Not Your Grandfather’s Law Office – Altering the Future of Law

gear-worker-235If the game changes, should the rules stay the same?

Technology and other pressures have changed the way consumers look for, use, and pay for, legal services. Yet, regulations for licensed providers have not changed much over the past 20 years. Changing business structures could spur innovation, give clients what they want, and protect the public – or erode public confidence, kill off traditional law firms, and open wide the legal profession doors to rogues.

Online self-help explosion demonstrates unmet need, creates client service opportunity that regulated licensees cannot readily meet, and poses a risk to an unwary public
These issues are central to discussions and debates before the Law Society of Upper Canada, as it gathers input for a possible update to the way legal businesses operate in Ontario.

The Professional Regulation Committee is to present an Alternative Business Structures (ABS) Working Group paper, for information, at the Sept. 24 Convocation. Titled, “Alternative Business Structures and the Legal Profession in Ontario: A Discussion Paper,” the report will be published on the Law Society website, along with ways to comment on the four ABS models being considered.

    Restricting Licensees Could Leave Public Vulnerable

While some jurisdictions regulate law firms, the LSUC regulates individual individual legal services providers, and sets allowable business structures for them. In Ontario, the LSUC Rules of Professional Conduct prohibit direct fee-sharing with people who are not licensed legal professionals, other than in a multidisciplinary practice (MDP), subject to restrictions. Clients seeking legal advice turn to practices and firms that are 100% owned by licensees.

Lawyers and paralegals have said that attempts to innovate have been hampered or prevented by the current requirements. A paralegal cannot bring a technology expert in as a partner, for instance. The referral fee and fee-sharing rules limit the ability to offer legal services together with other services, and high-performing employees who are not licensed cannot become partners.

Meanwhile, unregulated legal services providers are growing — fast. Some unregulated services are provided over the internet from other jurisdictions. Such activity puts the public at risk and could hinder the safer, regulated alternatives that some licensees crave, the report says. Online service providers contribute to lost business opportunities for regulated providers, the paper notes. Online legal services have created an “explosion of self-help legal remedies available to the public,” and pose an increased risk to the public.

    Innovation Game-Changer, But For Whose Benefit?

“The Internet has changed the game – and the public’s expectations – with regard to legal services,” the paper notes. “Allowing lawyers and paralegals to provide services directly with people outside the legal profession may stimulate innovation in the provision of legal services and result in a greater range of services for the public. Permitting innovation must be balanced with appropriate regulatory oversight.”

Technology could allow licensees to respond to what consumers demand – for example, to develop new tools for interaction with clients, new options for online assistance combined with legal services, and new billing options, such as fixed fees. The paper notes it could help paralegals who want more choice about when and where to work, and may help new licensees by expanding the employment options available.

Several factors drive the ABS discussion, including apparent gaps in the provision of legal services, the increasing globalization of the legal profession, advances in technology, and changing regulatory changes in other countries. Now, aside from certain exemptions under the Law Society bylaws, only individuals licensed by the Law Society may provide legal services or practise law in the province, which the Law Society Act defines.

For the purposes of the Law Society Act, a person provides legal services if the person engages in conduct that involves the application of legal principles and legal judgment with regard to the circumstances or objectives of a person.

The Law Society recently used an injunction to shut down a website run by a non-licensee, which offered online resources along with legal advice. And in the U.S., regulators have fought legal battles with online services such as Rocket Lawyer and Legal Zoom. These have developed websites that combine do-it-yourself legal form services and traditional legal services, for individual and corporate clients.

    Tradition-Innovation-Protection

So, what is ABS? It is a broad term that includes any form of traditional law firm business structure, as well as alternative means of delivering legal services. These may include:

  • Non-lawyer or non-paralegal investment or ownership of law firms, including equity financing
  • Firms offering legal services together with other professionals offering other types of services
  • Firms offering an expanded range of products and services, such as do-it-yourself automated legal forms, as well as more advanced applications of technology and business processes
  • Non-lawyer or non-paralegal investment or ownership of law firms, including equity financing
  • Firms offering legal services together with other professionals offering other types of services
  • Firms offering an expanded range of products and services, such as do-it-yourself automated legal forms, as well as more advanced applications of technology and business processes

Examples of ABS include:

  • Businesses providing legal services only, with part ownership by a long-term employee or spouse or a business or technology expert
  • Businesses providing fixed-fee legal services through retail stores that are easily accessible and convenient to consumers
  • Businesses offering legal services together with services related to the area of legal practice, such as social workers, human resources professionals and accountants
  • Law firms operating as franchises so they have centralized access to management systems, technology, marketing and other expertise
  • Law firms using equity financing to invest heavily in technology so they can offer new and innovative forms of delivering legal services

The goal for the Law Society, as it looks to the future of regulating legal services, is to: facilitate greater flexibility in the delivery of legal services; foster innovation; improve access to legal services for consumers; and identify regulatory issues that may arise from services now provided outside of regulatory scrutiny.

Issues framing the discussion include considerations of: access; technology; economics and business; professional and ethical issues; and implementation. Significant concerns include the spectre of shareholders’ concerns trumping client interest; confidentiality, conflict, and privilege challenges; and tension between the goals of profession legal services and business priorities.

Four models being considered are:

  • Business entities providing legal services only in which individuals and entities who are not licensed by the Law Society can have up to 49 per cent ownership.
  • Business entities providing legal services only with no restrictions on ownership by individuals and entities who are not licensed by the Law Society.
  • Business entities providing both legal and non-legal services (except those identified as posing a regulatory risk) in which individuals and entities who are not licensed by the Law Society would be permitted up to 49 per cent ownership.
  • Business entities providing both legal and non-legal services (except those identified as posing a regulatory risk) in which individuals and entities who are not licensed by the Law Society would be permitted unlimited
    ownership.

In February, the ABS Working Group report caused a stir at Convocation. Some benchers raised the spectre of “undignified” legal service-provision down the road. Professional Regulation Committee chair Malcolm Mercer suggested that tight regulations can ensure that the public is protected. He noted that jurisdictions that have embraced ABS have reported few problems. ABS models have been in place in New South Wales, Australia, since 2001 and in England and Wales since 2012.

The Paralegal Standing Committee reviewed the discussion paper at its September meeting. Any changes would almost certainly call for legislative amendment, by-law amendments and changes to the Law Society`s regulatory model.

The Working Group plans to consider next steps in early 2015. More meetings, symposiums and opportunities to discuss the issue are likely over the coming months, given the amount of interest. Convocation established the Alternative Business Structures Working Group in September 2012, pursuant to its strategic priorities approved in December 2011.

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2 comments

  1. Non lawyer/paralegal firms owning legal firms reminds me of the financial world. TD Financial Group and RBC Financial Group are both great examples. They have a bank, a stock brokerage firm, an insurance firm, with a common owner (usually the bank). However, since they are a Financial Group, they all promote eachother’s services.

    Similarly, I see no reason why a law firm and an immigration consultant can’t have their firms (owned by a ‘common entity’), while promoting eachother Maybe, we can even get really creative, and pull an accountant (or something) into the mix — as this may be something clients may ask for.

    Letting us partner with other professionals, without the tight restrictions that MDPs currently have, would certainly open the door to creativity, customer satisfaction, and creating a “one stop shop” for clients. (Maybe even with discounts for using more services ‘in house)!

  2. Very nice article. ABS is coming whether some factions like it or not; with the CBA and OBA putting their weight behind it, it is evident it is something the lawyers want – and will get. The real question is which, if any, paralegal firms have the innovative thinking and resources to leverage on those changes.

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