4.2 Fair Fees, Contingency, Referral Fees & Fee Splitting
Key Takeaways
- A fee must be fair, reasonable, and disclosed in a timely fashion; Rule 5.01(2) lists eight factors used to judge reasonableness, including time spent, complexity, and results obtained
- Contingency fees are permitted for most paralegal matters but prohibited in family law and in Criminal Code or other criminal or quasi-criminal matters
- Paralegals must not share or split fees with any non-licensee, or reward a non-licensee for referring clients; the only exception is a multi-discipline practice with a partnership agreement
- A referral fee between a paralegal and another paralegal or lawyer is capped at 15% of the first $50,000 of fees earned plus 5% of additional fees, to a maximum of $25,000
- A referral fee must never increase the client's total cost, must be documented in a written referral agreement, and must be disclosed to and acknowledged by the client
Why Fee Rules Matter on the P1 Exam
Fee disputes and improper payments for referrals are among the most common complaints the Law Society receives about paralegals, which is why Rule 5 (Fees and Retainers) of the Paralegal Rules of Conduct is tested heavily on the P1 exam. This section covers what makes a fee fair and reasonable, the special rules for contingency fees, the prohibition on fee splitting with non-licensees, and the narrow conditions under which a referral fee between licensees is permitted.
The Fair and Reasonable Fee Standard
Rule 5.01(1) provides that a paralegal shall not charge or accept any amount for a fee or disbursement unless it is fair and reasonable and has been disclosed in a timely fashion. Rule 5.01(2) sets out the factors used to judge whether a fee meets that standard:
| Factor | What it captures |
|---|---|
| Time and effort required and spent | Actual work performed, supported by dockets |
| Difficulty and importance of the matter to the client | Complexity and stakes involved |
| Special skill or service required and provided | Expertise brought to the matter |
| Amount involved or value of the subject matter | Size of the claim or transaction |
| Results obtained | Outcome achieved for the client |
| Fees authorized by statute or regulation | Tariffs or set fee schedules that apply |
| Special circumstances (loss of other retainers, postponed payment, uncertainty of reward, urgency) | Opportunity cost and risk to the paralegal |
| Likelihood the retainer will prevent accepting other work, if disclosed to the client | Exclusivity cost communicated up front |
A paralegal should give the client, in writing, as much information about fees and disbursements as is reasonable in the circumstances — including the basis for calculating fees — before or shortly after starting the work, and should confirm in writing any later fee discussions.
Contingency Fees
A contingency fee ties some or all of the paralegal's compensation to the successful outcome of the matter. Contingency fees are permitted for most paralegal work but prohibited in family law matters and in Criminal Code or other criminal or quasi-criminal matters. Where permitted, contingency fees are governed by the Solicitors Act and its regulation, O. Reg. 836/21.
Formation and Disclosure Requirements
- Paralegals must generally use the Law Society's Standard Form Contingency Fee Agreement.
- Before signing, the client must be given the Law Society's consumer guide, "Contingency fees: What you need to know," and a reasonable opportunity to review it.
- In setting the percentage or rate, the paralegal must consider the likelihood of success, the nature and complexity of the claim, the expense and risk of pursuing it, the amount of expected recovery, and who is to receive any award of costs — and must advise the client of these factors.
Billing on a Contingency Fee
When billing a contingency fee, the bill delivered to the client must:
- Clearly show the total settlement or award and the net amount the client receives
- Clearly itemize disbursements, legal fees, and taxes charged
- Explain the reasonableness of the fee with reference to: time expended, legal complexity, results achieved, and risk assumed (including the risk of non-payment)
- State the client's right to apply to the Superior Court of Justice for an assessment of the bill under section 28.1 of the Solicitors Act, and the deadline for doing so
Dividing Fees Between Clients
If a paralegal acts for two or more clients in the same matter, fees and disbursements must be divided equitably between them, unless the clients have agreed otherwise.
Fee Splitting: The Core Prohibition
A paralegal must not:
- Directly or indirectly share, split, or divide fees with any person who is not a paralegal or lawyer, including an affiliated entity, or
- Give any financial or other reward to a non-licensee for referring clients or client matters
This prohibition exists to keep referrals based on competence and client interest, not payment. The one recognized exception is a multi-discipline practice where paralegal and non-licensee partners share fees, cash flow, or profits under a partnership agreement.
Referral Fees Between Licensees
Unlike fee splitting with non-licensees, a paralegal may pay or accept a referral fee to or from another paralegal or lawyer, but only if strict conditions are met:
| Requirement | Detail |
|---|---|
| Fair and reasonable | The referral fee must not increase the total fee the client pays |
| Written agreement | A referral agreement must be made at the time of referral or as soon as practicable after |
| Client disclosure | The client must be told about the Law Society's requirements for referral fees and given a chance to review that information |
| Multiple recommendations | The referring licensee must confirm at least two paralegals or lawyers were recommended, or explain why that was not reasonably possible |
| Contingent on payment | No referral fee is paid or payable unless and until the receiving licensee is paid for the matter |
| Fee cap | Referral fee is capped at 15% of the first $50,000 of fees earned on the matter, plus 5% of any additional fees, to a maximum of $25,000 |
| Client acknowledgment | The receiving licensee must note the referral fee on the client's account and obtain the client's acknowledgment (or confirm in writing that the client was asked and declined) |
A referral fee is not permitted where the referring or receiving licensee provides legal services through a civil society organization. Relatedly, a paralegal providing services through a civil society organization must not charge a fee to the person receiving the benefit of those services, though proper disbursements may still be charged.
Exam Traps to Watch For
- Paying a "referral" to a real estate agent, insurance broker, or any other non-licensee for sending clients is fee splitting, not a permitted referral fee — the referral-fee rules apply only between paralegals and lawyers.
- A referral fee that raises the client's total bill fails the "fair and reasonable" test even if both licensees agree to it.
- Contingency fees remain barred in family law and criminal/quasi-criminal matters regardless of how the parties want to structure payment.
A client's Small Claims Court matter is not a family law, criminal, or quasi-criminal matter. Can the paralegal charge a contingency fee?
A paralegal regularly pays a local insurance broker a percentage of fees earned for every client the broker sends to the paralegal's practice. Is this permitted?
Two paralegals agree to a referral fee arrangement. What is the maximum referral fee permitted on $80,000 of fees earned for the matter?
What must a paralegal do before billing a contingency fee to a client?