Why You Need a Referral Agreement

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Table of Contents

• What is the Relevant Law?
• What is a Referral Agreement?
• What Will it Cover?
• How do I Get One?

It’s great when businesses enter into a mutually beneficial relationship. You know, “you scratch my back, and I’ll scratch yours”. Everybody wins. Sometimes parties will formally enter into these types of agreements, or they just develop by way of conduct over the course of time.

Regardless of how parties enter into a referral relationship, they can lead to operational issues and headaches. Especially when there is no formal agreement setting out exactly how and when those backs will be made available for scratching, and how much that scratch is worth. Here, a formal referral agreement can be an invaluable tool for both businesses.

What is the Relevant Law?

No one piece of legislation governs the operation of referral relationships. Instead, referral agreements are contracts at law regulated by the general contract law. In certain industries and professions, companies are subject to obligations of disclosure.  For example, the Franchising Code of Conduct requires disclosure of the referral relationship.

What is a Referral Agreement?

A referral agreement is a formal contract, often entered into in the form of a deed, between a party (the referrer) who will refer customers or clients to another party (the principal) for reward. Alternatively, referral agreements can be entered into on a reciprocal basis, whereby parties will refer work to each other.

What Will it Cover?

The referral agreement should include, among other things,

• The nature of work referred,
• The excluded clients or customers,
• The fees to paid and method of payment,
• The use of intellectual property,
• Confidentiality,
• Whether the agreement is exclusive or not,
• The agreement’s operative term, and
• The general rights and responsibilities of each party.

If appropriate, referral agreements may also contain a restraint provision.

How do I Get One?

A commercial lawyer will be able to assist you in preparing a referral agreement comprehensively addressing each of these issues, as well as any unique to your relationship.

If an actual or proposed referral agreement is of significance to your business, or if you propose to enter into multiple referral agreements to promote growth, it is prudent to speak with a commercial lawyer. LegalVision’s experienced lawyers would be delighted to assist you with drafting a formal agreement. Questions? Please get in touch on 1300 544 755.