of RPC 1.5(e) is to facilitate the retention of competent counsel to assist clients in the state where the particular case is litigated or handled. Id. The general rule in allowing for out-of-state referrals and the payment of a corresponding referral fee furthers that goal.
The Bottom Line
The ability to pay and receive a referral fee serves laudable and pragmatic goals in furtherance of the legal profession. Practitioners must be keenly aware of their state-specific RPCs and ethics opinions to avoid potential violations and corresponding discipline. Due to the evolving landscape surrounding referral fees and its attendant concerns, attorneys should consult experienced ethics counsel to ensure proper compliance and to avoid future issues.
Reprinted with permission from the March 13, 2025 edition of The Legal Intelligencer © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.