Learning Outcomes
After reading this article, you will be able to identify when referral arrangements between lawyers and nonlawyers are permitted, distinguish between proper and improper payments for referrals, and explain the requirements for reciprocal referral agreements. You will also be able to apply these principles to MPRE-style questions and recognize common pitfalls related to referrals.
MPRE Syllabus
For the MPRE, you are required to understand the ethical rules governing referrals in legal practice. This includes knowing when lawyers may enter into referral agreements, the limits on payments for recommendations, and the disclosure obligations to clients. You should be prepared to:
- Distinguish between permissible and impermissible payments for recommending a lawyer’s services.
- Identify the requirements for lawful reciprocal referral agreements with lawyers and nonlawyer professionals.
- Recognize the need for client disclosure regarding referral arrangements.
- Apply the rules on referrals to scenarios involving both lawyers and nonlawyers.
- Understand the prohibition on exclusive or indefinite referral agreements.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which of the following is generally prohibited under the Model Rules?
- Paying for a television advertisement
- Entering a reciprocal referral agreement with a nonlawyer professional, with client disclosure
- Giving a restaurant owner free legal advice in exchange for client referrals
- Paying the usual charges of a qualified lawyer referral service
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A lawyer and an accountant agree to refer clients to each other. Which of the following is required for the agreement to comply with the Model Rules?
- The agreement must be exclusive
- The client must be informed of the existence and nature of the agreement
- The lawyer must pay the accountant for each referral
- The agreement must last indefinitely
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Which statement about payment for referrals is correct?
- A lawyer may pay anyone for recommending the lawyer’s services
- A lawyer may pay the usual charges of a not-for-profit lawyer referral service
- A lawyer may pay a nonlawyer for each client referred
- A lawyer may pay a client for recommending the lawyer’s services
Introduction
Referrals are a common way for lawyers to obtain new clients, but strict rules govern how lawyers may enter into referral arrangements and what compensation, if any, may be given for recommendations. The Model Rules of Professional Conduct prohibit most payments for referrals but allow certain limited arrangements, provided specific requirements are met. Understanding these distinctions is essential for avoiding discipline and for MPRE success.
Key Term: Referral
A recommendation or direction by one person (lawyer or nonlawyer) to a potential client to use a particular lawyer’s services.
Payments for Referrals: General Prohibition
Lawyers are generally not permitted to give anything of value to a person for recommending the lawyer’s services. This rule is designed to prevent improper influence and protect clients from being steered to lawyers for the benefit of the referrer rather than the client’s needs.
Key Term: Payment for Recommendation
Any compensation, gift, or benefit given to a person in exchange for recommending a lawyer’s services, which is generally prohibited except for specific exceptions.
Permitted Exceptions
There are a few important exceptions to the general prohibition:
- Advertising Costs: Lawyers may pay the reasonable costs of permitted advertisements, such as print, online, or broadcast ads.
- Legal Service Plans and Qualified Referral Services: Lawyers may pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service.
- Sale of Law Practice: Payment for the purchase of a law practice is permitted.
- Compensation to Employees and Agents: Lawyers may compensate employees, agents, and vendors for marketing or client development services, as long as these do not involve improper recommendations.
Reciprocal Referral Agreements
Lawyers may enter into reciprocal referral agreements with other lawyers or nonlawyer professionals (such as accountants or real estate agents), but only if strict conditions are met:
- The agreement must not be exclusive.
- The client must be informed of the existence and nature of the agreement.
- The agreement must not interfere with the lawyer’s independent professional judgment.
- The agreement should not be indefinite and must be reviewed periodically.
Key Term: Reciprocal Referral Agreement
A non-exclusive arrangement between a lawyer and another professional to refer clients to each other, subject to client disclosure and other restrictions.
Disclosure to Clients
Whenever a lawyer refers a client under a reciprocal referral agreement, the client must be informed of both the existence and the nature of the agreement. This allows the client to make an informed decision and prevents any appearance of impropriety.
Prohibited Referral Practices
- Exclusive Agreements: Referral agreements that prohibit either party from referring clients elsewhere are not allowed.
- Indefinite Duration: Agreements should be reviewed regularly and not last indefinitely.
- Payment for Individual Referrals: Lawyers may not pay nonlawyers or other professionals for each client referred, except as allowed for qualified referral services.
Worked Example 1.1
A lawyer and a financial planner agree to refer clients to each other. The agreement is not exclusive, and both professionals inform clients when a referral is made. The lawyer pays the financial planner $100 for each client referred. Is this arrangement proper?
Answer:
No. While a non-exclusive reciprocal referral agreement with client disclosure is permitted, paying the financial planner for each referral is not allowed. The Model Rules prohibit giving anything of value for recommending the lawyer’s services, except for the usual charges of a qualified referral service.
Worked Example 1.2
A lawyer enters into a written agreement with a local accountant to refer clients to each other. The agreement is exclusive and does not mention informing clients. Is this arrangement permitted?
Answer:
No. The agreement is improper because it is exclusive and fails to require disclosure to clients. Reciprocal referral agreements must not be exclusive, and clients must be informed of the existence and nature of the arrangement.
Exam Warning
Be careful: Even if a referral agreement is allowed, any payment for individual referrals (outside of permitted exceptions) is prohibited. The most common MPRE trap is confusing payment for advertising or a qualified referral service (permitted) with payment for recommendations by individuals (prohibited).
Revision Tip
Always check if the referral arrangement is exclusive or indefinite—either flaw makes the agreement improper, even if no money changes hands.
Key Point Checklist
This article has covered the following key knowledge points:
- Lawyers may not pay for recommendations except for specific exceptions (e.g., advertising, qualified referral services).
- Reciprocal referral agreements are allowed only if not exclusive, clients are informed, and professional judgment is not compromised.
- Payment for individual referrals is generally prohibited.
- Referral agreements must be reviewed periodically and not last indefinitely.
- Disclosure to clients is required whenever a referral is made under an agreement.
Key Terms and Concepts
- Referral
- Payment for Recommendation
- Reciprocal Referral Agreement