Category Archives: ABS and A2J

How can we better deliver legal services

What can we learn from the English ABS experience after five years?

(published first on slaw.ca)

After five years of ABS liberalization in England (and Wales), it is worth having a look at what has happened. Surprisingly and significantly, the answer is “not much”.

ABS liberalization in England

A decade ago, Legal Services Act 2007 brought about significant changes to the practice of law in England. These changes included allowing what were called alternative business structures to provide legal services where only lawyers were previously permitted to serve clients. The first alternative business structures were licensed in late 2011.

The essential idea of alternative business structures is that constraining ownership of legal practices constrains competition and innovation. This is not to say that the practice of law is not competitive without non-lawyer ownership. The fact is that there is a large number of legal practices that intensively compete with each other. But the nature of those practices is the same. Highly educated professionals spend time providing services to clients with the assistance of their staff. The practice of law is highly labour intensive and the labour is expensive labour. While these practices compete with each other, they do not have to and are limited in their ability to compete using different ways of providing legal services. From one perspective, law is highly competitive. From another perspective, competition is highly constrained where only practising professionals can provides legal services and own professional practices.

The ABS idea contemplated that allowing non-lawyer ownership would encourage competition and innovation in two ways. Liberalizing access to capital inherently facilitates the provision of services in ways that are less, or are not, labour-intensive. Liberalizing non-lawyer ownership facilitates management of legal practices by non-lawyers who have business expertise and experience. The result was expected to be the entry of new participants into the legal services market. The result was also expected to be the evolution of existing practices because existing practices could have improved access to capital and to non-legal expertise and because existing practices would have to evolve to better compete with new entrants.

The English context

There are important differences between England and Canada that should be kept in mind in considering the English ABS experience. There is a divided bar although solicitors are increasingly permitted to act as advocates. There are eight distinct legal professions[i] with separate front-line regulators, each front-line regulator being under the supervision of the Legal Services Board. There are far more solicitors than all other types of legal professionals combined.

Perhaps most significantly, licensing is not required in England to provide legal services in substantial areas where licensing is required in Canada. In England, only the exercise of a right of audience, the conduct of litigation, reserved instrument activities, probate activities, notarial activities and the administration of oaths are reserved to licensed legal professionals.

The reason that this limited reservation (or limited monopoly) is significant is that being or becoming an ABS isn’t necessary where it is not necessary to be licensed. Accordingly, ABS liberalization and consideration of its results is limited to these reserved areas. ABS liberalization was designed to address what we would see as core areas of legal service.

Bifurcation of the legal services market

Before looking at the English ABS experience, it is also important to distinguish between the consumer and the business legal services markets. It is clear that there has been substantial change in the supply of services to large businesses and other organizations over the last decade. In-house counsel have taken on increased shares of legal work. Alternative legal service providers have emerged to directly supply in-house counsel groups and to provide services through external counsel.

Significantly, it does not appear that this significant evolution requires or is dependent on ABS liberalization as is clear from the fact that much of this evolution has occurred in the United States, which is entirely hostile to non-lawyer ownership and unauthorized legal practice.

In considering the impact of ABS liberalization in England, it is worth keeping in mind that the “big business” demand for legal services is not the same as consumer demand and, more significantly, that the nature of the legal services that are consumed and the way that legal services can be supplied are quite different in these very different markets.

The 2017 Legal Service Board Report

With five years of ABS liberalization in England, it is possible to assess how these intended market impacts have played out so far. With this in mind, the Legal Services Board has released its report Evaluation: ABS and investment in legal services 2011/12-2016/17 (“2017 LSB Report”).

ABSs were first licensed in 2011. By March of last year, 892 ABS licenses had been issued by four licensing authorities[ii] and were in active practice[iii]. To put these nearly 900 ABSs in context, there were just over 10,000 solicitor firms as of the end of 2016[iv] of which 25% were sole proprietorships. It is fair to observe that a significant number of ABSs have been licensed.

According to 2017 LSB Report, the active ABSs are predominantly existing firms that have converted to ABS status. Only one in five of respondent ABSs is a new firm. This means that there are approximately 180 new entrant ABSs and approximately 720 existing practices that have converted to ABS status.

Much has been written about the new entrant ABSs. A significant number have been personal injury consolidators with Slater and Gordon being the most famous new entrant and the most famous failure. Not surprisingly, many new entrants have focused on the more lucrative areas of practice. Not surprisingly, rapid growth and consolidation has been a risky business strategy.

But what about the substantial number of existing practices that have taken on ABS licensing? This is a bit tricky to tease out from the 2017 LSB Report as information some of the reported information is not broken down between new entrants and converted existing practices. But the implications of the reported data is pretty clear.

The focus of the 2017 LSB Report is on the investments made by ABSs and the sources of capital for those investments. It is reported that two-thirds of ABSs have “either have already invested or are planning to do so, since they gained their ABS licence” and that “[t]hese investments have mainly been made to hire more staff, increase marketing activity or to purchase IT. The report sees “this as evidence of the increased scale that allowing non-lawyer ownership was designed to enable”. The report also notes that “[t]here are statistically significant links between higher levels of non-lawyer ownership and the likelihood of having made an investment. Larger organisations are also more likely to have invested in their business.”

These observations are entirely unsurprising. One would expect practices that take on an ABS license to make investments. Larger organizations are naturally more likely to make investments. It would be odd to find that practices with non-lawyer ownership were not making investments.

What is surprising is the source of capital used for investment. According to the report:

The most frequent source of funding for investments was business profits or cash reserves, which were used by 49% of those who had invested in their business. Just over a quarter of investments were solely funded using a loan from a bank, and a quarter were solely funded using the business’ overdraft facility. External sources of equity finance accounted for only a minority of investment funding sources either as the sole or joint source of investment funds, and only 12% of ABS had used any form of external finance.

We know that the usual sources of investment capital for ordinary legal practices are business profits/cash reserves and bank debt. According to the 2017 LSB Report, 88% of ABSs invested using these traditional sources of capital. Only 12% of ABSs used non-traditional sources of capital for investment purposes.

As noted above, only approximately 20% of ABSs are new entrants. As just discussed, only 12% of ABSs has used external finance for investment purposes. Putting these points together, one can only conclude that very few existing practices that have become an ABS have accessed capital that was not previously available to them. It may be that becoming an ABS has been attractive to recruit and to offer incentives to non-lawyer staff. It may be that becoming an ABS has been used to allow family members to participate in ownership. But it appears clear that, so far, access to capital has not been a significant reason to convert to ABS status. As the report puts it “Except perhaps in the personal injury sector, it would appear that bank lending is a substitute for external capital”.

The essential conclusion of the 2017 LSB Report is that there is not yet sufficient competition in the legal services market to require existing practices to innovate:

The low level of external investment seen to date may be a symptom of weak competition in the market overall, as found by the Competition and Markets Authority market study, LSB’s Market Evaluation and the joint SRA LSB research revealing that levels of innovation are not increasing. The dynamics of competition create incentives for suppliers to increase productivity through innovation, which lowers costs and hence prices through time. This is likely to involve taking a different approach to delivering a service, or developing new services completely. In the absence of strong competition, there is insufficient impetus for law firms to take the greater risks (and rewards) involved with using external capital. Until these incentives change we may not see significant growth in the use of external capital by ABS firms.

So what are the implications for Canadians?

What appears to be clear is that not much has happened in England as a result of ABS liberalization. The conclusion of the 2017 LSB Report is essentially that existing practices have not had to innovate because they have not faced strong competition particularly from new entrants. But the report does not address why relatively easy entry into the legal services market and the fact of unreserved areas of practice have not led to increased competition.

It may be that the emergence of new entrants simply takes time. It may also be that existing legal practices are reasonably well suited to the work that they do and that there isn’t substantial profit to be made serving existing reserved legal markets though new forms of practice.

So the implication of the first five years of ABS liberalization in England is that it has not led to much accessing of external capital nor to much innovation. At the same time, it does not appear that ABS liberalization has led to significant problems either. That said, spending substantial regulatory time and effort to enable a significant regulatory change of rather limited impact does not seem like a great use of resources.

Of course, things don’t necessarily stay the same. It is clear that technology continues to advance significantly. There is ample evidence that unlicensed direct-to-consumer legal services are being provided in Canada and that the volumes are likely to increase especially as technology evolves. It seems logically to follow that this will lead to competitive pressure on existing legal practitioners who will require access to external capital to respond effectively. There is a credible argument that limiting access to external capital will handicap existing practices against new entrants.

But it must be admitted that these credible arguments are not yet supported by market evidence in the very significant and competitive English market. The dilemma is that there isn’t cogent current evidence for regulatory reform while our ability to respond nimbly if and when required is doubtful. In resolving this dilemma, my inclination is to watch and wait given the advantage of having the English “experiment” to guide our thinking.

_________________________________

[i] Solicitors, Barristers, Legal Executives, Licensed Conveyancers, Patent Attorneys, Trademark Attorneys, Costs Lawyers and Notaries

[ii] Most of these were issued by the Solicitors Regulation Authority.

[iii] Nearly sixty ABS licensees are not in active practice.

[iv] 84% of English and Welsh lawyers are regulated by the Solicitors Regulation Authority based on data from the 2017/2018 Legal Services Board Business Plan

Leave a comment

Filed under ABS and A2J

The Devil’s Advocate

Published first on slaw.ca

Gavin MacKenzie, Amy Salyzyn and I participated in August in the Ethics Debate at the Canadian Bar Association Legal Conference. Amy moderated the debate. Gavin and I were the debaters. The topic was Should lawyers have a monopoly on the provision of legal services? I argued for the proposition. Gavin argued against.

The general topic was broken up into three separate propositions, each of which was separately debated. My role was to support the first two propositions and to argue against the third.

  • There is no good reason to allow anyone other than lawyers to provide legal services.
  • Professional values will be sacrificed if anyone other than lawyers is allowed to provide legal services.
  • The horse is already out of the barn door. The only practical choice is accept that the monopoly is lost.

As can be seen from previous slaw.ca columns, my position as a debater was rather different from my actual views on these topics. This made the debate more fun. Being an advocate is liberating especially in a formal debate where the goal is to try to both persuade and to entertain.

Being a debater – in formal debates and in real life

But debating from a perspective dissonant from my actual perspective made me think both about the substance of my actual views and about the way that we think about what we think.

Alice Woolley wrote a paper entitled The Problem of Disagreement in Legal Ethics Theory that I particularly admire. Alice both describes different competing theories and explains why the differences actually matter. She notes that each theory necessarily claims that it alone is correct. The paper is well worth a read given the centrality of legal ethics to how we should act, and should be required to act, as lawyers. But this is not the point of referring to Alice’s paper here.

In her paper, Alice writes:

Finally, when legal theorists engage in the task of theorizing, they should be aware that time spent arguing with each other is subject to the law of diminishing returns. While such debate undoubtedly helps to clarify the theoretical landscape, it is much less likely to lead to any theorist to changing her mind, and highlighting theoretical differences does not, in and of itself, do much to illuminate the problems of ethical practice.

When reading this passage originally, I was struck by the observation that intelligent people who have thought deeply aren’t persuaded by debating with each other. Rather, existing views are refined and differences highlighted. This rings true. At least three points follow from this. The first is that debates may well not be for the debaters. The second is that one of the fundamental goals of a democratic society is finding practical ways to resolve differences where agreement does not follow from debate. The third is that we humans are surprising resistant to changing our minds despite good reasons and new facts1.

While Alice wrote about intractable philosophical disagreement, disagreement continues for other more problematic reasons. With increased research and writing about cognitive psychology and cognitive biases, we now have a better awareness of the importance of confirmation bias. When we have an opinion on an issue, we do not receive new information neutrally. Rather, we tend to interpret new information as being supportive of our pre-existing opinions. We don’t wrestle with information that is inconsistent with our views. We hear arguments that support our views less well than we hear arguments that challenge what we think.

Indeed, there is research suggesting that new information inconsistent with pre-existing views is not just ignored. New inconsistent information can be perceived as being threatening and give rise to cognitive dissonance. As reported several years ago in the Boston Globe:

Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger.

It is important for all of us to recognize that our opinions suffer these frailties. No matter how strongly we are convinced (and perhaps especially then), we have to work hard at keeping an open mind – to genuinely challenge ourselves.

Lawyers and their perspective

The issue of the lawyer’s monopoly seems to me to particularly raise these challenges. There are underlying philosophical questions. Important facts are uncertain. Disagreement is understandable and proper. But there also seem to be biases in play

To state the obvious, lawyers have a self-interest in avoiding new competition. Natural anxiety about economic well-being creates self-interest bias. Our personal and our professional identities are tied together. We value what we do and we find offensive that which suggests that we are part of the access to justice problem. We value our contributions to the legal system, and to society more generally, and are offended by anything that devalues those contributions. Even perfectly well-intentioned lawyers may well be affected by these biases. And once opinions are set, it is hard to come to a different view.

As a participant in the broader discussions about regulatory liberalization over the last several years, I have views. Because of this, I am at risk of confirmation bias in considering new information. Having written my thoughts down in slaw.ca columns and elsewhere, I’m at risk of explanation bias, the tendency to be tied to one’s previously expressed views.

This will be no surprise to most litigators. Our common experience is that our cases often seem to get better and better as we spend time on them. It is surprising how often we seem to have the better side of the case. It is often hard to be clear about the frailties of our cases.

The CBA Debate

With all of this in mind, it was interesting to be asked to be a debater on a subject with which I have been much involved, but not on the side that I would naturally take.

Substantively, the framing of the three propositions made three points of central importance. What is the reason for proposed change and is it a “good” reason What are professional values and how could they be sacrificed? Is the die already cast?

The process of preparing for the debate reflected the behavioural psychology described above. At first, I found it a challenge to cogently frame arguments against my own beliefs. Over time, my arguments made more sense to me – especially when I was trying to win the debate!

The first proposition raised the question of what actually motivates the broader debate and, more narrowly, how good must a reason be for it to be a “good reason”. I chose not to address the debate from the lawyer’s perspective on the theory that market incumbents naturally want to maintain their monopolies. That said, I’m inclined to think that liberalization would be helpful defensively given the challenges that the future holds. But that is not the main point and is not particularly persuasive to nervous incumbents.

The main point is access to legal services and unmet legal needs. I necessarily conceded that there are substantial unmet legal needs. My argument was that allowing paralegals in Ontario and allowing alternative business structures in Australia and England has not solved the unmet legal needs problem and that a legitimate goal does not justify change if the change does not advance the goal. I argued that our access to justice problems arise from the way that our system is designed rather than who may participate – the problem is “the coliseum not the gladiators”.

The second proposition raised the question of what are “professional values” and how are they put at risk. I argued that our professional values are obvious; serving clients (commitment and independence, confidentiality and candour) and serving the rule of law and the administration of justice. I conceded that lawyers were no more ethical than anyone else but observed that legal ethics are different than ordinary ethics. Lawyers can be better trusted to honour legal ethics being appropriately trained and, most significantly, being at risk of loss of their livelihoods for professional misconduct. I argued that businesses and capital can simply move on after ethical failure while lawyers can’t. And so, professional values are put at risk by liberalization.

The third proposition raised the question of where we really are as a practical matter. While there is much going on, my argument was that there are substantial and important areas currently served by lawyers that merits cautious protection in the interest of the clients and the society that we serve. Conceding that there is change at the margin, I argued that the centre must be held.

Standing back, I think there is some merit in these arguments. The argument for change is not overwhelming. There are risks in change. There is much that is good that should not be discarded.

But as I said in the discussion after the debate was over, this is an issue where the zealots on both sides have something to say but are wrong as well.

The challenges of unmet legal needs are very real. There is no one magic bullet that will kill the access to justice dragon2. Waiting until we find that one magic bullet means failing to address the problem using the various tools at our disposal. The coliseum is part of the problem as are the gladiators. And there is much to address that isn’t about coliseums at all.

There are advantages in having only licensed lawyers and paralegals. We are indeed easier regulate – given the existing regulator regime which is designed with us in mind. But it is fallacious to claim that modern business is not amenable to regulation. The idea that only lawyers and paralegals can be effectively regulated is nonsense. The reality of the modern regulatory world shows that.

Finally, the idea that the horse is already out the door is another “false binary” – a rhetorical claim that things are all or nothing. There is much that we do that should be honoured. There is much that we don’t do that needs to be done. And there is some of what we do where some new competition would be a good thing.

1 I don’t mean that all disagreements are capable of resolution. Some disagreements are driven by philosophical differences where “right” answers don’t exist. Other differences, especially hard policy choices, arise from factual uncertainty. Sometimes both of these are in play and there are no doubt other legitimate reasons for unresolvable disagreement.

2 The dragon is a canard!

Leave a comment

Filed under ABS and A2J

Principle, not politics

Published on slaw.ca on November 10, 2015

The Law Society of Upper Canada ABS Working Group delivered an interim report to Convocation in September. In reading some of the subsequent comments, I was reminded of Nick Robinson’s thoughtful paper When Lawyers Don’t Get All the Profits. As he said in an interview with Cristin Schmitz:

I’ve been amazed in this debate how much each side kind of talks past each other, dismisses the concerns of the other side, or the point of the other side.

In its interim report, the Working Group reported that it would not further consider non-licensee ownership or control of traditional practices at this time. Rather, four other areas would be examined. It was disappointing to have a leading ABS proponent respond to the interim report saying that the “foul stench of protectionism” explained the report and to have another say, less dramatically, that “the outcome in Ontario points to the triumph of politics over principle”.

While it would be naïve to think that strong views will change as a result, I think it important to say for the record that the ABS Working Group, a diverse group[i], worked hard to genuinely address a complex question. The report was a consensus report supported by all members of the working group. Being thought wrong is fair enough especially on complex issues. But I don’t accept the allegation that our interim report is unprincipled. It is not. On the other hand, it has to be admitted that professional self-interest is not an unreasonable concern. Professional self-regulation on issues where the public interest and professional self-interest can diverge is a challenge to be addressed with care. The public interest must govern.

But to the Interim Report. Why not move forward now to majority or control of traditional practices? My own view is principally premised on observations of the effect of ABS in Australia and in England. The first observation is that minority non-lawyer ownership has been broadly adopted in Australia and is the greatest part of ABS licensing in both Australia and England. There appear to be real advantages seen in minority investment for these practices and little or no expressed concern. The second observation is that the largest effect of majority non-lawyer ownership in both Australia and England has been consolidation in the personal injury sector rather than creation of new enterprises delivering new legal services or delivering legal services differently. Recognizing that personal injury work in Ontario is principally available on the basis of contingent fees, it is unclear to me that injured persons would be better or more economically served by large consolidated firms. And it is difficult to imagine reversing a decision which consolidates an area of practice. Watching and waiting for evidence to develop seems the better course to me. It is also material to me that the current personal injury model in Ontario, based in contingent and referral fees, is raising concerns for many. It seems sensible to work through these concerns before considering significant changes.

In England, there have been more innovative practices using majority ownership than in Australia. This is not surprising given the much larger English market and given the importance of London as a capital centre. But significantly, when thoughtful English analysts were asked for their views of the impact of ABS since 2012 when first permitted, the consistent answer was that it is too early to assess the impact of ABS. Waiting a bit seems sensible to me.

Another perspective comes from innovation research and theory. Ray Worthy Campbell’s work has been important in my thinking. Professor Campbell observes that it is very difficult for existing businesses to do things in a fundamentally different way. Building on the work of Harvard business professor Clayton C. Christensen, this is the idea that sustaining innovation is much more likely than disruptive innovation for most businesses. My belief is that many legal needs are unmet is because the only permitted form of business, professional consultancy in which expensive expert time is applied assessing and solving problems, is inherently too expensive to address many currently unmet legal needs. Putting these thoughts together, it seems very unlikely that traditional professional legal consultancies will evolve into something quite different if majority non-lawyer ownership is permitted. It seems logical to think that permitting majority ownership would lead much more to consolidation of existing practices than to transformation of existing practices into something different. It seems likely to me that new technologies and other genuine innovations are more likely to come from new providers than from existing providers. But encouraging evolution of existing traditional practices to deliver more than they now do seems worth-while.

A third perspective is practical. We do not have the regulatory infrastructure in Ontario to deal appropriately with significant new forms of non-lawyer owned legal service providers. On the other hand, regulating traditional practices with some non-lawyer ownership is more easily accomplished. An incremental regulatory path is attractive from a pragmatic perspective.

These are some of the principal reasons that caused me to conclude that serious examination of majority ownership or control of traditional practices should wait with examination of minority ownership being a better focus for the time being. I should add franchise arrangements to minority ownership as possibly a way of allowing evolution of existing traditional or consultancies “professional consultancies” to achieve advantages of scale such as branding, business and legal expertise and infrastructure.

Another area that appears to merit examination has been labelled ABS+ acknowledging the contribution of Professor David Wiseman to the ABS discussion. The Working Group will examine allowing and encouraging “civil society” organizations to deliver legal services. One version of this is analogous to multidisciplinary practices (MDP) in which non-legal services can be offered by legal practices. The MDP idea is that “one-stop shopping” can be attractive to clients. Flipping this idea recognizes that there are important organizations already serving other needs, whether for particular vulnerable populations, low income people or the middle class, through which legal needs might also be served. People who won’t go to a lawyer or paralegal’s office could access legal services where provided ancillary to other important services. Another version would harness existing organizations who are trusted in their communities permitting them to provide legal services as well as being intermediaries between their communities and legal clinics.

The fourth area for examination is the least well defined. We know that there are substantial areas of unserved legal need. Yet only lawyers and paralegals are permitted to deliver legal services in Ontario. There is no lack of lawyers and paralegals yet legal needs go unserved. Part of the answer may be innovation by traditional practices. Part of the answer may be better access to legal information so that people can better serve themselves. Part of the answer may be civil society organizations delivering legal services differently. Part of the answer may be that it is counterproductive only to permit licensees to deliver legal services – especially where they don’t. But part of the answer may also be that innovative practices, applying significant capital to technological and business innovation, may be needed. The traditional labour-intensive professional consultancy model has its limits and other business models, with different financing, may be of value to meet unmet needs.

As said at the outset, I don’t expect that those with harsh views on either side of the ABS divide will change their thinking because of this column. But I hope some will find elaboration of a less certain perspective to be of value.

___________________________________

[i] Susan McGrath, Malcolm Mercer, Constance Backhouse, Marion Boyd, Ross Earnshaw, Carol Hartman, Jacqueline Horvat, Brian Lawrie, Jeffrey Lem, Jan Richardson, Alan Silverstein and Peter Wardle

Leave a comment

Filed under ABS and A2J, Law Society Regulation

So many lawyers, so many unmet legal needs

My article So many lawyers, so many unmet legal needs is now published in the July/August 2015 edition of the ABA Law Practice Magazine

PDF Version of Article

So many lawyers

 

1 Comment

July 7, 2015 · 5:40 pm

Access to Justice

ABS and access to justice

Why we must make it easier for lawyers to deliver services more broadly.

Canadians live in a miraculously complex society. Our market economy allows us to produce and consume diverse goods and services. Our democratic governments establish laws which permit economic and social stability. We take all of this for granted and, perhaps understandably, focus on the imperfections rather than being astonished that this complex system works at all. Things are very different in much of the rest of the world.

The significance of law as an underpinning of this complex society cannot be overestimated. Law permits economic relations to be reliably established and investments to be safely made. Law ameliorates market imperfections. Law governs the relations between each of us in our daily lives as well as in our economic relations. Law helps ensure that our governments remain democratic and that those holding state power act within the authority democratically assigned to them. Laws limit the power of government over each and all of us.

Professor Gillian Hadfield says that we live in a “law-thick world”. This legal “thickness” is necessary for our complex system to work yet the legal system is largely incomprehensible for most individuals in society. This is why lawyers exist. Law is important but not easily navigated. Assistance is required. As Justice Major put it for the Supreme Court of Canada in R. v. McClure in the context of solicitor-client privilege:

… The law is a complex web of interests, relationships and rules. The integrity of the administration of justice depends upon the unique role of the solicitor who provides legal advice to clients within this complex system. …

As Professor Alice Woolley has written human dignity, freedom and productive relationships depend on this complex legal system:

… the dignity and freedom that the law promotes is not merely the freedom to be left alone, but is also directed towards “creating conditions in which [citizens] can actualize their values by supporting their creative endeavors and helping them structure their commitments within productive relationships and supportive communities.” The lawyer assists in the creation of those conditions for clients.

If we accept the significance of law to members of our society and that the complexity of our legal system is such that legal assistance is required by most members of society when legal issues are engaged then the moral and public policy importance of access to legal services is obvious.

The essential issue addressed by alternative business structures (ABS) is access to legal services. This issue falls naturally into two aspects namely the areas in which there is no or very limited access and the areas where access is unnecessarily limited.

The intent of ABS is to allow the market to better deliver services by liberalization of existing regulatory constraints. This is not to suggest that there are no other mechanisms to address aspects of the same issues such as increased legal aid and enhanced public legal clinics. But ABS, better legal aid and public legal clinics are not mutually exclusive. Good public policy considers both public and market mechanisms to solve difficult problems. Different parts of complex problems can be addressed by different policy approaches.

To descend from the philosophical heights, what do lawyers actually do for individuals in society? This is an important question in understanding unmet or insufficiently met legal needs. The answer is clear. Lawyers defend individuals in criminal proceedings. Lawyers act for individuals in family law and personal injury matters. Lawyers act in residential real estate transactions and in wills and estates matters. This is confirmed by surveys of what lawyers say they do for individuals and surveys of what individuals say they use lawyers for.

The access issue is not pressing in residential real estate matters or in wills and estates matters where there are material assets involved. Individuals who have significant assets to be transferred by purchase and sale or on death have the resources to obtain legal assistance and the value of what is being transferred justifies the cost of the lawyers’ fees.

The access issue is not pressing in personal injury matters because lawyers in Canada can act on a contingent basis collecting their fees on settlement or success at trial. While there are likely meritorious cases that are not brought because the quantum in issue is insufficient to attract a lawyer acting contingently and while contingent fees may be higher than need be, it is right to observe that access to justice in personal injury matters is much less relevant than in other areas.

While access in criminal law matters is of concern, public, rather than market, solutions are likely of greater significance given the rights involved and the nature of criminal law representation. This is where legal aid and public legal clinics are most important. It is difficult to see, for most individuals involved in criminal proceedings, how market liberalization would have much useful effect.

This leaves family law, which is an obvious access disaster within the range of 70 percent of family law litigants being unrepresented in family law proceedings according to the important work of Professor Julie Macfarlane. This is an area in which it seems likely that facilitating other ways of providing service could help even if the actual proceedings before the court are unlikely to be affected. Allowing family law lawyers to work better together with social workers, psychologists and accountants seems sensible. Some aspects of family law work (financial statements and other court documents) should benefit from technological and process innovations and access to other expertise.

It is no surprise, with this review, that lawyers are sceptical about the access issue and about market liberalization including ABS. Other than in family law, what lawyers mostly see is what lawyers can do despite existing business structure constraints. The main exception is family law where families are forced into legal proceeding because of failed relationships, yet lawyers cannot provide assistance at a cost that makes sense for many families.

But the perspective of individuals is different because individuals know when they don’t go to lawyers even though lawyers have no idea. According to the 2009 Ontario Civil Legal Needs Project, fully one-third of low- and middle-income Ontarians do not seek legal assistance for what they regard as legal problems. According to Pro Bono Law Ontario, large numbers of individuals are provided pro bono assistance by PBLO in non-family law civil litigation. Few of these are personal injury matters. According to a Department of Justice study in 2009, 42.2% of respondents who suffered a personal injury problem consulted someone other than a lawyer about that problem and presumably took proceedings for compensation.

And individuals commonly do not understand which day to day problems are legal problems. According to the 2009 Department of Justice study, legal advice is sought for less than 15% of justiciable problem in Canada.

There is another perspective from which to better understand unmet legal needs. With the advent of the internet and continued development of technology, unregulated legal services are now being delivered by entities such as LegalZoom. In order to avoid prosecution for unauthorized practice of law, these services are essentially do-it-yourself forms. That there is a market for these services strongly suggesting real opportunities for internet-based software-assisted form generation and other assistance.

There is no doubt that there are substantial areas on unmet legal needs. It seems logical to think that market liberalization could permit new ways of servicing these legal needs. Yet it must be conceded that there have not yet been surveys in jurisdictions permitting ABSs addressing whether legal needs have been better addressed after introduction of ABSs. And looking carefully at ABSs in operation in Australia and in England suggests that the largest practical effect of ABSs has been in personal injury. While there is evidence of ABS impact in England in mental health, consumer and social welfare matters, the volume of services delivered in those areas is not yet substantial. While there is evidence both in Australia and England of large consumer legal services firms established as ABSs providing family law services, there is not yet evidence of material positive impact on access issues in family law.

The conundrum faced is that the delivery of legal services is broadly reserved to lawyers (and licensed paralegals in Ontario). Yet what lawyers actually do for individuals is rather limited. There are substantial areas where lawyers do not provide services and, strictly speaking, no one else is allowed to do so either. While market liberalization should expand the legal services that are actually provided, the evidence so far from Australia and England indicates that market liberalization has a greater effect on personal injury work than in areas of greatest unmet or underserved legal needs.

While some will no doubt respond to this conundrum by asserting that nothing should change because change is complicated, one of the options that should be on the table for consideration is limited liberalization while we watch the results of greater liberalization in Australia and England. It may be that those concerned about consolidation in the personal injury sector are right to be concerned. Or it may turn out that, contrary to expectations of personal injury lawyers, large “consumer” firms can provide appropriate services. But there is no good way of sorting out the right answer now and time may tell.

But what doesn’t make sense is simply protecting existing ways of providing legal services when it is clear that there are significant access failures. The better alternative is to make it easier for lawyers to deliver services more broadly. But if that is not acceptable then the alternative must be to allow others to do what lawyers do not do.

Leave a comment

Filed under ABS and A2J

A Different Take on ABS

A Different Take on ABS – Proponents and Opponents Both Miss the Point

The Lawyers Weekly recently included an article by Cristin Schmitz entitled Study sounds note of caution in ABS debate. Ms. Schmitz discusses a thoughtful paper by Nick Robinson who is a research fellow with the Harvard Program on the Legal Profession.

In an interview with Ms. Schmitz, Mr. Robinson said:

“I’ve been amazed in this debate how much each side kind of talks past each other, dismisses the concerns of the other side, or the point of the other side. I am a bit cautious about non-lawyer ownership in the paper, but I can also see in certain situations how it could be beneficial.”

Dueling Arguments

The Robinson paper starts its discussion with what is described as the often “polarizing” claims made by ABS proponents and opponents. Proponents claim that non-lawyer ownership will increase access to legal services while opponents claim that it will undercut professionalism.

The arguments for the proponents are said to be that (i) access to outside capital permits economies of scale, infrastructure and specialization, (ii) non-lawyer ownership is an avenue not just to economic capital but also to “high-value employee with different skills sets”, (iii) outside investment allows consumers better information and quality of service by the development of brands which provide consumer information and an incentive to ensure quality and (iv) a business offering multiple types of services can provide services with greater convenience and efficiency.

The arguments for the opponents are said to be that (i) owners who are not themselves providing legal services are not personally invested in the labour of the enterprise and will accordingly be interested only in profits and not professional ideals and norms, (ii) non-lawyer ownership creates the potential for conflicts between the duties owed to investors and the duties owed to clients and the justice system, (iii) providing non-legal services together with legal services creates greater risk of misuse of confidential client information and unauthorized practice of law.

The paper suggests that, while these dueling perspectives both bring important insights, “the actual impact of non-lawyer ownership is likely to be quite different that either of these traditional accounts suggests” in material ways.

Country Studies

With a view to examining what actually has happened as opposed to the theoretical claims of proponents and opponents, the paper next considers the impact of ABS in Australia, England and the United States.

England

The paper examines two aspects of the English experience namely the effect of ABS on the personal injury and the insurance industry and the relatively limited impact of ABS on family law as opposed to the significant impact of cuts in legal aid.

As for personal injury, the paper notes ABS licensees are disproportionately concentrated in some sectors, particularly personal injury, where ABS firms account for one-third of the personal injury market share by last report. The paper suggests two reasons for this concentration. The first is recent unintended regulatory incentives which have encouraged claims management and insurance firms to invest in law firms. The second is that:

The personal injury market is both historically large and, at least in recent years, disproportionately profitable, making it a clear target for outside investors. Personal injury firms also require capital-intensive upfront costs, particularly in advertising and in creating an organizational infrastructure to screen and process claims.

The paper notes the risk for systemic conflict of interest between insurers and injured persons and the likelihood that economic efficiencies are not likely to much affect access where injured persons generally do not pay for legal services whether because of contingent fees, insurance or other arrangements.

As for family law, the paper notes that the Cooperative, an ABS with a social mission, has not been able to halt the massive increase in unrepresented litigants arising from the legal aid cuts of 2013 despite being one of the largest providers of family law services. The paper does not suggest that the adverse impact of these legal aid cuts has not been mitigated and will not be further mitigated but that the legal aid cuts had the more significant impact at least in the short term.

Australia

As for Australia, the focus of the paper is on the consolidation of the personal injury market with three firms now making up nearly one-half of the plaintiffs side of the market. The largest of the three has been publicly traded since 2007. The second largest is not an ABS. The third became a publicly traded ABS in 2013. The paper suggests that this consolidation is likely the result of regulatory factors such as prohibition of contingency fees and restrictions to the type of advertising allowed. The paper notes that the two firms that are now publicly traded were consolidating prior to their access to non-lawyer investment and that the other large firm does not have non-lawyer investment. Nevertheless, the paper suggests that publicly owned firms may have an advantage in acquiring other firms.

The paper draws limited conclusions from the Australian experience about non-lawyer ownership per se. The paper doubts that non-lawyer ownership is necessary for consolidation and closes with the observation that “Non-lawyer ownership may impact the cases these firms select and how they manage them, but, despite some aspersions otherwise, so far in Australia there is no clear evidence that it has led to significant new conflicts of interest”.

The United States

Despite non-lawyer ownership of legal practices being prohibited in the United States, the paper examines Legal Zoom and social security disability representation as close parallels.

The paper suggests that the effect of Legal Zoom is not well documented although access has likely been increased by pressure on prices. However, the paper notes that “a company like Legal Zoom is aimed primarily at small business and the upper middle class. In other words, people with the capacity to know that they have a legal problem and the resources and savviness to be able to seek out its answer and pay for it”. The paper also suggests that Legal Zoom has not increased access by “significantly decreasing the overall number of people without wills”[i].

The paper also considers the provision of social security representation which is permitted to be delivered by non-lawyers. The main point made by the paper seems to be that relationships between these firms and insurers and the social security agency has allowed for new potential conflicts to arise.

Observation

While the paper fairly describes this examination as being the “most extensive empirical investigation to date on the impact of non-lawyer ownership by focusing on its effects on civil legal needs for poor and moderate-income populations”, the actual empirical examination is nevertheless very limited. Recognizing the need of improved collection of data, the paper recommends that:

regulators should attempt to better track the cost of commonly used legal services, the demand for legal services, how these legal services are used, different pathways to resolving a legal issue, and how litigants use the courts. Sector specific studies should also periodically study the functioning of markets for specific legal services such as personal injury, immigration, probate, conveyancing, or family law.

Implications of the Empirical Review

The paper starts its consideration of its empirical review with the following observation:

Those who advocate for more integration by allowing non-lawyer ownership frequently argue this will lower prices and increase access and quality. Those who oppose greater integration worry it will undercut ethical and professional distinctiveness and create new conflicts. The country studies in this article show that while both sets of claims have some merit, they also miss critical components of nonlawyer ownership’s actual impact.

The paper suggests that the following contextual variables are important in the determination of “the actual scale and form that non-lawyer ownership will take”:

  • The nature of the capital and legal services market in the jurisdiction. A smaller market like Australia has seen less non-lawyer ownership than in England where the population is almost three times larger and there is a broader and deeper range of capital investors. The size of the U.S. legal and capital markets has allowed the rise of online legal services despite significant regulatory impediments.
  • The nature of legal services regulation in the jurisdiction. The recent referral fee ban in the UK has led to insurance companies[ii] investing in affiliated personal injury law firms. The Australian contingency fee ban appears to favour larger personal injury firms. The approach to ABS regulation may tend to encourage or discourage ABS formation.
  • The nature of the legal services. Non-lawyer investment appears to be more likely “in lucrative areas of the law that are amenable to economies of scale, where the work can be more easily standardized, and where other costs may be high (such as advertising, administration, or technology)”. Personal injury firms have seen disproportionate investment in Australia and England which may be because “personal injury has historically had large profits, high advertising costs, and a relatively routine and high volume workload of cases that are often handled by nonlawyers and mostly settle”.
  • The nature of the non-lawyer ownership. Ownership can be for-profit or not-for profit. Ownership may be by public listing, private outside investors, worker or consumer ownership, government owned or by a company that provides other goods or services. The nature of the ownership is likely to have an impact on the types of conflicts that develop the stability of the legal services market, professionalism and beneficial effects on access.

The paper observes that the empirical evidence does support the claim that “non-lawyer ownership can, in some circumstances, lead to new innovation in legal services, greater competition, larger economies of scale, and new compensation structures”. However, the paper also suggests that there are reasons to believe that non-lawyer ownership will not lead to significant access gains because (i) those in need of civil legal services often have few resources and, for them, legal aid is the answer, (ii) non-lawyer ownership is likely to be attracted to profitable sectors of the market, (iii) some legal services require the individualized attention of an experienced practitioner who charges high rates and the traditional worker owned partnership model may be the better approach in this context and (iv) there may be reasons other than price causing people not to address civil legal needs.

The paper also observes that, while the opponents of non-lawyer ownership often make claims that are too sweeping, there are genuine professionalism concerns raised by non-lawyer ownership such as (i) the potential for conflicting commercial interests such as insurers investing in personal injury firms, (ii) the potential for regulation to be by-passed such as the avoidance of the UK personal injury referral fee ban by insurer acquisition of legal practices, (iii) the potential for systematization of dubious practices, (iv) the potential for reputational concerns to limit the services provided to unpopular clients or riskier claims.

The paper observes with respect to professionalism challenges that:

… many of the most concerning new professionalism challenges identified in this article did not arise from non-lawyer ownership per se, but rather non-lawyer ownership that involves enterprises that also offer other services, and then only a sub-set of these enterprises. This suggests that jurisdictions adopting non-lawyer ownership should consider banning, or at least more heavily regulating, this type of ownership where the potential for conflict of interest is high, such as insurance companies owning personal injury law firms. When there is merely the potential for conflict or other professionalism concerns regulators should exercise their choice on when and how to intervene in the market. …

The paper notes that there are a number of regulatory policy choices to be made with respect to non-lawyer ownership. The paper encourages the development of more and better data to allow for more plausible claims to be made about the impact of non-lawyer ownership. Significantly, given the difficult judgment calls that are required, the paper calls for decisions to be made by regulators:

drawn from and drawing on a diverse set of opinions, including these two groups, but also consumer organizations, access advocates, other professional groups that deal directly with the public’s legal challenges (like doctors, educators, and accountants), and the academy.

Finally, the paper concludes that:

For policymakers the goal should not be deregulation for its own sake, but rather increasing access to legal services that the public can trust delivered by legal service providers who are part of a larger legal community that sees furthering the public good as a fundamental commitment. Carefully regulated non-lawyer ownership may be a part of achieving this larger goal, but only a part.

Some observations about the paper

In my view, this paper provides important insights for the ABS debate. As I have previously written, there is an unfortunate tendency to see ABS as utopian or dystopian while both the benefits and risks of ABS appear to be less than claimed by the duelists on both sides of the issue. The Robinson paper provides nuanced and thoughtful insight into non-lawyer ownership. It is right to conclude, as Mr, Robinson does, that ABS is no replacement for legal aid. Clearly, there are some legal services for which non-lawyer investment bears little advantage and there are consumers of legal services for whom market-based innovations will be of little import. As the ABS Working Group reported in February 2014, “it would be wrong to suggest that ABSs are a panacea”[iii]. But is wrong to dismiss any proposal on the basis that it is not a silver bullet.

I think that Mr. Robinson rightly observes that, at least at the outset, non-lawyer investment is most likely to focus on particular areas of practice particularly those which are lucrative and where capital can be put to use. Personal injury appears to be one such area. While it is likely right to be sceptical about efforts by existing practitioners to protect lucrative turf, it is also at least questionable whether it would be worth permitting ABS if the practical effect was primarily to partly consolidate the existing personal injury market rather to than expand the legal services that are provided in other areas. We should think hard about the likely impact of ABS in Canada taking into account Mr. Robinson’s insight that different geographic markets and different market sectors likely respond differently to non-lawyer investment.

Finally, Mr. Robinson’s focus on the interests of different investors is important. Mr. Robinson has written cogently about the professionalism concern that insurer-owned personal injury firms create systemic conflicts risks. The same concern can be raised about title insurer, mortgage lender or real estate brokerage ownership of real estate practices. While allowing access to economic and social capital is attractive, it is important to be careful about potentially conflicting interests of the capital providers.

As the title of this article is intended to convey, this “Harvard study” clearly advances this discussion. But it does not end it.

_______________________

[i] John Suh, CEO of Legal Zoom, suggested otherwise on March 6, 2014 at the Harvard Program on the Legal Profession conference entitled Disruptive Innovation in the Market for Legal Services.

[ii] and claims management companies

[iii] Para. 119 of the February 2014 LSUC ABS Working Group Report

Leave a comment

Filed under ABS and A2J

Not Both Ways

You Can’t Have It Both Ways

First published on slaw.ca

Either limit the regulatory monopoly or provide for the efficient and effective delivery of legal services for all legal problems

Access to justice and legal services is a central challenge both for society and for the legal profession. The extent to which members of the public are unserved, under-served or inefficiently served is a difficult issue for lawyers being both a challenge to existing practice and an opportunity for innovation.

As suggested in earlier columns, it seems to me that this access question raises central ethical questions. If there are some legal services which are not provided by lawyers[i], how can the current regulatory restrictions be justified for those services. If there are some legal services that can be effectively and properly be provided in other ways, how can current regulatory prohibitions against other means of legal service delivery be justified.

Broadly speaking, there are three potential supply-side policy responses[ii] that arise when one examines unmet legal needs. The first is now of long-standing. It is clear that a fully trained lawyer is not necessarily required for the effective and proper delivery of all legal services. Whether by expansion of paralegal scope of practice or by introducing new types of paraprofessionals, this is one of the tools to consider. The second is the controversial topic of alternative business structures which is essentially about accessing new resources, financial capital as well as business and technological, to develop new ways of providing legal services beyond the small professional consultancy model. The third is not yet well understood. If we cannot find ways to effectively have regulated lawyers, paralegals or alternative providers deliver legal services in some areas, there can be no justification for prohibiting anyone but licensees from servicing those areas.

There are two different area of demand side perspectives to consider. The first is areas of demand that are currently served by lawyers and paralegals. The second is areas of demand that are currently unserved or underserved. The point of this column is to help better understand the second by reference to a recently released study.

In 2013, the UK Legal Services Research Centre released a report entitled Civil Justice in England and Wales. There are many points of interest but I only propose to highlight a few.

The first is that the study found that many “justiciable” problems are not seen by the public as being “legal” problems. To quote the report:

Just over 10 per cent of problems reported through the 2010 CSJPS were characterised by respondents as “legal‟ (despite all problems involving justiciable issues), with 45 per cent being put down to “bad luck‟ or “part of life‟. Almost a third of respondents had no understanding of their rights at the time they first experienced problems, with a further one fifth having only a partial understanding.

Obviously, if someone does not even understand that a justiciable problem is legal in nature then legal assistance will not be sought. This practical observation is reflected in the further observation that:

Respondents sought advice for their problems from a wide range of advisers. Solicitors were the most commonly used source of advice – although Citizens Advice Bureaux, local councils and the police were also frequently used. Use of the Internet for advice seeking was observed to have increased still further to 24 per cent of problems. This continued the upward trend from 19 per cent in wave 1, 16 per cent in the 2006-9 CSJS, and just 4 per cent in the 2001 CSJS. The manner of conclusion of problems was, unsurprisingly, related to problem resolution strategy. For example, those who obtained advice were more likely to see their problem conclude through a formal process.

While it is perhaps reassuring that solicitors were the most common advisors for legal problems, the explosion of using the internet for advise seeking is noteworthy. But the limited use of legal advice is also significant. For those who sought advice in respect of justiciable issues, 25.9% sought advice from a barrister or solicitor. A broad range of other non-legal advisors also provided assistance.

This UK research helps us better understand similar Canadian research. In 2009, the Federal Department of Justice released The Legal Problems of Everyday Life. This report helps us explore the nature of justiciable problems experienced in Canada. The following chart from The Legal Problems of Everyday Life shows both the nature of justiciable problems and the those that cause problems for the public

Problem Type Number of
Problems Overall
Number of Problems
That Made Daily Life
Difficult
Per Cent
Consumer 1,480 639 43.2%
Employment 1,421 978 68.8%
Debt 1,444 721 49.9%
Social Assistance 49 38 77.6%
Disability Pensions 48 43 89.6%
Housing 95 65 68.4%
Immigration 35 29 82.9%
Discrimination 91 64 70.3%
Police Action 103 59 57.3%
Family: Relationship Breakdown 224 208 85.2%
Other Family Law Problems 68 63 92.6%
Wills and Powers of Attorney 330 228 79.0%
Personal Injury 161 136 88.9%
Hospital Treatment
and Release
86 69 84.1%
Threat of Legal Action 51 29 65.9%
Total 5,655 3,369 59.6%

The Legal Problems of Everyday Life (at p. 56) is the source of the information noted in an earlier column that legal assistance is sought for only 11.7% of justiciable problems.

By contrast, 16.5% of those surveyed took no action at all but for a reason, 22.1% sought assistance but not legal assistance and 44.0% handled the problem on their own. Only 5.7% took no action because they felt that the problem wasn’t important enough.

The analysis of the use of non-legal assistance to address justiciable problems is interesting:

Understandably, respondents experiencing problems involving the threat of legal action were least likely to use a non-legal source of assistance, 9.8 per cent …. On the other hand, respondents experiencing a personal injury problem were most likely to consult a non-legal source of assistance, 42.2 per cent of all people experiencing a problem of that type …. Employment, 35.8 per cent …, housing, 33.7 per cent … and problems related to disability benefits, 33.3 per cent … are other areas in which respondents were relatively highly likely to resort to non-legal sources of assistance. It is particularly interesting that 35.8 pre cent … of respondents who experienced a problem related to wills and powers of attorney said they used some form of non-legal assistance. This is a problem area that would seem to be pre-eminently within the legal domain.

It is noteworthy that people with personal injury problems and problems relating to wills and powers of attorney are particularly likely to seek non-legal advice. It is less surprising that employment, housing and disability benefit problems are relatively likely to be addressed with non-legal assistance.

For the 16.5% who did not address their justiciable problem (and did not seek any assistance yet thought their problem important), approximately one-third thought that there was nothing that could be done, approximately 10% were uncertain of their rights and approximately 10% thought that taking action would take too much time.

In 2010, the Ontario Civil Legal Needs Project released its report Listening to Ontarians. This study proceeded on a different basis than the two studies previously mentioned. Rather than examining all justiciable problems (whether or not understood as legal problems), the Ontario Civil Legal Needs Project considered what Ontarians understood to be a “civil legal problem or issue”[iii]. As the report put it:

Our survey indicated that 35 per cent of low and middle-income Ontarians said they had experienced a civil legal problem or issue in the last three years. People mentioned a broad range of problems or issues that caused them or someone in their household to need legal assistance, including problems with a family relationship, wills and powers of attorney, real estate transactions, housing or land, employment, personal injury, money or debt, legal actions, disability-related issues, traffic offences, immigration, and small or personal business issues.

Yet even where a legal problem or issue was recognized as such, approximately 30% did not obtain legal assistance and

One in three respondents among low and middle-class Ontarians said they prefer to resolve their legal needs by themselves with legal advice, but not necessarily with the assistance of a legal professional. Legal advice was sought from a variety of sources, both legal and non-legal. In addition, many civil problems are resolved outside the formal justice system.

What can be taken from all of this is that a very low proportion of justiciable problems are addressed with legal assistance. Non-legal assistance is more common than legal assistance. Justiciable problems are not understood to be legal problems. Even where a problem is understood to be a legal problem, a substantial proportion of the public does not seek legal assistance.

In this context, it is clearly difficult to justify permitting only lawyers (and in Ontario regulated paralegals) to engage “in conduct that involves the application of legal principles and legal judgment with regard to the circumstances or objectives of a person” to quote the Law Society Act (Ontario). If only “legal service providers” are permitted to assist then ways must be found for legal services to be available and desirable. Alternatively, there is no real alternative but to allow others to provide these services.

The choice must ultimately be between limiting, or even ending, the regulatory monopoly and ensuring that services can can actually be delivered within the regulated sphere.

_________________________

[i] and regulated paralegals in Ontario and notaries in British Columbia

[ii] I examine this issue for the purposes of this column without examining two other hard access questions namely (i) the source of payment for legal services (i.e. legal aid or pre-paid legal insurance) and (ii) the extent to which the complexity of the administration of justice is part of the access problem.

[iii] The Quantitative Report by Environics states at p. 15 that in the survey, “respondents were asked to volunteer the kinds of issues and problems that they had experienced for which they had sought legal assistance or for which they thought legal assistance might have been helpful even though they did not avail themselves of such assistance”.

Leave a comment

Filed under ABS and A2J, Uncategorized

Fear of Walmart

Professionalism and the “Fear of Walmart”: Would You Like Some Bananas With That Tort?

In 1983, the American Bar Association adopted the ABA Model Rules that are the basis for most of the current codes of conduct in the United States. The drafting body was known as the Kutak Commission. The Kutak Commission proposed a rule permitting, but regulating, non-lawyer ownership of law practice entities. Proposed Model Rule 5.4 would have permitted a lawyer to be “employed by an organization in which a financial interest is held or managerial authority is exercised by a non-lawyer . . . but only if the terms of the relationship provide in writing that”:
  • There is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship;
  • Information relating to representation of a client is protected as required by Rule 1.6;
  • The arrangement does not involve advertising or personal contact with prospective clients prohibited by Rule 7.2 or 7.3; and
  • The arrangement does not result in charging a fee that violates Rule 1.5.

The Kutak Commission said over thirty years ago that “[t]he assumed equivalence between [nonlawyer ownership] and interference with the lawyer’s professional judgment is at best tenuous” and “[a]dherence to the traditional prohibitions has impeded development of new methods of providing legal services”[1]. The response to the Kutak Commission’s proposal generated a new phrase, “Fear of Sears”[2]:

One question and its answer derailed any possibility of the MDP and corporate investment proposal during the House of Delegates debate on the package of Kutak Commission proposals; “Does this mean Sears can open a law firm?’” Geoffrey Hazard, Reporter for the Commission said “Yes,” and the debate ended with a resounding defeat of the proposal. The “fear of Sears,” as it has come to be called, conjured images of major retailers selling not only insurance and financial advice through in-store affiliates, but legal services. The attractive possthility that ordinary Americans might he able to obtain simple legal services quickly and easily was of no matter. …

In a striking parallel, the first statement made in Convocation in February 2014 in response to the Report of the ABS Working Group was virtually identical, other than referring to Walmart rather than Sears. “Fear of Walmart” may be the new “Fear of Sears”. A respected life bencher with 50 years in practice said in Convocation[3]:

And then, by the same token, I could put a sign out to say today we’ll do two wills for the price of one. Come to us because we’re selling bananas.

… My view is the moment we permit our profession to go into the Walmarts or the Best Buy stores or any of the big box places, somehow it loses some of our professionalism.

This contrast between “professionalism” and the provision of legal services in a Sears or a Walmart is obviously emotionally evocative. Many lawyers clearly are offended by the very idea. But what exactly is in issue when professionalism is said to be put at risk is not so clear. One academic has said[4]:

… “professionalism” is a feel-good term, but a term without content. We may think we can recognize good professional behavior when we see it, but the terms “professional” and “professionalism” tend to mean what a given speaker wants them to mean. Too often, people who invoke professionalism use it to stop analysis rather than further it. In short, professionalism tends to be a rallying cry, not a concept.

The claim that professionalism would be put at risk were Sears or Walmart to offer legal services could mean a number of different things. The underlying concern could be that:

  • client interests such as protection of “professional values” confidentiality, avoidance of conflicts, independence of legal advice, competent provision of services and zealous representation could be compromised by business interests and culture;
  • properly serving clients requires a “professional environment” on the theory that the trappings of professionalism support client confidence in the services provided;
  • existing legal practices might not effectively compete with a Sears or a Walmart and so allowing such competition threatens “professional self-interest”;
  • allowing a Sears or a Walmart to provide legal services devalues the status and self-worth of lawyers as professionals by not maintaining “professional dignity”; and
  • allowing any legal services to be provided other than by fully independent lawyers will lead to the “collapse of the profession”.

The issue of non-lawyer ownership interests in legal practices is not the only context in which the “idiom of professionalism”[5] has been used in debate about legal ethics over the years. While it would seem strange to us now in Canada, it was once argued that in-house lawyers should not be allowed to give legal advice to their employers because their independence of judgment would be comprised by their employment[6].

When automobile clubs and trade unions offered group legal service plans in order to take advantage of group purchasing power, lawyers attacked those plans as compromising professional independence[7].

For many years, lawyers provided legal services priced on the basis of fee tariffs which were sought to be justified on the basis that price competition would compromise professionalism[8].

Advertising by lawyers was similarly long prohibited[9]. The following passage from a U.S. judgment striking down a categorical ban on advertising by lawyers is instructive. The Court observed that the state bar placed:

particular emphasis on the adverse effects that it feels price advertising will have on the legal profession. The key to professionalism, it is argued, is the sense of pride that involvement in the discipline generates. It is claimed that price advertising will bring about commercialization, which will undermine the attorney’s sense of dignity and self-worth. The hustle of the marketplace will adversely affect the profession’s service orientation, and irreparably damage the delicate balance between the lawyer’s need to earn and his obligation selflessly to serve. Advertising is also said to erode the client’s trust in his attorney: Once the client perceives that the lawyer is motivated by profit, his confidence that the lawyer is acting out of a commitment to the client’s welfare is jeopardized. And advertising is said to tarnish the dignified public image of the profession.

The common thread of these historical examples is that lawyers have sought to avoid bing subject to various market forces on the basis that market exposure compromises “professionalism”. Lawyers have opposed the employment of in-house lawyers, the provision of group and union legal plans, advertising and price-competition all on the basis that professionalism/professional independence would be compromised.

But as can easily be seen, each of these positions is consistent with self-interest disguised as altruism. And in retrospect, the apocalyptic claims made to avoid or reduce market competition have not proven to be correct. The sky has not fallen. Nor has the sky-fallen in other jurisdictions where non-lawyer investment in legal practices has been permitted.

How then to think about the claim that “Walmart law” threatens professionalism? The balance of this column sketches out responses that question[10].

It is important to carefully examine whether “Walmart legal clients” would be at risk of compromised legal services and loss of the “professional values” to which they are entitled such as protection of confidentiality, commitment, candour and competence and freedom from conflicts. I consider this the truly central question. While some simply state, as an article of faith, that the provision of legal services and professional values will inevitably be compromised, this is far from obvious to me. As discussed elsewhere, the actual evidence appears to be to the contrary. No doubt some approaches will carry undue risk. But it seems very unlikely that only the traditional lawyer-owned and controlled practices can possibly provide proper legal services. Being thoughtful about new approaches to legal regulation seems to me to likely be the way to approach the very proper issue of protection of “professional values”. If this is what professionalism is really about then I’m all in favour.

It is difficult to imagine that protecting the “professional environment” is really at issue so far as “Walmart legal clients” are concerned. The point of allowing “Walmart law” is to allow greater consumer choice. There is good evidence that many people with legal problems do not obtain legal services at all let alone in a “professional environment”. Providing new ways of accessing and delivering legal services is intended to address these unserved legal needs. It is difficult, at best, to accept that these potential clients are better off receiving no legal services at all than having to endure a retail environment. And while lawyers may lose some clients, presumably clients will choose the environment that suits them best.

Professional self-interest” of course causes lawyers to fear loss of business to new types of legal service providers. The first response to this concern is it is not a legitimate justification for law society regulation. A second response is that lawyers must not think much of their services if they think that their clients will so easily be lost. A further response is that competition from new types of legal service providers will cause lawyers to innovate in response to new competition. There is also a claim from some that these new types of legal service providers will engage in predatory pricing, drive all lawyers out of the market and then jack up prices. However, there is no evidence for this claim and no economic theory or analysis cited in support.

Fear of loss of “professional dignity” may well underlie, at least in part, the reaction of some lawyers to “Walmart law”. For lawyers who have worked hard to well and ethically serve their clients and develop their professional reputations, the title of “lawyer” is hard earned and jealously protected. But it is difficult to see any substantial basis for the fear of loss of professional status nor that protecting professional status could be a proper reason to continue to prohibit new ways of providing legal services.

As for “collapse of the profession”, there is no evidence for any such claim from the countries where non-lawyer ownership has been permitted. Nor is there any serious explanation for how this might actually occur[11]. Not being certain how things may evolve is no basis for prohibiting all change especially when problems that may arise very likely can be addressed as they arise.

The point of this column is not so much to argue each of these points but rather to highlight that claims of endangered professionalism are quite imprecise. The invocation of professionalism tends “to stop analysis rather than further it, … [it is] a rallying cry, not a concept”.

This is not to suggest that lawyers making such claims necessarily do so disingenuously or as mere advocacy. Rather care is required in discussion so that the true basis of any claim is made clear, the rationale and evidence for the claim is elaborated and as such can be fairly addressed.

Merely asserting that new ways of providing legal services are inconsistent with professionalism is to call on emotional and intuitive responses rather than to genuinely advance the discussion. A deeper discussion that genuinely considers the advantages and risks of liberalization is required.


[1] Ted Schneyer, Professionalism as Pathology: The ABA’s Latest Policy Debate on Nonlawyer Ownership of Law Practice Entities, 2013, 40 Fordham Urb. L.J. 75

[2] James E. Moliterno, The American Legal Profession in Crisis: Resistance and Responses to Change, 2013 at p. 165

[3] Law Society of Upper Canada, Transcript of Convocation, February 27, 2014, pp. 132 to 133

[4] Thomas D. Morgan, Calling Law a “Profession” Only Confuses Thinking About the Challenges Lawyers Face, 2011, 9 University of St. Thomas Law Journal 542

[5] Ted Schneyer uses this phrase in his article Professionalism as Pathology

[6] Ted Schneyer, Professionalism as Pathology: The ABA’s Latest Policy Debate on Nonlawyer Ownership of Law Practice Entities, 2013, 40 Fordham Urb. L.J. 75 at para. 94 et seq

[7] Stephen Gillers, How to Make Rules for Lawyers: The Professional Responsibility of the Legal Profession, 2013, 40 Pepperdine Law Review 365 at p. 377 et seq

Ted Schneyer, Professionalism as Pathology: The ABA’s Latest Policy Debate on Nonlawyer Ownership of Law Practice Entities, 2013, 40 Fordham Urb. L.J. 75 at para. 96 et seq

[8] Waterloo Law Association et al. v. Attorney-General of Canada, (1986) 58 OR (2d) 275

Stephen Gillers, How to Make Rules for Lawyers: The Professional Responsibility of the Legal Profession, 2013, 40 Pepperdine Law Review 365 at p. 380 et seq

Ted Schneyer, Professionalism as Pathology: The ABA’s Latest Policy Debate on Nonlawyer Ownership of Law Practice Entities, 2013, 40 Fordham Urb. L.J. 75 at para. 99 et seq

[9] Stephen Gillers, How to Make Rules for Lawyers: The Professional Responsibility of the Legal Profession, 2013, 40 Pepperdine Law Review 365 at p. 383 et seq

Ted Schneyer, Professionalism as Pathology: The ABA’s Latest Policy Debate on Nonlawyer Ownership of Law Practice Entities, 2013, 40 Fordham Urb. L.J. 75 at para. 101 et seq

[10] Itis not just the practice of law in a Walmart or a Best Buy that is in issue. Rather “Walmart law” is a useful label for non-traditional provision of legal services. “Walmart fear” is the fear of that change.

[11] Claims have been made that the United States provides an example of problems with non-lawyer ownership of legal practices. This is a peculiar claim as the United States does not allow non-lawyer ownership and has the harshest approach to unauthorized practice. What is true is that some states have entirely deregulated some areas of legal service such as residential real estate. That is quite different than allowing non-lawyer investment in legal practices subject to appropriate rules governing conflicts, competence, committment, candour and the like.

2 Comments

Filed under ABS and A2J, Uncategorized

Reform but not change

Being in Favour of Reform, Just Not Change

To a hammer, everything is a nail

There is an old aphorism that “To a hammer, everything is a nail”. The aphorism reflects the centrality of perspective. Where you stand very much affects what you can (or want to) see.

I think that Professor Julie Macfarlane makes this point in the context of discussions about access to justice. Professor Macfarlane has carefully researched and thoughtfully written about the reality that most family law litigants don’t use lawyers. She speaks about this issue with lawyers yet, as she seems to say, the discussions with lawyers about this topic are, at best, stilted. I suspect that this is because lawyers see the access to justice issue from their professional perspective, are rightly proud of the work that they do for clients and have difficulty processing the access to justice issue from any perspective other than their own.

So the main point of this column is to try to address the A2J question from a different perspective and to use that perspective to look at the solutions offered.

Middle Income Access to Justice

In 2012, Professors Trebilcock, Duggan and Sossin published Middle Income Access to Justice. The book drew on 23 surveys of the public’s experience with justiciable problems undertaken across 13 countries.

The importance of this approach is that it looks at justiciable problems experienced by the public rather than looking at what lawyers do. The punch line is that there is a difference. Lawyers know what lawyers do. Lawyers fairly believe that lawyers do good things. So lawyers don’t see problems. To a hammer, everything is a nail.

The 2009 Ontario Civil Legal Needs Project is examined in the book by Professors Baxter, Trebilcock and Yoon. They examine the data seeking to determine what predicts the decision to seek legal advice. In other words, when do the members of the public go to lawyers for help? The answer is that it is the problem type significantly predicts whether a lawyer is consulted. And there are four problem types that predict the involvement of lawyers namely criminal, family, wills and powers of attorney and real estate. While not significant in a statistical sense, personal injury comes a close fifth on the numbers.

That the public goes to lawyers for criminal, family, wills and powers of attorney, real estate problems and personal injury problems should come as no surprise to lawyers. This is pretty much exactly what lawyers say that they do for individuals. In 2005, the Law Society of Upper Canada Sole Practitioner and Small Firm Task Force reported that lawyers in sole practice and in small firms generally represent individuals (77%) and that these lawyers practice real estate (46%), civil litigation (39%), wills, estates, trusts (35%), corporate and commercial (33%) and family (26%).

What do lawyers do? What legal needs exist?

Given that the public says that it uses lawyers for criminal, family, wills and powers of attorney, real estate problems and personal injury problems and that this is what lawyers say they do, we can have a strong degree of confidence about the nature of the practice of law for individuals.

Solicitors do real estate work, assist with wills, estates and trusts and also do some corporate and commercial work (presumably for small businesses). Litigators do criminal, family and personal injury litigation. Some lawyers of course do solicitors work as well as litigation.

That these are the categories of work done by lawyers makes obvious sense. Members of the public with significant assets use solicitors to help them with real estate transactions and in dealing with inheritances made or received. Members of the public who have trouble with the criminal law, who are in failed family relationships or who seek compensation for significant personal injury use litigators.

But what lawyers don’t see and cannot appreciate is that this amounts to a relatively small portion of the justiciable problems experienced by members of the public. According to the 2009 Ontario Civil Legal Needs Project, the public only seek legal assistance in respect of 11.7% of justiciable events.

Said simply, the public use lawyers for less than 15% of the justiciable events experienced by them. Said another way, what is 100% of lawyers’ practices is less than 15% of the public’s legal needs.

What about the other 85%?

Of the over 85% of justiciable problems that don’t attract legal attention, approximately 60% are consumer problems, money/debt and employment problems. A smallish proportion is in respect of discrimination, housing, hospital treatment/release, welfare benefits, disability benefits, immigration and other matters.

Should we care about the 85% of legal needs that are not addressed by lawyers? For the legal philosopher, the answer must be yes. As Professors Trebilcock, Duggan and Sossin put it “Most conceptions of the rule of law assume equality before the law and hence access to law or the justice system as one of its fundamental predicates”. And as Professor Gillian Hadfield argues, it seems quite wrong that the businesses on the other side of these justiciable events have expert legal assistance while the public does not. For the Law Society, the answer must also be yes given its public interest mandate. For individual solicitors and litigators who are struggling to do a good job and make a decent living, it is not surprising that this 85% is not on their radar.

The next question is why are lawyers used for less than 15% of legal needs? This is not well examined but I think the reason is clear. Lawyers are small business people who sell their time and expertise to help members of the public solve their problems. Taking into account the incomes reasonably required by university-trained highly intelligent professionals and their overheads, the fees for lawyers solving problems are measured in the hundreds of dollars per hour of time spent.

Real estate transactions and issues with inheritances are economically significant enough that the cost of a lawyer is justified. Personal injury claims work economically where the compensation likely attainable is large enough to justify legal fees.

Criminal law and family law are more problematic. Criminal law problems undoubtedly require legal assistance but accused persons often cannot afford the fees. As a society, we (mostly) address the importance of criminal law problems and the inability of those with criminal law problems to pay for legal assistance through legal aid.

Family law is the problem child from the lawyers perspective. The issues are difficult enough to justify legal assistance. People often cannot simply choose to ignore the family law issues whether because custody of children is at issue, support is needed or assets are being divided. Most people don’t use lawyers for family law problems. Not because they don’t want to but rather because they can’t afford to pay what turns out to be a large and unpredictable cost.

As for the remaining 85%, the fees of the legal expert are out of proportion with the size of the problem to be solved and, unlike criminal or family law, the public isn’t forced into the legal system.

What to do about the 85%?

So what to do? We could ignore the 85% and hope that no one notices. This seems to be the current approach.

We could hope that society comes to see these legal needs as being as compelling as health or education and provide legal aid funding. There are two problems with this approach. First, it won’t happen. Second and more important is that it is wrong to require society to pay for solutions the cost of which is disproportionate to the problem addressed. Even people with sufficient resources generally do not use lawyers for these problems because of the cost benefit equation. The business model of the small business lawyer does not provide an efficient way to address the 85% whether privately funded or funded by legal aid.

We could (and in Ontario have) allow regulated paralegals to address a portion of the 85%. While the business model is essentially the same, paralegals charge less and so can efficiently address some of the 85%. Small claims court work is a good example. But the advocacy provided by regulated paralegals solves at best a small part of the 85% puzzle.

There are two remaining choices. Neither will be attractive to practising lawyers. The first is to end the monopoly. If lawyers and regulated paralegals can’t efficiently address over 85% of legal problems then it makes sense simply to get out of the way. It makes no sense to prohibit anyone but a member of the Law Society from doing work that members of the Law Society don’t do.

The alternative choice is to encourage innovation by regulatory liberalization permitting other ways of delivering legal services. Having small businesses spend expert professional time on problems is not the only way to address problems. Technology and business processes can provide lower cost solutions. Larger businesses with scope and scale can deliver services in a way that the small business professional cannot.

My preference is to allow new ways of providing legal services under regulatory supervision. I am uncomfortable with the deregulation alternative. But I don’t see how doing nothing is acceptable.

Returning to the 15% (actually the 11.7%)

Criminal, family, wills and powers of attorney, real estate and personal injury problems make up the 11.7% of justiciable problems for which the public turn to lawyers for assistance. These are problems that lawyers see and seek to solve for their clients.

For criminal law, there is a clear issue of access to justice. But the answer is mostly, if not entirely, proper legal aid to ensure that competent criminal lawyers are engaged to protect fundamental constitution rights.

For real estate transactions, there is no reason to think that access to legal services is an issue. While there are likely efficiencies available through new ways of providing legal services, the issues in real estate law aren’t really about access.

For wills and powers of attorney, the issue is a bit more complicated. For those with property of sufficient value, the current system no doubt works reasonably well in terms of access. As in real estate, services could likely be more efficiently. But, it is also clear that the majority of Canadians do not have a will nor a power of attorney. For the majority of Canadians, wills and powers of attorney are in the 85% not the 15%. But lawyers do not see this as an issue because lawyers ably serve the minority of the public who have sufficient assets in their estate or a sufficient inheritance to justify paying lawyers’ fees.

For personal injury law, the contingent fee substantially addresses the access issue. However, the small business professional model limits the risk that can be taken by personal injury lawyers. With limited capital and limited volume, personal injury lawyers inevitably will tend to take on claims that are most certain to pay off. And it is common that clients are required to fund disbursements which may or may not be affordable.

The greatest access problem in the 15% is in family law. Family law litigants often start off with a lawyer but then try to represent themselves because legal fees are large and unpredictable and the amount of the family assets do not justify the legal fees. Professor Macfarlane’s research indicates that 70% of family law litigants are unrepresented. It seems that many start in the 15% but most end up in the 85%. Family law lawyers do not have the volume of business or the working capital to work on a fixed or predictable fee basis. The hourly rate legal model is unable to reduce price without reducing lawyers incomes. Technology and process innovation are not brought to bear because of lack of investment capital and expertise.

Improving access to justice in family law is complicated. Part of the answer may be allowing paralegals to do some of the advocacy work that is no longer being done by lawyers. Part of the answer may be in reducing the complexity of the process by which family law disputes are resolved. But there is reason to think that allowing evolution of business structures can be part of the solution as well. In Australia, firms which have taken advantage of access to external capital are now providing fixed fee family law services. As well, the well-capitalized Australian firms (e.g. Shine Lawyers, Slater & Gordon) fund disbursements in personal injury matters as well as fees.

To return to the beginning, it seems that it can be difficult for lawyers to appreciate the access issues that exist in our legal system. This may be because our perspective is inherently limited and we are rightly proud of that which we do. There is also a natural fear of change and, for some, a tendency to exaggerate how well things are going and how badly things could be if the status quo is not maintained. In my view, there is a compelling need for reform to advance access to justice. The scholarly thinking (e.g. Hadfield, Semple) and the actual evidence shows benefit, not harm, from allowing new ways of providing legal services. We actually need to change.

Leave a comment

Filed under ABS and A2J, Uncategorized

Utopia, Dystopia and ABS

Utopia, Dystopia and Alternative Business Structures

I’ve spent a lot of time over recent months thinking about alternative business structures and how to think about regulatory liberalization.

Except in very limited circumstances[1], only lawyers[2] can have an ownership interest in a legal practice whether organized as a partnership, a limited partnership or a professional corporation. As a practical matter, only legal and strictly ancillary services can be offered to clients by a legal practice.

Individuals and small businesses are overwhelmingly served by lawyers in sole practice or in small firms. Lawyers sell their time to clients. Time is measured in billable hours. The inexorable arithmetic of the number of hours in the year and the cost of overhead together with the market alternatives of most people who have the capacity to become lawyers results in hourly rates of $150/hour and up.

The current business structure is selling time by the hour in sole and small practice with the financing of the practice by the lawyer out of his or her own resources (or by personal bank borrowings). I think of this as the small professional consultancy structure.

In a recent paper[3], Professors Iacobucci and Trebilcock discussed constraint of law firm business structures using two separate economic concepts. Under the “theory of the firm”, there can be economic advantages for owners (and customers) not to have to go out into the market but instead to obtain related services within the firm. Under the heading “capital structure”, constraining access to capital limits what a business can do because capital is required for business and technological innovation and because owners who can only invest their personal resources are naturally conservative. Few individuals are willing to risk everything on a risky innovative venture.

In another recent paper[4], Professor Ray Worthy Campbell looked at the topic of innovation and scholarly thinking about Disruptive Innovation. The point made is that some innovations are disruptive and that some are sustaining. It is difficult for a successful business to adopt a disruptive innovation. In the 1970s, IBM was Big Blue – the manufacturer of 360 and 370 main frame computers. IBM didn’t and couldn’t bring the personal computer to market. Young entrepreneurs like Bill Gates and Steve Jobs came from their garages not from IBM.

For a lawyer, there are sustaining innovations that are easily adopted; like memory typewriters, word processors, fax machines, desktop/laptop computers, smart phones and the like. These innovations sustain the consultancy and are affordable by small consultants. But other innovations are disruptive of the consultancy and require resources and expertise out of the reach of the small consultant.

Professor Campbell discusses three business paradigms; “solution shops”, “value chains” and “value networks”. He says that lawyers, doctors, detectives, engineers operate “solution shop” businesses. To my way of thinking, there are all consultancies with the size of the consultancy being tied to the economic size of the problem seeking a solution.

A “value chain” transforms inputs into products by a process. Think Ford, GM, Chrysler or Google Translate. A “value network” links customers for collective advantage. Think Ebay, an insurance company or Home Hardware. The point is that the competencies required for these different business types are very different. A professional consultancy is very unlikely to evolve into an essentially different type of business.

So why is any of this interesting or possibly useful? One answer is that there are substantial areas in which legal needs are going unfilled because the legal services are simply too expensive according to the potential client. But the only way to reduce price under the small consultancy model is for lawyers to reduce their incomes. In contrast, value chain businesses can develop business and technological processes to deliver services differently. In the 1970s, I worked part time while a student for H&R Block doing tax returns using pen, paper and a calculator[5]. Now I use Quicken downloaded from the internet. Quicken now is cheaper than I was then – and more competent too! While law is more complicated than tax return preparation, technology already exists to address legal problems and the pace of development is only accelerating.

Another answer is that lawyers practicing alone in small consultancies don’t have access to business and legal infrastructures that would make practice better both for the lawyer and for the client. Many lawyers would rather practice law and not have to run a small business as well. Lawyers operating as smalls and soles tend to reinvent the wheel rather than draw on existing knowledge or on the expertise of others.

A third answer is that legal service innovations are occurring but not involving lawyers because lawyers aren’t allowed to combine their legal practices with the innovators[6]. Regulation of lawyers doesn’t stop innovation. It just dictates where innovation won’t happen.

The reformer sees the possibility for clients to be served who are not now being served at all, for current clients to be served better and for lawyers to be innovators rather than to have innovation done to them.

The risk for the optimistic reformer is utopian thinking. It is unlikely that legal practice will be transformed. There is no doubt real value in small consultancies. Lawyers are, by nature, independent and sceptical. Many are probably well suited to practising on their own. And being an employee in a large enterprise isn’t always great. Some employers are better than others. There are advantages and disadvantages. And disruption means that some firms will be winners and some will be losers.[7]

So what is the issue on the other side. There are essentially two issues. The first is protectionism which is rarely, if ever, expressly stated. Lawyers, like everyone else, fear change that could adversely affect them. This fear of adverse consequences of course gets dressed up as something else; sometimes consciously and sometimes not. The deeper and more important issue is independence, both of the profession and of the individual lawyer as professional advisor/advocate.

The pessimistic conservative fears a dystopia; that allowing any alternative business structures will transform the practice of law. Lawyers will no longer be in charge of their practices or of their profession. The rule of law and our free society will be imperilled. Any change could mean total change.

The dystopian naturally does not see sufficient advantage in reform to justify perceived real risk of devastating change. Any change may lead to this dystopia. The dystopian looks in vain for promises of transformation of access to justice and legal services that could justify such a risk but there can be no such promise.

The truth of the matter is that the advantages of ABS liberalization are probably limited and that the risk of significant harm from ABS liberalization is probably remote and capable of mitigation.

Where I end up is that we should try to be more sensible and less visionary in our approaches and in our justifications. It is not necessary to throw caution to the winds in order to permit greater innovation. We should look hard at specific rules and think clearly about whether there are sensible less restrictive alternatives.

In Ontario, the Law Society Act instructs that the Law Society has duties to (i) maintain and advance the cause of justice and the rule of law, (ii) facilitate access to justice for the people of Ontario and (iii) to protect the public interest. All of these duties are in play in the alternative business structure discussion. The reformers see the prospect for greater access to justice (and legal services). The conservatives fear impairment of the cause of justice and the rule of law. Both seek to advance the public interest. Neither is wrongly motivated.

But there is another relevant instruction in the Law Society Act which states as a principle that:

“Standards of learning, professional competence and professional conduct for licensees and restrictions on who may provide particular legal services should be proportionate to the significance of the regulatory objectives sought to be realized.”

I think that there is much wisdom in this pragmatic non-utopian non-dystopian principle. The issue of ABS regulatory liberalization is best addressed pragmatically and incrementally.

In sensible Canadian fashion, we should be able to renovate the kitchen without destroying the house. Throwing all caution to the wind risks real harm. Being unwilling to reform for fear of revolution fails to achieve attainable advantages but also ultimately risks radical change imposed by others.

 


[1] In BC, family members can own shares in a professional corporation. In Québec, regulated professionals can be partners and shareholders in multi-disciplinary corporation. There are a few, very few, Multi-Disciplinary Practices (MDPs).

[2] and regulated paralegals in Ontario

[3] Edward Iacobucci and Michael Trebilcock, An Economic analysis of Alternative Business Structures for the practice of law, Commissioned by the Law Society of Upper Canada for its ABS Symposium held October 4, 2013

[4] Ray Worthy Campbell, Rethinking regulation and innovation in the U.S. legal services market, 9 NYU Journal of Law & Business 1 (2012)

[5] In 1973, the HP Calculator was a new technological innovation. It was a sustaining innovation for consultancies including tax preparation.

[7] Which doesn’t necessarily mean that the people in the disrupted practices won’t find new and perhaps better opportunities.

Leave a comment

Filed under ABS and A2J, Uncategorized

A2C Crisis

The Access to Clothing Crisis

Access to Clothing[1] is a complex issue that seems almost impossible to effectively address. Some consider it one of our most pressing issues[2]. The well-off continue to be able to afford appropriate clothing for all occasions. The least fortunate amongst us are able to access free or subsidized clothing to be worn during the most important events in their lives. The middle class cannot afford to purchase clothing at all.

To the great discomfort of businesses, restaurants and hosts and hostesses everywhere, most members of the middle-class have given up wearing purchased clothes entirely. Many people now wear home-made clothing that is barely adequate[3] for most occasions. Public policy analysts refer to this group as the self-clothed. Many other people eschew clothing entirely. These are the unclothed.

The Tailor’s Guild is naturally very concerned, being good professionals, and also being faced with public criticism from the best-robed members of society. Tailors have encouraged their apprentices and journeymen to work in pro-bono clinics as duty-tailors. But there still remain far too many self-clothed and un-clothed.

Naturally, this problem has not gone unnoticed. There has been much discussion amongst the great and the good given the fundamental importance of clothing. One approach has been to focus on the modern trend for clothing that is unnecessarily expensive. There is much merit in this analysis as it is difficult to understand why tuxedos and ball gowns have come to be required in shopping malls and bowling alleys. We may have come to require fancier dress than is actually fit for purpose.

Many tailors do not accept that the self-clothed and un-clothed can be making reasonable choices. Clothing is fundamental. Tailors charge fair rates that reflect their training and expertise and which allow them a reasonable standard of living. To earn a living at the hourly rates that the self-clothed and un-clothed could afford to pay would mean working 60 hours a day. Even increasing leverage by hiring more apprentices and journeyman does not reduce the blended hourly rates sufficiently.

The Tailors’ Society is naturally concerned as well. Effective regulation in the public interest requires ensuring Access to Clothing. But it is also important that professionalism be maintained. The tailor-client relationship is highly important. It is well understood that one’s clothing is a fundamental aspect of one’s identity and that tailoring fit clothing requires the exercise of professional judgment taking into account the particular shape and character of the client.

In order to protect the public, it has been thought best to require that tailors own and control all tailor practices. Who but tailors could be trusted with knowledge of intimate client measurements and preferences? Tailors have, understandably, been prohibited from sharing any of their hourly rate revenue with anyone except other tailors. Perhaps for this reason, most tailors practice in sole practice or with several other tailors[4].

Some have suggested that modern production processes and technology could be used by tailors to produce cheaper “off-the-rack” clothing at a lower cost . While some of the large tailor firms have made progress using project-planning tools and by garment process outsourcing, the tailors serving individuals in sole practice and small firms do not have the experience, expertise or the capital to innovate outside of the hourly rate framework. And those in the business and technology world have little interest in tailoring. They cannot invest in tailoring practices and tailors cannot share fees with them.

But all is well. There is no perceived demand from tailors for new practice structures. The importance of clothing to self-identity makes it absurd to think that proper clothing could be designed and manufactured with the assistance of computers, production lines and the like. How could anyone be able to obtain clothing that sufficiently suited client size, shape, personality and intended social usage except from expert bespoke tailors[5] who spend the time needed to do the job.

Members of the Tailors’ Guild and the Tailors’ Society continue to work closely together to address the Access to Clothing issue. Despite new-fangled names like Target, Gap and Lululemon showing up in other countries, it is difficult to imagine how Access to Clothing could be addressed by such radical approaches.

While lawyers and bespoke tailors obviously have entirely different practices, tailors interested in this issue might consider a thoughtful analysis of the effect of regulation on innovation in legal practice by Ray Worthy Campbell entitled Rethinking Regulation And Innovation in The U.S. Legal Services Market as recently reviewed by Professor Laurel Terry in her blog post Creative Destruction and the Legal Services & Legal Education Markets. Lawyers will be aware of the early innovators that presaged change in the legal services market such as Axiom Law, Contract Express, the Co-operative, CPA Global , Legal Zoom, Quality Solicitors, Riverview Law, Rocket Lawyer, Slater & Gordon, Winn Solicitors.

But, there is no reason to think that the market for clothing could or should change as the market for legal services has changed or that innovation is affected by current regulation of tailors.

We must continue to work together to address the Access to Clothing (A2C) crisis[6].

——————————————————————————–

[1] Sometimes A2C for those in the know.

[2] Badum, Badum

[3] Ibid.

[4] Some tailors, who design and sew military, religious or other uniforms for corporate clients, establish larger firms of tailors which allows them to specialize. Some tailors spend their time designing and sewing complicated epaulettes. Others design and sew the elegant designs in beautiful cloth. There are relationship tailors and tailors who ensure that the work of the specialist tailors suits overall client requirements. It is a great challenge to plan and manage the work of so many skilled craftspeople.

[5] Similarly, the suggestion of expanded scope of practice for para-tailors to assist the self-clothed and unclothed is easily rejected. The essential issue is not really not Access to Clothing but rather Access to Proper Clothing. It is not reasonable to think that anything less than expert tailoring could be sufficient given the importance of clothing.

[6] The opinions expressed in this article are not the opinions of the Tailors’ Guild, the Tailors’ Society nor necessarily those of the author.

Leave a comment

Filed under ABS and A2J, Uncategorized