Nearly 20% of Personal Injury firms in the North-West of England face closure after new legislation came out preventing the use of ‘referral fees’ in England – a method commonly employed by smaller firms to obtain work. This new legislation has meant that a fifth of firms surveyed in the North-West have said they will consider closing their doors – leading to a potential job loss of 100,000 across the UK of solicitors who specialise in Personal and Accident Injury claims.
This news hasn’t had much of an impact in mainstream media, and you can probably guess why. Solicitors aren’t well liked, particularly those who work in personal injury cases, due to the amount of people who abuse the claims process, and the solicitors firms who constantly bombard our lives with adverts to try and entice people to claim. The trend of dishonest claims has been rising over the years, and a lot of people blame solicitors for encouraging that trend. However, this news could have impact in a substantial way, and affect how a lot of smaller firms do business, and mean that many stop altogether.
We need to rewind to 2013 to find out what happened here. You see, a lot of the big advertisers on TV actually act as ‘claim-farmers’. This means they aren’t the actually company who would take on your claim, they pass it over to a smaller, more local firm. The smaller firm pays a referral fee for the client, usually in the region of £700, and then take your claim forward with the client directly. However, last year the Ministry of Justice decided that this referral process had to stop, and the new legislation does just that. So now a Personal Injury firm will have to directly ‘recruit’ claimants, instead of paying the larger farmers for referrals. The prospect of increasing marketing budgets is too much for some smaller firms, and so they would rather close down their personal injury arm, and concentrate on other areas. Not only is this bad for employees, but also the consumer as well as the smaller, more local firms go out of business.
One method of getting around this ruling is to have the farmers bought by personal injury firms, thereby having them become a sub-division but in reality this will only go so far, and only bigger firms are likely to bother with the effort and expense of doing so. A recent article in The Guardian summarised the problems and justification by the Government for the new legislation as follows:
“The government’s justification for cutting lawyers’ fees by more than half is that solicitors will saving as much as £700 per case in referral fees. But lawyers complain that they will still have to pay marketing costs. Ominously, David Edmonds, the industry’s super-regulator, told MPs this week that the ban on referral fees might have unintended consequences. Edmonds, who chairs the Legal Services Board, has long argued that there is no evidence of consumer detriment from referral fees and so no justification for a ban.”
This impact is yet to be seen, but firms in the \North-West are already trying to assess and avoid the damage. We spoke to John Peterham, who owns a personal injury solicitors firm in Bolton, who said the “The trouble with this new ruling by the Government is that it can harm consumer choice. S-called ‘claim-farmers’ actually help the client by ensuring they are passed to a local and qualified solicitor. This can ensure quality by the farmer not working with a small firm who have a bad reputation. However this ruling would mean the emphasis is all on the client to do research into the firm first, and limit their choice potentially.” When asked how the ruling would affect his business, John went on to say “We aren’t 100% sure yet, but our firm (www.personalinjurysolicitorsboltonarea.co.uk) is a small claims-farmer. We expect that we can continue as we advertise that we work with other firms, but we may also have to consider taking on a small team of solicitors and doing the work ourselves. The ruling isn’t clear enough yet how it will affect our accident injury solicitors Bolton team”.
This lack of clarity isn’t helping the industry and needs to be cleared up quickly. One trainee solicitor who is stepping into the personal injury arena in Preston told us “I’m not even sure if my job is safe any more. We keep hearing about firms closing as they can’t be bothered with the extra expense of marketing. Personally, I wanted to work for a smaller firm so I can progress my career quicker and become a partner. Now it is looking increasingly like I may have to join one of the bigger players, where it can be difficult to establish yourself.”
It remains to be seen how much of an impact this ruling could have on jobs in the North-West, but it does appear the personal injury inductry is fearing it more than the media is reporting! We’ll keep covering this story as it develops.