The Law Society of Upper Canada will continue to “explore and consult” alternative business structures, with a view to making substantial changes to the ways Ontario legal firms may be owned, and they ways they offer services.
Permitted business structures options initiated wide-ranging debate at Convocation Feb. 27, as benchers debated the Professional Regulation Committee’s Alternative Business Structure (ABS) Working Group report. It recommends researching such options as allowing firms to be owned in part by non-licensees, and loosening restrictions on the services they can provide.
Debate on the motion was split between concerns about an erosion of “professionalism” if legal services are provided “next to bananas” in food markets or in big box stores — countered by warnings that status quo is not an option.
Some benchers raised concerns about the changes coming in too fast, despite the motion’s call for consultation. “This is about profit,” Susan Hare said. “This is about money. This is also about the dignity of our profession.”
Hare’s comments echoed Gerald Swaye, who raised the spectre of two-for-one deals offered in big-box stores.
Malcolm Mercer, Professional Regulation Committee Chair, compares leaving business practice in its current 19th-century structure, to bucking nature. Acknowledging some of the fear around business structure changes, Mercer said change can be scary, but “You can’t stop the tide.”
Mercer summed up the fear as: “Predatory capitalists doing evil things” and noted that the Working Group’s research found no evidence of that outcome in jurisdictions that have embraced ABS.
“We did not find examples of it. We are not talking about de-regulation. Professional obligations will be tightly regulated. In Australia and England, zero problems were reported. That which is feared, has not occurred.”
Mercer and others referred to paralegal licensing as an example of the Law Society evolving and changing in response to market forces and legal service needs in Ontario. “The genie is out of the bottle,” he said; there is an ongoing role for non-lawyers in the provision of legal services, one which does not impair professionalism.
“Professionalism is not about you or me,” Mercer said. “It is about providing legal services. There are people with in small offices, struggling without investors, without capital. I am more concerned about the importance to get legal services into the places where people can find those services.”
Family law, wills, powers of attorney, personal injury and real estate tasks are among the services most ripe for the business structure changes, Mercer said. He noted that 85 percent of Ontarians’ legal needs are not met by licensees. Addressing that fact helps to protect the public; ABS will encourage the type of innovation that will allow regulated service providers to fill that need.
Under the models being considered, law firms may be able to bring other professions in to their business, such as social workers and psychiatrists.
Four options were proposed by the Alternative Business Structures Working Group:
- Permitting up to 49 per cent ownership by non-licensees in entities only providing legal services
- Restricting firms to providing legal services, but with unrestricted ownership
- Allowing up to 49 per cent non-licensee ownership and permitting firms to provide legal services and non-legal services except those identified as posing a regulatory risk
- Permitting unlimited non-licensee ownership and the provision of legal services and any other services, except where there is a sufficient regulatory risk identified.
Licensees will be consulted on these options. Their responses will contribute to a more detailed report. The Paralegal Standing Committee is among the stakeholders to be consulted.
The Working Group report notes that Law Society Rules and By-Laws regarding fee-sharing, referral fees, direct supervision and ownership restrictions should be reviewed, with a view to ensuring that they are “proportionate to the risk they seek to mitigate and, if appropriate, a referral of proposed revisions to the Professional Regulation and Paralegal Standing Committees.”
The report states: “The working group concluded that there are negative consequences inherent in current regulatory limitations on the delivery of legal services in Ontario that could be addressed with the thoughtful liberalization of business structures.”
The group also recommends that the Law Society seek a statutory amendment granting it express authority to regulate firms and other entities providing legal services.
Allowing alternative business structures could help to improve access to justice, the report notes. It could encourage innovation, provide access to additional capital, and support better use of technology.
Sole practitioners and small partnerships could benefit from changes to the current restrictions. Protecting the public is still key to any changes, however. The report notes “substantial evidence that business structure liberalization combined with entity regulation is likely to provide greater flexibility and more options for both licensees and the public.”
Clients in Ontario are overwhelmingly served by firms that are 100% licensee-owned, providing only legal services, the report notes.
The Working Group considered extensive research, and information gleaned during a symposium last October. Some proposals may require legislative changes before they could be implemented.
“Alternative business structures” refers to any form of non-traditional business structure, as well as alternative means of delivering legal services. This includes:
- Alternative ownership structures, such as non-lawyer or non-paralegal investment or firm ownership, including equity financing
- Firms offering legal services together with other professionals
- Firms offering an expanded range of products and services, such as “do it yourself” automated legal forms and advanced applications of technology and business processes
Convocation established the Alternative Business Structures Working Group in September 2012, pursuant to its strategic priorities approved in December 2011.
First ABS Working Group Report
Self-Represented Litigants Research Project Report