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

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The Statement of Principles and Inter-Bubble Communication About Racism

First published on slaw.ca

There has been significant controversy in Ontario over the new Law Society requirement that every licensee “adopt and to abide by a statement of principles acknowledging their obligation to promote equality, diversity and inclusion generally, and in their behaviour towards colleagues, employees, clients and the public”.

The nature of the Statement of Principles controversy

Much of the controversy has focused on concern that the requirement compelled expressions of belief and accordingly raised the issue of freedom of speech. This was not an unreasonable concern for at least two reasons. As Alice Woolley pointed out in her op-ed column published in the National Post, explanatory materials published by the Law Society said that the requirement was for a “personal valuing” of equality, diversity and inclusion. As well, the requirement contained an ambiguity as the word “promote” could be seen to require more than conduct.

Most of those who raised concern about the requirement sought to make clear that they did not take any issue with the policy goals of the requirement and that they accepted that it was fully appropriate that the Law Society advance equality, diversity and inclusion in the professions. Some of those who raised concern did so in terms and with language which suggested that more than free speech was in issue for them. But it is clear that there was a legitimate free speech issue in play and that, not surprisingly for lawyers, freedom of speech mattered.

There was a less common concern also raised which was that the requirement had the effect, or could be seen to have the effect, of adversely affecting proper client representation in matters involving human rights or harassment issues. Fully accepting that adverse effect on proper client representation would be inappropriate, the validity of this concern was much less obvious to me.

Law Society clarification, debate and decision

These concerns were addressed by the release of a Guide which clarified that the statement “need not include any statement of thought, belief or opinion” and that “reference to the obligation to promote equality, diversity and inclusion generally refers to existing legal and professional obligations”. Curiously to me, there continued to be demands for a “conscientious objector” exception to the requirement. While I could understand concern as to whether the Guide was clear enough or authoritative, I continue to be baffled by the concept of conscientious objection to the requirement as clarified. That doesn’t mean that the continued demands were not genuinely made, but I don’t understand them.

Listening to the debate in Convocation, it was clear that the “free speech” issue was not the sole motivation for those supporting the motion seeking a “conscientious objector” exception. For some, the concern seemed to be that the requirement was little more than an irritant for practitioners being a mere “check the box” requirement. Indeed, there was an attempt to amend the motion by those who agreed with this perspective and wanted more to be done rather than less. My view was that the requirement may not be effective for some but that the requirement may be of some help addressing an important problem – and that surely requiring reflection on human rights obligations is no great burden.

A letter to the Middlesex Law Association

After Convocation decided not to adopt a “conscientious objector” exception, there was an interesting series of tweets on Twitter about an six page letter from a London Ontario lawyer published by the Middlesex Law Association. Most were tweets from those appalled by the letter. The letter was taken off the association’s website for a time and then replaced with a limited version of it (although the original is still accessible)[1].

It is not surprising that publication of this letter resulted in strong responses. The writer argues in his letter that (i) the evidence does not support the conclusion that there is systemic racism in the legal professions, (ii) the claim of systemic racism vilifies lawyers and paralegals by labelling them as racist, (iii) the 13 recommendations are a form of unauthorized social engineering, (iv) racism and bullying are just part of life and should be simply be endured and overcome by racialized licensees as others have done before them, (v) the true problem is economic class not race, (vi) white privilege is a ridiculous concept as it relates to white and racialized lawyers and (vii) racialized lawyers who join legal associations based on race or ethnic origin cannot complain that they are not treated equally. In conclusion, the author says that his response to “Diversity, in a Nutshell” is “Who cares about skin colour?” and that he will not draft a Statement of Principles because that is compelled thought and speech and because systemic racism in the legal professions has not been demonstrated.

Alice Woolley has written that she “actually welcome(s) the letter because it reveals the deeper debate, and allows the conversation to be about the real issue”. Proceeding from Alice’s observation, I think that it is worth exploring the perspective and the language used in the letter.

It is useful to recognize that express racism is socially unacceptable in Canada. The social norms of the legal professions do not permit arguments based on claims of racial superiority or inferiority even though some presumably hold those views. These social norms are valuable because they limit offensive behaviour and because social norms can influence cultural values over time. But one of the realities of social norms is that arguments and claims that are inconsistent with established norms are often expressed ways that disguise what is really being said.

The difficulty is in distinguishing between what is sometimes described as “impression management” and genuine attitudes. Examples of “impression management” are obvious. Anti-Semites try to obscure their true views with “evidentiary” denials of the Holocaust. The tropes “I’m not racist but …” and “Some of my best friends are X” are well worn. That racist wolves can dress as liberal sheep is clear.

The “free speech” aspect of the debate over the Statement of Principles illustrated the difficulty in sorting out what is “impression management” and what is true principled disagreement and debate. There was a genuine “free speech” issue to be addressed. Yet it also seemed that some opponents[2] of the Statement of Principles used the free speech argument to avoid saying what they really meant. It is challenging to have genuine good faith debate when one side of a debate legitimately suspects illicit motives on the part of some of the other side and those who are genuinely expressing their views on the other side of the debate fairly consider their views to be disrespected as a result.

The letter to the Middlesex Law Association clearly raises the problem of “impression management”. The core implicit claim is that racialized lawyers and paralegals do not in fact suffer disadvantage in the legal professions and that, if they do, they should suck it up and stop being crybabies. This implicit claim is obscured by a “lawyer-like” analysis of the “evidence” and the claim that the evidence is not persuasive. The writer appears seek to demonstrate “liberal” credentials by asserting that the true problem is economic class rather than racism and by claiming personal “colour-blindness”. As always, it is difficult to know the genuine attitude of the writer. But the letter certainly reads as an exercise in “impression management” in support of a denial that racism exists in the legal professions and, in any event, a denial that racism is worthy of being addressed.

It should not be necessary to have to explicitly say that racism exists, including in the legal professions. It should not be necessary to explicitly say that genuinely addressing racism in the legal professions is necessary. It should not be necessary to explicitly say that white lawyers and paralegals have relative advantages over racialized lawyers and paralegals because racism exists. But it is necessary to do so because “impression management” is a fact of life in discussions about race. The time has come for lawyers and paralegals to clearly acknowledge these truths. The Statement of Principles provides an opportunity to do so and is valuable if only for that reason.

All of this said and meant, I think that there are lessons to be learned from the letter whether one considers the letter to be an illicit exercise in “impression management” or a genuine but misguided attempt to wrestle with difficult issues. The point of the balance of this column is that the Statement of Principles and the other recommendations proceeded on the basis that achieving progress against racism requires cultural change and that achieving cultural change is not possible if one speaks only to those who don’t need to change.

Communication between bubbles

Starting with perspective, the website of the author discloses that he is an older white man in sole practice in London who was called to the bar in 1976. Our society is much changed in the forty plus years that the author has been in practice. The social changes over the decades have not been equally distributed. Toronto, for example, has become particularly diverse as compared to, well, London. Also, it is simply not possible for older white men to truly know the experiences of those who have experienced discrimination or disadvantage on the basis of race, ethnicity or gender. This is not to castigate older white men (of which I am one) but simply to observe that most discrimination is not obvious and is likely not appreciable by those who do not experience it. One of the lessons that I learned as a member of the Law Society working group is that it is important to hear those who are not part of the majority. This is not to say that it is necessary to take everything that is said at face value but it is necessary to listen with an open and sympathetic mind. For those who are prepared to listen, the qualitative evidence of discrimination and disadvantage developed in the working group should be compelling. It should no longer be controversial that we human beings tend to treat those who we consider different than ourselves differently, whether intentionally or unintentionally.[3]

Turning to the language used in the letter, I think that there are important lessons to be learned from the letter if equality, diversity and inclusion are to be better advanced. The author of the letter expresses anger at some of the language used by the Law Society working group. He writes “It is extraordinary to allege that racism is ‘systemic’ in the legal professions in Ontario and an insult to the nonracialized lawyers and paralegals practising in Ontario” and “it is difficult to understand how the Law Society can justify vilifying most of the 58,000 lawyers and paralegals in Ontario by labelling them as racist”. The author also writes “The spectre of “white privilege” is referred to by one of the persons consulted by the Working Group. The concept is ridiculous.”

The author apparently understands that the assertion that there is “systemic racism” in the legal professions to mean that most lawyers and paralegals intentionally discriminate on the basis of race. Similarly, the author apparently understands the claim of “white privilege” is a claim of intentional subjugation of racialized people by white people. Assuming that the author is genuine in these understandings and that he is well intentioned, his reaction is understandable.

But the concept of systemic discrimination (or systemic racism where race is the particular focus) is not about individual intentional discrimination. As the Ontario Human Rights Commission puts it “Racial discrimination can result from individual behaviour as well as because of the unintended and often unconscious consequences of a discriminatory system. This is known as systemic discrimination.”

The phrase “white privilege” is not a legal phrase like “systemic discrimination”. There are no doubt different meanings given to the phrase by different writers and over time. But (as I understand it) the phrase does not necessarily connote intentional impropriety. Rather, “white privilege” is logically the equivalent of “non-white disadvantage”. In a sense, “systemic racism” and “white privilege” address the same thing from different perspectives. Still, it seems easier to accept that others are unfairly disadvantaged than to accept that one is unfairly advantaged.

So one interpretation of the author’s response to assertion of “white privilege” and “systemic racism” is that he is ignorant of what is actually being said – and that it is presumptuous to for him to castigate as he does without spending time to actually understand what is being said. Another interpretation is that the author actually denies that there is disadvantage as a result of race in society rather than just being offended by a wrongly perceived claim of wide spread intentional racism. And of course, these parts of the letter may simply be an exercise in “impression management”.

But it may not be wrong to perceive that there is intended to be some sting in the language of “white privilege” and perhaps even in the language of “systemic racism”. Naturally, those who spend time and thought addressing unfair disadvantage are more likely to have suffered disadvantage themselves or, at least, to be sympathetic to those who have. It would be too much to always expect the language of a Mandela or of a Martin Luther King, or clinical academic language. The unfairness and wrongness of racial discrimination will out in the language used. And no doubt some racism is intentional and the failure to address unintentional racism is itself an ethical failure. Language choices fairly reflect these things. Those like me who are in a position of advantage are not well placed to criticize or to complain.

But the problem is that we are mostly in bubbles. Our perspectives and our language are different in our respective bubbles. This matters because culture change requires that communication between the bubbles. Those who have suffered unfair discrimination need no persuasion nor reminder of that reality. It is those who have advantage from whom assistance is sought. And those who are actually racist will not change. The goal must be to better enlist those who already want to help and to engage with those who have not thought much about these things but are people of good will.

It is not possible to know which category our author is in fact. While it is tempting and may be right to assume the worst, recognizing differing perspective and use of language opens the possibility that we can be too quick to dismiss the possibility that someone prepared to spend time and thought writing about this issue may want to do the right thing but be angered by what feels to be unfair castigation. In any event, it actually doesn’t matter what the right answer is for any specific person. What matters is failing to enlist the support of those whose support is possible.

On that note, I recently attended an educational session that addressed diversity and inclusion. A presentation entitled How microaggressions are like mosquito bites • Same Difference[4] was shown. The presentation is masterful and is well worth listening to. With grace and good humour, it allows the perspective of the disadvantaged to be better appreciated by the advantaged.

Going forward

To return to the Statement of Principles controversy, there seems to be broad consensus that the equality, diversity and inclusion ought to be advanced by the legal professions. No one who I have heard argues that there should be any compelled speech. My view is that the ambiguity has been removed about that. What is now needed is to return to the beginning which was to enlist the help of those who already share the goal and to encourage those who might be persuaded to share the goal to help as well.


[1] See the December/January Middlesex Law Association newsletter at page 30. Presumably in an attempt to somewhat distance the Association from contents of the letter, the index to the revised newsletter now lists the letter under “Opinion and Letters to the Editor”.

[2] Particularly the more hyperbolic ones.

[3] Robert Sapolsky has recently published Behave: The Biology of Humans at our Best and Worst. Chapter Eleven entitled “Us versus Them” which is a compelling discussion of “The Strength of Us/Them” and the reality that we humans are programmed to react differently to those with whom we identify and those who we see as “others”.

[4] The term “microaggression” is another term that seems to me to risk loss in inter-bubble translation highlighting as it does malignant intentionality rather than adverse impact. I say this at risk of being thought to demonstrate “white fragility” which is another phrase that bears similar risks.

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Cost disease, the practice of law and access to justice

(First published on slaw.ca)

How is it that we are such a wealthy society yet services that were once available are no longer available (at least at affordable prices)? Many people, but certainly not all, had help in their homes and farms, even full-time help. Doctors used to make house calls. When I was a child, the milkman[1] made deliveries each day. There used to be people who actually answered telephones in businesses.

What we call the “access to justice” problem seems to be similar in nature. We know that the number of self-represented litigants has dramatically increased over the last four decades. Ordinary people can’t afford lawyers. Even lawyers can’t afford lawyers. Yet, it seems that there was a time that people had a family lawyer just like they had a family doctor.

Some of this is pastoral myth. The idea that doctors were once available to all isn’t true as Tommy Douglas addressed in Saskatchewan in the 1950s. The poor didn’t have servants even though domestic help seems to have been more common than it is now. The image of the small town lawyer serving the whole town fails to recognize that there were income differences that must have affected who could afford to pay for a lawyer.

And while the price of legal services is a significant issue, it isn’t the only issue in the “access to justice” problem. There is also much to the idea that our legal system has become more and unnecessarily complex with attendant costs. A system of justice that is too expensive for most to access is a denial of access to justice even if the perfect justice can be obtained by those who can afford it.

While the problem of access to justice has more than one cause (and so must be addressed in more than one way), the cost of lawyers seems increasingly to be part of the problem. But why is that?

Cost Disease

A few weeks ago, I listened to a podcast on economics[2]. There was an interview with Larry Summers[3] who is a highly regarded economist[4]. Stephen Dubner, the interviewer, asked Summers about the cost of government and why it is that the cost of government doesn’t shrink. As Dubner asked:

You talk about us having conquered inflation, but lately you’ve been writing about the reasons why federal government can’t shrink. One of those reasons that I found really interesting — you talked about how changes in structural pricing that disproportionately affect government are huge. You talk about the Consumer Price Index from 1983 versus today and the things that have gotten relatively cheaper and the things that have gotten relatively much more expensive. Can you talk about that for a moment? I assume where that leads to is a conversation about what you economists call cost disease, yes?

Summers responded saying:

This is the phenomenon that was first noticed by the late Princeton economist William Baumol, that’s sometimes referred to Baumol’s Disease or cost disease. It refers to the fact that if workers become much more productive doing some things — and their wage has to be the same in all sectors, then there’s going to be a tendency for the price of the areas in which labor is not becoming productive to rise. That’s why it costs more to go to the theater relative to other things that it did when I was a child. That’s why tuition in colleges has risen. That’s why the cost of mental-health counseling has risen. All kinds of activities where it takes inherently a person one hour to provide a given service and where productivity growth is defeating the point. Productivity growth in education, after all, is a higher ratio of students to teachers — which is exactly the opposite of what we all want for our kids. Those structural changes are going to define our economy.

The cost disease thesis says that relatively unproductive sectors become more costly with productivity increases in other sectors because incomes increase in both productive and unproductive sectors as a result of increased productivity.

A core idea of cost disease is that there is labour mobility over time. In the long run, a sector will not be able to continue to pay people lower incomes if work is available to them elsewhere for higher incomes. Just because one sector is less productive than another sector doesn’t mean the less productive sector will be able to get away with paying its workers lower incomes. The cost disease thesis also reflects the economic view that incomes over time generally rise as productivity generally rises. Of course, there are questions about some of the underpinning of the cost disease thesis.[5]

But even if one does not accept the idea that productivity increases positively affect incomes generally[6], it must be true that sectors that do not become more productive will become relatively more costly unless these relatively unproductive sectors decrease incomes in their sectors.

Cost disease and the practice of law

I was struck by the application of the idea of cost disease to the practice of law. The last four decades have seen amazing productivity increases in other sectors of the economy. Computing capacity and networks have fundamentally changed the productivity of significant sectors of the economy. Before that, mechanization, electrification and industrialization radically changed the productivity of other sectors of the economy.

On the other hand, it also seems pretty clear that lawyer productivity has little changed over the long term. While there have been some productivity changes arising from modern technology, most of that has simply been to reduce overhead as lawyers do their own document processing.

This is particularly true in litigation. The approach to analyzing documentary evidence, interviewing clients and witnesses, discovering adverse parties and trying cases for ordinary people is highly lawyer-intensive without there having been material changes in productivity over the decades[7]. This may be less true in some of the solicitor’s practices where technology has made document production more efficient and where process efficiencies can be adopted in routine aspects of legal work where there is sufficient volume.

Of course, economic theories do not always hold in practice. There can be other factors at work. Market efficiency assumptions may not hold. But actual labour market information seems to show that lawyer incomes have followed incomes generally. A few years ago, I looked at census information over the last forty years or so and found that lawyer incomes generally tracked family incomes over that period. I also understand that research has indicated that lawyer, engineer and doctor incomes track a similar path[8].

Let’s assume for the sake of argument that lawyer incomes do rise and fall with incomes generally for whatever reason. That means that if other sectors have become more productive then the cost of what is produced in those sectors will have declined. Costs in sectors like law where productivity has not improved, or improved as much, will relatively increase.

I was excited by the new (to me) thought that apparent increases in legal costs and resulting diminution in access to justice could be explained in part by increased productivity in other sectors and the limited productivity increases in law. I went looking for further discussion of cost disease and, particularly, its application to the practice of law.

Not surprisingly, I found that this was not a new thought. For those interested in reading more, Professor Gregory W. Bowman posted two blogs on exactly this point over a decade ago in his Law Career Blog[9]. More recently, Emery Lee[10] published a journal article in the University of Miami Law Review entitled “Law Without Lawyers: Access to Civil Justice and the Cost of Legal Services”[11]

In his article, Lee looked at the cost of legal services for the “Big Guy” and the cost for the “Little Guy” i.e. the ordinary person. Lee said at pp. 514 to 515 that “In relation to the Little Guy, the cost disease is his problem. As discussed above, in general, it is not the levels, or amount, of discovery that keep the Little Guy out of court. Most of the Little Guy’s cases are not going to be discovery-heavy, and reforms designed to reduce discovery levels are unlikely to help the Little Guy.” and “The Little Guy has simply been priced out of the market for legal services. Reducing discovery levels is unlikely to solve this problem.”

So what?

As a profession, we have had difficult discussions about innovating our existing business structures. Some argue that we should simply focus on procedural and substantive simplification of the litigation process, that it is only litigation that is a problem and that solicitors’ practices are just fine. Accepting that simplification in litigation is important, my view has long been that the significant areas where people do not use legal services at all (sometimes called the 85%) must be addressed and that the cost of providing services is a major part of the reason for the lack of service in the 85%. Increases in costs arising from increased productivity in other sectors may be part of the reason that the 85% cannot be effectively served without significant productivity changes. This supports the idea that it is important to bring capital and technology to bear because increasingly expensive professional labour is simply too expensive for the task[12].

What is a significant implication for me is that decreased access to justice in the 15% served by lawyers, and particularly in litigation, may be the result of cost disease and the lack of productivity increases in law. Where access to capital is constrained as is true in the practice of law, labour is overwhelmingly the means of production. Where productivity in other sectors improves, the cost of legal work certainly relatively increases. And if labour costs actually rise generally with increased productivity, the absolute cost of legal work will increase as lawyer incomes rise with productivity in other sectors[13].

If “cost disease” is a material reason for the increasing cost of legal services and diminishing access to legal services, it follows that legal costs will continue to relatively increase unless productivity in the legal sector improves. Even without this analytic framework, it is obvious that new ways of providing legal services are already here and that they are less expensive and more easily accessible. This will only increase.

The implication is significant. If the traditional practice of law becomes relatively more and more expensive over time then fewer legal services will be consumed and the threat from new and less expensive forms of legal service will increase. Legal services regulation will not ultimately hold back this tide, nor should it in my view.

So the question is whether we should continue to restrict the practice of law to traditional practices or should we encourage real innovation in the way that law is practiced so that productivities are achieved.

I used to think that the answer was obviously that increased productivity should be encouraged because of the moral and policy obligation to promote access to justice. While still thinking that is so, I also think that existing legal practices are imperilled by our unwillingness to allow the conditions required for innovation. Cost disease is not just a disease suffered by consumers of legal services. Cost disease is suffered by lawyer and paralegal producers too and the consequences may be more severe if not addressed. Attempting to hold back the tide can work for a while but when the dike fails much can be lost that could have been saved.

Something to think about.


[1] Herb was our milkman and he had a very cool truck. He let me ride with him in his truck on our street when I was a little boy

[2] http://freakonomics.com/

[3] http://freakonomics.com/podcast/larry-summers-economist-everyone-hates-love/

[4] Even if not so much on other topics

[5] It is not so clear that the benefits of productivity increases are generally distributed. Labour market mobility is suspect with income disparities having increased over the last generation. Increases in productivity over the last generation have not resulted in increased real incomes for many people. Some increases in income have been enjoyed in distant economies with local labour markets facing downward pressures.

[6] i.e. that the wealthy disproportionately enjoy the profitability arising from increased profitability

[7] Significant e-discovery advances exist but are mostly irrelevant outside of “big business” disputes and mostly address the significant increase in e-documents in business over the last couple of decades. Litigation for ordinary people has not seen material productivity gains other than legal research, especially CanLii.

[8] Alice Woolley kindly reviewed a draft of this column. She advised that this observation was made in the research underlying Woolley, Alice and Farrow, Trevor C. W., “Addressing Access to Justice Through New Legal Service Providers: Opportunities and Challenges” (2015), 3 Texas A & M Law Review 549

[9] http://law-career.blogspot.ca/2006/07/baumols-cost-disease-and-practice-of.html and http://law-career.blogspot.ca/2006/08/baumols-cost-disease-and-lawyers-part.html

[10] Senior Researcher in the US Federal Judicial Centre

[11] Emery G. Lee III, Law Without Lawyers: Access to Civil Justice and the Cost of Legal Services, 69 U. Miami L. Rev. 499 (2015)

[12] If legal services are only relatively more expensive but not absolutely more expensive, it would still follow that consumption of legal services would decline.

[13] Whether because of increased productivity in other sectors or not, lawyer incomes have followed other incomes.

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Conflicted regulation in the public interest

(first published on slaw.ca)

Fiduciary law deals strictly with conflicts of interest. A fiduciary is not permitted to have an interest that conflicts with the duties owed to their beneficiary unless the conflict and all material facts have been disclosed and consent is obtained Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23. Where a fiduciary benefits without consent, the fiduciary is ordinarily required to disgorge the benefit whether or not the beneficiary’s interests have been compromised. Strother v. 3464920 Canada Inc., 2007 SCC 24

The Rules of Professional Conduct are no less strict. It is professional misconduct for a lawyer or paralegal to act where their self-interest conflicts with their duties to their client without proper consent. Some conflicts are not waivable. Transactions with clients are strictly regulated even where the lawyer or paralegal does not act on the transaction[1].

It is ironic that client conflicts are treated so seriously while the inherent conflict in self-regulation is mostly ignored. Commonly, this conflict is not really recognized or understood. Some think that the public interest is virtually invariably the same as the interest of the legal professions. Pressures from stakeholders and the realities of elections affect how elected benchers perceive issues and their roles.

Examples of conflicting self-interest in regulation

There are many examples which illustrate this inherent conflict. Describing a few helps make the point. In June, a proposal was made to Convocation in Ontario to allow charities and not-for-profits to hire lawyers and paralegals to provide legal services to the public. The idea was to attempt to address unmet legal needs by permitting those who currently serve people with other social, health and economic needs to add legal services to their offerings. Unlike the many proposals put to Convocation, this proposal provoked an immediate demand from legal stakeholders for time to consider and address the proposal, no doubt reflecting recent ABS debates. The proposal was deferred.

While I’m quite hopeful that lawyers will see the merits of this “civil society” proposal with fuller information and time to reflect, there is a long history of the private bar reacting defensively to other ways of providing legal services. In his book The Law Society of Upper Canada and Ontario’s Lawyers, 1797-1997, Christopher Moore details the early days of legal clinics in the 1970s. As Moore describes, the intent of these “storefront clinics” reflected the belief that legal assistance had to be delivered to poor communities through community networks and agencies which integrated legal advice with other kinds of assistance offered from accessible storefront ‘clinics.’ In 1971, Osgoode Hall Law School, with support from the Ford Foundation and the Canadian government, opened the Parkdale legal clinic. The following quotation from Moore’s book describes the reaction:

‘We were against this, we were violently opposed to this,’ recalled Gibson Gray, a future treasurer then on the legal aid committee. `They were … taking work on at the clinic … rather than having the work done by lawyers, traditional lawyers.’ That summer, there were rumours that the Law Society might seek an injunction against the law school’s storefront clinic, and benchers urged the professional conduct and unauthorized practice committees to investigate. …

… The Law Society’s irritation moved it to consider reclaiming the name `Osgoode Hall’ from the law school, but clinical legal aid (the phrase which soon replaced ‘poverty law’) proved irresistible. The Law Society, able neither to prevent nor to control their emergence, soon acknowledged that clinics were no real threat to private law practice, for they usually served a different clientele and often did counselling and community organizing work that extended well beyond legal practice. …

The reaction by the private bar to student legal clinics in the 1970s and to new practice structures in the 2010s[2] illustrates that self-interest has material effected consideration of new forms of legal service delivery. This is not to say that legitimate issues were not raised. In the 1970s, the way that student legal aid was brought forward was a challenge to the Law Society’s regulatory authority. Accordingly to Moore, “Arguing that supervising law students working in a storefront legal clinic was part of the law school’s educational mandate, Dean Gerald LeDain took the position that seeking permission from (or even informing) the Law Society was unnecessary”. Similarly, there are reasons to think carefully about allowing new forms of for-profit legal services[3]. But just as it is no answer to a disgorgement claim to say that no harm was suffered, it is no answer to concerns about the integrity of self-regulation to say that protectionism often leads to examination of legitimate issues.

Recent revisions to the advertising and referral fee rules provide another example. Over recent years, the traditional personal injury bar has faced significant new competition for clients. Significant investments were made in brand advertising. Referral fee-based business models capitalized on and fueled the advertising. Traditional ways of attracting clients were disrupted. The reaction of the traditional personal injury bar was to seek regulatory intervention. This is not at all to say that public and consumer interests were not engaged by these changed advertising and referral fee practices. They clearly were. And the traditional personal injury bar was no doubt motivated in part by concerns about the interests of injured people. But the fact is that these issues are, in part, reflective of competitive pressures between different parts of the private bar. The Law Society is currently considering contingent fee arrangements which are commonly acknowledged to require reform. The personal injury bar has a significant self-interest in contingent fee regulation. It is fundamentally important that the Law Society deal with these issues in the public interest and in the interest of injured people recognizing that access to justice, procedural and substantive, is what must drive deliberations about contingent fee arrangements.[4]

The recent Family Legal Services Review report by Justice Annemarie E. Bonkalo raises another cogent example. Lawyers and paralegals have been regulated together by the Law Society since 2007. Lawyer benchers and paralegal benchers are elected by their respective professions. While there are tensions within Convocation, I think that it is generally thought that this regulatory approach has worked well. Common perspectives on and approaches to appropriate professional conduct makes practical sense as does integrated professional conduct investigation and discipline. There are obvious synergies in licensing and ongoing professional competence. However, lawyers and paralegals compete for clients in some areas of practice. The extent of the permitted paralegal scope of practice engages the self-interest of both paralegals and lawyers.

These self-interests are obviously engaged by the Bonkalo Report. Lawyer benchers have been the target of organized communications from the family law bar, all framed in the public interest. Lawyer stakeholder groups are making forceful submissions against expansion of the paralegal scope of practice. I would be surprised if paralegal benchers are not receiving similar communications from paralegals. Paralegal stakeholder groups are naturally advocating for expanded scope of practice. To be clear, most benchers seek to rise above self-interest and to genuinely address the public interest in effective and fair resolution of family breakups. But my observation is that it is hard both for paralegals and lawyers to do this without their judgments being affected by self-interest. This is not surprising. Fiduciary law and professional conduct rules exist because we understand human nature and the cognitive biases that of us have.

These are but three examples of conflicting self-interest in self-regulation. Other examples are not difficult to find.

The need to act in the public interest and to reform governance

The point of this column is two-fold. The first is that each of these examples is live. It is important that the Law Society, the legal professions and stakeholder groups recognize how these issues need to be addressed. Just because self-interest is engaged doesn’t mean that legitimate issues are not raised. But professionalism and the integrity of self-regulation requires disciplined focus on the public interest and the interest of those we serve. If we do not regulate ourselves properly, we can expect that someone else will.

The second is that we should think hard whether our approach to governance effectively addresses conflicting self-interest and assures proper self-regulation. In Ontario, a Governance Task Force is currently charged to review of and make recommendations respecting the Law Society of Upper Canada’s governance structure. This question of how to address regulatory self-interest should be addressed by the task force,

A modest regulatory innovation might be to use public benchers as a formal check on self-interest. There are eight public benchers appointed to Convocation in Ontario. In meetings with over fifty voting members, these public members have an important role but a limited voice. Even without increasing the number of appointed members, these “lay” benchers could be formally responsible as a committee to consider and publicly report to Convocation on matters where regulatory self-interest is significantly engaged. Simply requiring that the public interest be addressed by public members should have a salutary effect.

Manitoba provides a recent example of significant governance change[5]. Manitoba has 23 benchers. There are 12 elected benchers, a bare majority. Six lay benchers are independently appointed. Four lawyer benchers are appointed by the other benchers applying criteria required to be established “such as the need for representation by region, demographics, type of law practice, or professional, leadership or management skill”. The Dean of the law school and an articling student are benchers as well.

In 2014, the Canadian Bar Association Futures Report recommended at pp. 50-51 that:

The governing bodies of law societies should be made up of elected lawyers, as well as a significant number of appointed lawyers and non-lawyers. The appointed governors should be selected by an independent appointment process designed to fill gaps in experience, skills and diversity.

There are no doubt other ways that governance reform could usefully address the problems of self-interest in self-regulation. Thoughts and suggestions by way of comment to this column would be helpful.

To every action (and sometimes even to an inaction), there is a reaction

It is easy and lazy to be apocalyptic including about the prospect of losing self-regulation in Canada. There is an ongoing risk of that but, at least for now, no real pressure for change. But failing to properly undertake responsibility in the public interest can result in loss of authority.

In his book, Moore provides an example. The resistance to the legal clinic model by the practising bar and the Law Society in the 1970s was followed by the appointment by the Ontario government of Justice John Osler “to investigate the delivery of legal services to disadvantaged groups, including aboriginal communities and isolated regions. Osler’s report laid the groundwork for a permanent network of Ontario legal clinics”. As Moore further notes “Osler also recommended that legal aid be transferred entirely from the Law Society to a publicly appointed board which might be more open than the lawyers to other innovations in delivery of legal services”.

Moore ends his discussion of this history noting that Law Society leaders subsequently acknowledged “in their way, that the Law Society alone no longer set the agenda on legal aid and much else affecting the profession. The principle of self-government endured, but authority over the legal was becoming permanently subdivided”.

I have previously written that unmet legal needs are a significant challenge to self-regulation.[6] This is not new as Moore describes. Failing to address legal needs not effectively addressed by the private bar resulted in loss of Law Society responsibility in the 1970s. Failing to do the same 40 years later risks similar loss. Given the extent and significance of unmet legal needs in family law, a protectionist response to the Bonkalo Report likely results in loss of authority over who may provide legal services in family law matters. This is not to say that Justice Bonkalo’s recommendations should necessarily be accepted. The point is that the self-interest of lawyers or paralegals is the wrong perspective from which to address the question.

The same can be said about contingent fee arrangements. The personal injury bar is vitally concerned with contingent fee arrangements. Ontario benchers will no doubt want to reflect carefully on what is said by personal injury lawyers in the current consultation. Their expertise and experience requires that benchers listen carefully. But their understandable self-interest requires independent consideration of recommendations for reform in the public interest. Again, failure to do by the Law Society so will likely result in loss of responsibility and authority.

Doing the smart thing and the right thing

It is clear that self-regulation can be lost all at once or bit by bit. For those who consider self-regulation to be essential to independence of the bar, the need for governance mechanisms and policy decisions to ensure that the public interest is advanced should be powerful. The same should be true for those who merely see value in self-regulation[7]. On an issue by issue basis, members of the private bar and their representatives should recognize that protectionist instincts that result in self-interested regulatory decisions can be counter-productive in the longer run. And in any event, those who have accepted responsibility in the public interest rather than the interest of their profession should of course act accordingly.


[1] Rules of Professional Conduct, Section 3.4, Paralegal Rules of Conduct, Rule 3.04

[2] See Alice Woolley’s slaw.ca column Bencher Elections – the Challenge to Self-Regulation’s Legitimacy

[3] Principle, not Politics

[4] Contingent Fees, Portfolio Risk and Competition – Calls for Reform

[5] Sections 6 and 7 of The Legal Profession Act, C.C.S.M. c. L107

[6] Unmet Legal Needs – The-challenge to legal practice and to self-regulation

[7] Independence and Self-Regulation

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Contingent Fees, Portfolio Risk and Competition – Calls for reform

(first published on slaw.ca)

In theory, contingent fee pricing is an elegant way of providing access to justice at a fair and reasonable price. In this column, I try to look at both theory and practice and also at prospects for reform.

Time and materials

Let’s start with a different approach to pricing. Legal work can be done on a “time and materials” basis (to use language from another industry), on a fixed fee basis or on a contingent fee basis. These different approaches shift risk between suppliers and consumers of legal services.

Legal work is still largely priced on a “time and materials” basis. While time spent is not the only factor considered when setting price, it is ordinarily the dominant factor.

Fixed Fees

Legal work is increasingly offered on a fixed fee basis. Where available, this is attractive to clients because of the increased certainty that fixed fees offer. Fixed fees can also allow increased competition as clients can more easily shop for a better price.

Where a fixed fee is agreed, the lawyer has the risk that the work may take more time than anticipated. Given that the lawyer likely has an understanding of what is required based on past work and given that the lawyer can make up losses on some fixed fee matters by gains on other fixed fee matters, this risk is mitigated. Where fixed fees are fairly agreed, it would be inappropriate for the client to be charged an increased cost because it turned out that extra time was required and it would be inappropriate for the client to demand a rebate because it turned out that less time was required than was anticipated. Either fixed prices are agreed or not.

But all of this assumes an effective market. For lawyers and clients, there is significant information asymmetry. Clients cannot assess whether a particular fixed price makes sense as clients ordinarily cannot assess the cost of the work to be done and likely outcomes. However, where prices are generally available, clients can “shop” based on price. Where prices are transparent and price shopping is possible, clients need not make their own assessments because a competitive market does so for them.

Contingent Fees

Contingent fees have some similarity to fixed prices. The price of the legal work is fixed as a percentage of the ultimate recovery. However, contingent fees add a further complexity as no fee is charged where there is no recovery.

There are two risks facing clients and lawyers, or paralegals, where personal injury and other disputes are to be resolved. There is the risk of non-recovery where liability is in issue. There is uncertainty as to the amount of the net recovery as both the amount of the recovery and the cost of obtaining recovery are uncertain. Because disputes can be settled at any stage (and are usually resolved by settlement rather than judicial decision), the cost of resolving a dispute is much more uncertain than, for example, the cost of completing a residential real estate transaction.

For the lawyer or paralegal, the risk inherent in contingent fees is mitigated by their expertise in assessing the risk inherent in particular matters and by their “portfolio” of cases. The situation of the client is very different. The client has no ability to assess the viability of their own case. The client has no portfolio through which to manage risk.

Portfolios of risks

While perhaps not obvious, investment by portfolio in the financial world offers the same risk management as having a portfolio of cases in the contingent fee world. A simple example shows the main advantage. Imagine a $1,000 bet based on a single coin toss. Heads you win $1,100. Tails you lose. There is a 50% chance of a complete loss. But imagine the same bet made on a portfolio of ten coin tosses. The probability of a complete loss drops to a little less than one in one-thousand and profit becomes very likely.

In the contingent fee context, a single contingent fee case can be very risky. But where work done in the losing cases can be recouped in the winning cases, risk is better managed. To make a very simple example, if there is a portfolio of cases each of which has a 50% chance of success and each of which requires a fixed amount work and disbursements worth $10,000, charging $20,000 for each case that is successful is a very low risk proposition even though the prospect of payment for any particular case is only 50/50.

Contingent fee work is more complicated than betting on coin tosses. The probability of success varies from case to case. The work and disbursements required in any given case is uncertain and difficult to accurately predict. More becomes known as the matter progresses. The outcome of a case is most uncertain at the outset. Assessing the amount of work to be done is also most uncertain at the outset of the matter. For a lawyer or paralegal, a contingent fee case is like a financial investment but with the added complexity that the amount to be invested is uncertain.

Modern portfolio theory says that risk is reduced by having a portfolio of risks. Before this was well understood, it used to be that trustees were only legally permitted to make certain “safe” investments. The idea was that the “prudent investor” would not make risky investments. However, we now know that a portfolio of higher risk investments can be low risk as a whole. The winners pay for the losers. The risk of having all losers is very much reduced by portfolio investment. Indeed, modern portfolio theory shows that a diverse portfolio of higher risk investments is likely to be more profitable than a portfolio of lower risk investments. But the investor must be able to enjoy the fruits of the winning investments for the portfolio to do its magic.

Contingent fees and markets

Injured people typically cannot afford the cost of the legal services required for their case. Borrowing the money to pay the cost of doing the necessary work is risky unless the case is not. Even assuming that recovery is quite likely, there is uncertainty as to the cost of obtaining recovery. Some cases settle quickly at low cost. Some cases go to trial or appeal. Contingent fees move this risk from the client to the lawyer or paralegal who can better assess the risk and reduce the risk by having a portfolio of cases.

But the contingent fee system will not work fairly in the real world unless there is an effective market in which contingent fees are set. Obviously, clients have limited insight into their cases. Otherwise, they would not need legal experts to assist them. Clients have no insight into the portfolio of cases maintained by their lawyers or paralegals. Where there is information asymmetry and a market which is not truly competitive, the party with superior information will have an advantage in setting prices. This either results in higher prices where the party with superior information is the supplier or by diminished demand from consumers or both.

It seems pretty clear that we do not have an effective market for contingent fees. While the problem of information asymmetry can be addressed by active bidding by informed suppliers for work, there is no good evidence of robust bidding being common. The significant growth of brand advertising appears to show that injured people have difficulty knowing who to approach for legal services. There is, at best, limited market information available to consumers or suppliers as to the costs of obtaining recovery. Unlike commodity products such as tomatoes or motor vehicles, assessing the expected value of a particular matter is not easy and requires information and expertise. We cannot directly assess whether the existing market is competitive as we have no information as to the profitability of the portfolios.

Ensuring fair and reasonable contingent fees

So how do we currently address the prospect of unfair and unreasonable contingent fees? The first way is by regulating the agreement entered into at the outset. The Solicitors Act establishes certain requirements and, in some circumstances, allows the parties to agree on a different approach with judicial approval. The second way is by considering, after the work is done, whether the contingent fee agreement and the contingent fee are fair and reasonable. For those who cannot represent themselves, the court must approve the ultimate fee. For others, the supervision of the court may be invoked by the assessment process.

The recent case of Evans Sweeny Bordin LLP v. Zawadzki, 2015 ONCA 756 considered judicial supervision of contingent fees and started with the proposition that “A contingency fee agreement is enforceable only if it is both fair and reasonable”.

The question of fairness and reasonableness could be considered based only on what was known at the outset of a matter. In theory at least, a contingent fee agreement that fairly and reasonably reflects the risk of non-recovery and of uncertainty in the cost of recovery would not need to be the subject of after the fact examination. Otherwise, the cases that are more lucrative for the lawyer or paralegal would not pay for the less lucrative cases and, as a result, lawyers and paralegals would decline to take on the higher risk or higher cost cases.

Nevertheless and as Evans Sweeny Bordin LLP makes clear, fairness is currently addressed after the fact, but as of the date of the contingency fee agreement. and reasonableness is addressed after the fact. For the later reasonableness assessment, the Court of Appeal cited with approval its earlier decision in Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496 which set out the following factors to be considered in the test for reasonableness:

(a) the time expended by the solicitor;

(b) the legal complexity of the matter at issue;

(c) the results achieved; and

(d) the risk assumed by the solicitor.

The Court of Appeal in Henricks-Hunter followed Raphael Partners v. Lam (2002), 61 OR (3d) 417 (OCA) which held that:

The factors relevant to an evaluation of the reasonableness of fees charged by a solicitor are well established. They include the time expended by the solicitor, the legal complexity of the matter at issue, the results achieved and the risk assumed by the solicitor. The latter factor includes the risk of non-payment where there is a real risk of an adverse finding on liability in the client’s case.

It is clear that our current approach to contingent fees provides for after-the-fact assessment and does not presume that a competitive market will result in reasonable contingent fees.

Calls for Reform – are caps the answer?

There has been much recent public controversy about contingent fees. There are private members bills calling for a cap on the percentage of recovery that may be charged. There are articles in the media decrying situations where the lawyer recovers more than the client or recovers an unusually high proportion of the recovery. The volume of advertisements on buses, taxis, television, the internet and elsewhere, without reference to price, may suggest that personal injury work is lucrative and worth substantial spending to attract work.

Unfortunately, the prescriptions may not address the disease or its symptoms. Following from the discussion above, where a limit is set on the percentage of the recovery that may be taken as a fee, the logical response may be not to take on riskier cases. Again assuming a competitive market and a diverse portfolio, the higher return winners pay for the higher risk losers. The policy problem is that we simply have no idea of the actual risk of the portfolio as a whole or its elements and we have no basis from which to conclude what percentage is unreasonable representing an uncompetitive market and what limit would fairly protect injured people and what limit would cause some injured people to lose access to justice because their cases will not be taken on. In an uncompetitive market, setting a limit can be tantamount to fixing a tariff as the cap becomes a signal to consumers who have no better information and may foster tacit collusion among firms.

There is another problem as well. For some cases which are vigorously defended, the cost of taking the case to trial is comparable to the amount in issue or even more. For those cases, a lawyer would generally be foolish to take on a case destined for trial if the potential recovery assuming success simply cannot fund the work required. But there are exceptions. A personal injury lawyer needs to be credible with defence counsel and insurers. Showing that cases will be tried if necessary makes settlement of other cases more likely. The threat of trial must be a credible threat to have value.

But it is said that there are areas of practice where the practical effect of limiting the contingent fee to a capped portion of the damages recovery would be that injured people would be denied access to justice. These are areas of practice where the risk and cost of obtaining recovery at trial is not commensurate with the damages award. even though it can be commensurate with the costs award together with a proportion of the damages award. Where there is a significant likelihood that a trial will be required, a lawyer is unlikely to accept a case where there isn’t a prospect of recovery of the lawyer’s risk-adjusted investment.

My point is not to argue in this column that there should or should not be a cap on the percentage fee. My point is that the question is tricky and that a cap may have unintended consequences and may not actually address the genuine issue at hand.

Some further thoughts about reform

As for the current after-the-fact assessment approach, there is value in that approach assuming that it is well done. At least in theory, assessing risk-return is a legitimate check on reasonableness. But there are at least two glaring problems1. The first is that an after-the-fact reasonableness assessment that looks only at the risk/return of the particular case fails to reflect that portfolio risk is less than the risk of any individual case. Absent portfolio information, there is a very real potential that after-the-fact reasonableness assessment is a Potemkin assessment. It looks real but isn’t. On the other hand, after-the-fact reasonableness assessment also fails to reflect the reality that only the “winners” get assessed. Portfolio information addresses this as well.

The second problem is that “successful” plaintiffs can have no idea whether their particular contingent fee is reasonable as they do not have the information that the courts have said is required for that assessment. They do not know the time expended by the solicitor, the legal complexity of the matter at issue, or the risk assumed by the lawyer. All that they know is the result achieved. There is no current obligation to disclose the other requisite information. There is no obligation to recommend an independent opinion or an assessment for cases where these factors suggest unreasonableness. That is not to say that responsible lawyers and paralegals will not take these factors into account in setting their ultimate fees. But a fiduciary cannot be permitted to withhold information that is necessary to hold the fiduciary accountable. The system should empower clients who do not know that they should be unhappy with their fees. It would be better if the system did not cause clients who ought to be happy with their fees to become unhappy. But it is surely unacceptable to hold back relevant information because the information may be misused.

Standing further back, can we make the contingent fee system more transparent and accordingly more competitive with the intent that a fair contingent fee agreement may be more reliably seen to generate a reasonable contingent fee? The answer must surely be yes. But this requires that portfolio information be gathered from lawyers and paralegals and aggregated so that injured people can have a better idea of the contingent pricing offered to them, so that lawyers and paralegals can better compete for work and so that society, through the courts, the government and the Law Society, can genuinely understand the risks and rewards involved in contingent fee work.

It is to be expected that lawyers and paralegals will resist reforms that impose costs on them, limit their returns and create uncertainty as to whether their contracts will be honoured. Cries of “bureaucracy” and “freedom of contract”2 will be heard. But it is necessary that the interests of injured people be kept firmly in mind rather than just the competing voices of advocates and insurers.

But it would be best if creative solutions could be found that maintain access to justice for injured people through contingent fees while better ensuring that substantive justice is obtained – that the amount taken from the compensatory recovery of an injured person is not unreasonable taking into account the risks and costs involved.

1 Noel Semple kindly reviewed a draft of this column and provided a number of helpful comments and suggestions. Noel raises a third glaring problem which is that risk is often not appreciated after the fact. What was reasonably seen to be risky at the outset may well not seem risky when the results are known. The reverse can be true as well.

2 Despite that our current contingent fee system requires after-the-fact assessment for fairness and reasonableness and the relative vulnerability of clients, some still argue that any reform should be on the basis on caveat emptor.

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Greater transparency of the results of investigated complaints?

(First published on slaw.ca)

It is difficult for prospective clients to obtain good information about lawyers and paralegals. The significant growth of brand advertising is cogent evidence of this. Potential clients assume that brand is evidence of quality when that may well not be the case. Substantial sums are paid for brand advertising because it works. Similarly, the advertising of dubious awards and reassuring photographs evidences that lack of genuine information about quality.

Concerns about lack of information

A recent market study in England and Wales by the Competition and Markets Authority said that:

… consumers generally lack the experience and information they need to find their way around the legal services sector and to engage confidently with providers. Consumers find it hard to make informed choices because there is very little transparency about price, service and quality … lack of transparency weakens competition between providers and means that some consumers do not obtain legal advice when they would benefit from it.

A similar conclusion was reached based on Ontario research in the 2010 Report of the Ontario Civil Legal Needs Project:

A significant challenge is to find ways to encourage more people to receive the full benefit of the existing resources available to them. People often can’t find legal help because they don’t know where to look, or because they perceive they won’t be able to afford it.

In a recent column, I wrote about market failure as a consequence of lack of consumer information potentially leading to a race to the bottom as high quality lawyers and paralegals (the “peaches”!) are unable to distinguish themselves from “lemons”.

What might help potential clients?

What can usefully be done about the lack of available information as to quality? There are a number of possibilities. One is to encourage genuine referral services (as opposed to mere brokerage services) and genuine ranking services (whether based on peer, client or other assessments) that assist potential clients in finding appropriate assistance.

Another is to move toward enhanced credentialing or limited licensing as a signal of expertise. Unlike some other professionals, all lawyers have unlimited licenses to practice law yet few, if any, have the competence to practice in all areas of the law. Beyond word of mouth and self-serving advertising, how is a client to figure out who to retain? While licensing tells potential clients that minimum standards of competence have been met and provides some assurance of professional conduct, the mere fact of licensing does not allow potential clients to distinguish between individual licensees.

The Law Society is a source of some useful information beyond the mere fact of licensing. The certified specialist program provides an indication of expertise. Public Law Society Tribunal records provide some information with respect to past professional conduct.

A look at 2016 LSUC complaints information

With the issue of useful information in mind, I read with interest the recent LSUC reports 2016 End-of-Year Report for the Professional Regulation Division and the Analysis of Complaints in Professional Regulation in 2016.

The number of complaints[1] received in the Professional Regulation Division has remained stable in absolute number at slightly less than 5,000 per year despite increasing numbers of lawyers and paralegals. The number of complaints per lawyer and paralegal in private practice is very similar at just over 10% for each type of licensee. The trend is generally downward for both over the last six years.

In 2016, the Intake Department dealt with some 4,400 complaints. 2,152 complaints were sent for investigation. 2,243 complaints were closed in the Intake Department. Of the 2,243 closed complaints, 236 were marked as “resolved” suggesting that there was something to resolve but not something meriting formal investigation. The balance were closed for a number of reasons including the conclusion that no further regulatory action was required, the absence of jurisdiction and the formal (or practical) withdrawal of the complaint.

In 2016, 2,018 new complaints were instructed for investigation[2] and investigations staff closed 2,334 instructed complaints. Perhaps not surprisingly, client service issues are the most common followed by integrity, governance and financial issues. To state the obvious, potential clients are interested in knowing whether they will be well served by professionals with integrity who are prepared to be governed and deal properly with financial matters.

How investigated complaints are ultimately dealt with is interesting. Over the last three years, only between 10% and 15% of investigated complaints have been transferred for prosecution. During the same period, approximately 40% have been closed on the basis that there is no evidence or insufficient evidence warranting regulatory action.

There is a substantial number of investigated complaints where the result is some action short of prosecution. Some are closed with diversion such as a Regulatory Meeting, an Invitation to Attend, a Letter of Advice, a recommendation for a practice or spot audit or by an undertaking from the licensee[3]. In the last three years, some 2% to 4% of investigated complaints have been closed investigations with diversion. A more substantial proportion of investigated complaints (approximately 20% to 30% over the last three years) have been closed with a staff caution or with best practice advice. The bottom line is that approximately one-quarter to one-third of investigated complaints raise regulatory issues and result in a regulatory response short of prosecution.

There are different types of complaints information

To make the obvious point, the Law Society has information about lawyers and paralegals that is not publicly available and which might well provide useful information to prospective clients. But the obvious counterpoint is that some of the same information could be unfairly prejudicial to the licensee if publicly available.

There is a spectrum of regulatory engagement from (i) mere receipt of a complaint to (ii) instruction of a complaint for investigation to (iii) determination after investigation that regulatory action is merited short of prosecution to (iv) prosecution. There was a time when our regulatory process was so lawyer-centric that even prosecutions and findings of professional misconduct were not transparent. That time has passed and the question now arises, given the genuine difficulty faced by potential clients in obtaining information, whether the current balance is the appropriate balance.

Discussion in England and Wales

Greater disclosure by legal services regulators is currently being discussed in England and Wales. The 2016 Interim Legal Services Market Study Report of the Competition and Markets Authority asked[4] “Are there any measures of quality that can readily be collected by regulators or government … on observable trends in quality of legal services?”. The Solicitors Regulation Authority (the SRA) responded saying that there are “a number of other indicators regulators can use, which cumulatively can give an indication of quality” including claims against the compensation fund, insurance claims and complaints data. The SRA also said:

Our Codes contain the minimum requirements for those we regulate, all of which are mandatory. We also require diversity data to be published. We are currently considering what information about SRA regulated individuals or firms we should publish or require firms or individuals to publish, and are planning on releasing a discussion paper by the end of the year subject to decisions being taken by our Board. The areas we are looking at include regulatory action, complaints data, insurance claims data and accreditations.

The Law Society of England and Wales[5] responded to the subsequent SRA discussion paper by raising concerns about accuracy and relevance and suggesting that it was better for law firms to voluntarily provide information in the competitive market. Of course, this approach would mean that negative information about solicitors would not be made available.

Thinking about disclosure

It is to be expected that lawyers and paralegals would be uncomfortable with greater transparency of complaints or claims information. We imagine this from our own perspective and fear disclosure of unfair or misleading information (and even true but embarrassing information). For example, it would be natural for family law lawyers to be concerned about disclosure of complaints from the opposite party given the often dysfunctional nature of family law proceedings.

That said, it is clear that further and better information about lawyers and paralegals is needed. From the client perspective, better transparency is desirable while, of course, protecting confidential and privileged information.

Perhaps the practical answer to concerns about disclosure of unfair or misleading information is careful focus on what should be disclosed. If there is only disclosure about investigated complaints which have led to a regulatory outcome then what would be disclosed would be the result of investigation and evaluation. Fear of disclosure of malicious or unfounded complaints would not be justified.

It might also be worth considering whether there should be disclosure of single or stale matters. It may be that little if any real information is provided if a single matter is disclosed or if a relatively ancient episode continues to be disclosed. Treating stale matters as such is somewhat analogous to the evolving “right to be forgotten” that is of increasing importance in which so much personal information is available and for so long on the internet. As well, it may be worth considering whether contextual information could also be provided, for example the average number of such complaints for licensees generally or, say, family law lawyers specifically.

Up to this point, the discipline process has not been discussed. The main point to be made here is that allowing transparency about some investigated complaints and a formal discipline record are different things. There is no need and no apparent reason for the information available to the public also to be information that is treated as relevant by the Law Society Tribunal in assessing appropriate discipline penalties. There is good reason to limit Tribunal panels to consider only findings of professional misconduct by prior panels.

But the “right to be forgotten” discussion raises a point that some have made about formal discipline histories. To use an extreme example, should there continue to be transparency about a reprimand given 25 years ago absent any subsequent proceedings? Discipline panels routinely conclude that a stale disciplinary history is irrelevant for current purposes. Perhaps it should also irrelevant for the public purposes.

If it is accepted that potential clients have insufficient information to properly assess the quality of lawyers and paralegals (leaving them instead reliant on brand advertising, irrelevant and misleading “awards” and photographs of reassuring faces), then it follows that we should be thinking carefully about whether further information can be disclosed. It also follows that it is proper to think about the utility and the fairness of further disclosure.

It should be recognized that lawyers and paralegals will almost inevitably resist disclosure of complaints information, even investigated complaints leading to regulatory action. But it should also be recognized that there is another perspective that must be considered which, as always, has no advocate.

[1]      Complaints can come from clients, other parties, other lawyers, judges and the Law Society itself. While professional regulatory process is largely reactive, the Law Society itself initiates the complaints where matters come to its attention that may deserve further consideration.

[2]      The Law Society Act provides that the Law Society has certain investigative powers where the conclusion is reached that there is sufficient information indicative of professional misconduct or lack of capacity. In these circumstances, PRD says that a complaint has been instructed for investigation.

[3]      Some of those transferred for prosecution are also closed with diversion.

[4]      This interplay between the competition authority and the legal services regulatory provides an example of a productive interplay in which competition issues are raised while the regulator keeps independence.

[5]      Unlike our law societies, the Law Society of England and Wales is the representative of and advocate for solicitors.

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Too many new lawyers? Build a wall?

[Originally published on slaw.ca]

Over the last few years, there has been much debate about how to deal with the significant increase in the numbers of Canadian and foreign law school graduates seeking licensing in Ontario. While the number of articling positions has significantly increased, the number of applicants has increased even more quickly. The Law Practice Program (LPP) was established several years ago as an additional pathway to address this shortfall and to pilot a new approach to experiential training.

With a recent proposal to terminate the LPP facing substantial opposition, the Law Society of Upper Canada is now developing “long-term recommendations for an appropriate, sustainable Law Society licensing process”[i].

In this column, I hope to make three points. The first is that the question of an appropriate licensing process is far from new. It is unlikely that easy and obvious answers will be found. The second is that history shows that prediction is very difficult, especially about the future[ii]. We have far too much confidence that we can predict the supply of and demand for lawyers.

The third point is that there is more than a little self-interest involved in a self-regulating profession seeking to regulate the number of lawyers. Even if we could do so with accurate predictions and with actual authority, there is reason to question whether the public interest is pursued in limiting numbers in response to economic anxiety within the profession.

I also hope to provide some historical information which may be useful in thinking about these issues.

45 years ago – Articling and the “Problem of Numbers”

In 1972, Bert J. MacKinnon[iii], as he then was, presented the Report of the Special Committee on Legal Education to Convocation of the Law Society of Upper Canada. The Special Committee Report described the then context saying:

Increasingly in recent years, the Law Society of Upper Canada became concerned about a number of problems related to legal education. In particular, it was felt that the time required to qualify for the Bar (up to 9 years) was too long. Also, the last full scale investigation of legal education in Ontario had taken place in 1955-57. Since then, there has been radical changes in the nature of law, the profession itself, the law schools and the number of students requesting admission to the law schools. Consequently, a further review of the problems became necessary.

The reference to a “full scale investigation of legal education” in 1955-57 is significant. That is when the current approach to legal education was established with a required minimum of two years undergraduate education followed by three years of law school, then the Bar Admission Program and then articling.

As of 1972, the Bar Admission Program was an eighteen month program following law school. According to the Special Committee Report, the time required to qualify for the Bar was thought to be too long. There was also a concern about the number of students seeking to become lawyers. Forty-five years later, the issues aren’t all that different.

As described the Special Report, the existing schools at Osgoode Hall and U of T became approved law schools in the late 1950s, Queens and Ottawa opened law schools in 1957, Western opened in 1958 and Windsor opened 1968. It took forty-five years for the next law school to open at Lakehead University in 2013.

The Special Committee Report summarized the then current problems as follows (i) Length of Process of Legal Education, (ii) Separation of Legal Education into Distinct Elements, (iii) The Problem of Numbers, and (iv) Financing Legal Education. One could see recent debates about legal education and licensing in these same terms which is instructive. Some problems may be somewhat inexorable with new balances needing to be found from time to time.

My main reason for looking at the Special Committee Report is its discussion of “The Problem of Numbers”. This is a discussion which doesn’t go away. In the late 1960s when William Howland[iv] was Treasurer, Convocation debated whether to restrict the number of lawyers called to the bar. It did so again in 1983[v] when the Special Committee on Numbers of Lawyers reported the majority view that “in the present circumstances more lawyers are engaged in private practice than are needed to provide proper legal services to the public”. I have little doubt that the issue of “numbers” has and will emerge from time to time over the generations.

By 1972, there had been 15 years of experience with law schools being the entry point for legal education and licensing. During these years, the number of law schools had dramatically increased. There must have been a sense of rapid change and concern about what might to come. As of 1972, the Special Committee Report noted:

Until the mid ’60s, the capacity of the Ontario law schools expanded at the same rate as did the other university faculties. However, in the late ’60s, their capacity began to level off while the numbers of graduates with first degrees continued to increase. The present capacity of the six Ontario law schools in their first year classes is between 1,000 and 1,100 but the total number of applicants in 1972 exceeded 3,000 at the very least.

Sitting in 1972, the immediate future looked like about 1,000 or so new lawyers annually with about three times as many people wanting to get into law school as there were spaces for them. One can only speculate what might have been thought in 1972 about the situation thirty years later.

15 years ago – Looking back and looking forward

As it turns out, 2002 looked astonishingly like 1972[vi]. There were still six Ontario law schools. The capacity of their first year classes was essentially unchanged at 1,176 students. The number of applicants for law school admission in Ontario was essentially unchanged at 3,457 applicants. The number of foreign trained licensing candidates was less than 100.

I doubt that anyone in 1972 would have thought that the significant changes over the prior 15 years would be followed by 30 years of very little change. And if one reflected in 2002, what would the next 15 years have looked like? Given the primacy of recent experience, I expect that a seer would have expected little change. Of course, that would have been wrong.

The last 15 years, new lawyers and licensing

By 2016, a new Ontario law school had been opened (Lakehead) and plans for another had been announced (Ryerson). The number of applicants for Ontario law schools had increased by 817 or nearly 25% to 4,502. The capacity of the Ontario first year classes had grown by 373 or nearly over 30% to 1,549[vii].

More significantly, the number of law school graduates from outside Canada seeking licensing has increased even more. From 2002 to 2014, the number of certificates issued by the NCA[viii] for all of Canada had increased from 120 to 779. Nearly three-quarters of this increase[ix] was from graduates of American, Australian and English law schools. Canadians going to foreign law schools represented a substantial portion of this increase.

Over the last 15 years, the demand for law school admission has significantly increased as has law school tuition. In Canada, Australia, England and the United States[x], law schools responded to this opportunity.

The result has been a significant increase in the number of Ontario licensing candidates. While the number of articling positions has increased significantly, the increase has not been sufficient to meet the increased demand. To address this difference, the Law Society established the Law Practice Program (LPP). In 2016, approximately 2,200 lawyers were called to the Bar with approximately 220 coming from the LPP[xi]. There are approximately 1,900 articling positions which is obviously a substantial increase from 2002.

As matters stand, those who are qualified and wish to become lawyers in Ontario are able to do so. There is of course a cost to the LPP. But the alternative would seem to be a barrier to licensing.

As might be expected, these significant recent changes have caused alarm. Coupled with the slowed economy since the financial crisis of 2008, discussion has turned again to “The Problem of Numbers”. As usual, the expectation is that the new normal is the future. While that might be true, it would be right to be sceptical about our ability to project the future and to be concerned about measures taken to respond to current insecurities.

Looking beyond new lawyers – past growth in the legal profession

Looking just at those becoming and wanting to become lawyers can be misleading. While “entry” numbers are important, there are more than 50,000 licensed lawyers in Ontario (as of 2014)[xii]. Of these, over 23,000 were practicing and insured and nearly 13,500 were practicing and exempt from insurance. This means that there were some 38,500 Ontario lawyers in private practice, in-house and government in 2014. A few hundred additional new lawyers annually is significant and no doubt feels even more significant. But the increase should be understood in context.

How did we get to where we are. Records from the Great Library provide some useful historic information. According to Law Society Committee records, there were 14,747 lawyers in private practice in 1989 and 4,275 lawyers in education, government and other areas[xiii] . Ten years later, the Law Society reported 16,942 lawyers in private practice, 2,906 in government and 4,778 in education, in-house, not-for-profit and other.

Overall, the number of practising lawyers increased by 561 lawyers[xiv] or 2.3% annually during the 1990s. This compares with an increase of 700 lawyers or 2.7% annually during the following 15 years from 1998 to 2013.

To summarize, there were approximately 19,000 practicing lawyers in 1989. By 1998, there were approximately 24,000 practising lawyers. By 2014, there were approximately 32,500 practising lawyers. The net annual increase of practising lawyers was nearly 600 lawyers in the 1990s and averaged 700 lawyers in the following 15 years. The rate of increase has grown from 2.3% to 2.7% annually.

Private practice vs in-house practice

But this overall perspective can be deceptive. During the first 10 year period from 1989 to 1998[xv], the number of private practice lawyers increased by a total of only 14.9% while the number of practising lawyers in other categories increased by 79.7%. During this period, in-house law departments rapidly increased[xvi]. The number of private practice lawyers increased by 220 lawyers or 1.4% annually while the number of practising lawyers not in private practice increased by 341 lawyers or 6.0% annually.

Looking at the next 15 years[xvii], there were 17,032 insured practicing lawyers in Ontario in 1999 while there were 5,067 practising lawyers exempt from insurance. This latter category included lawyers who were in-house and in education. I expect that most were in-house lawyers and will refer to them that way for simplicity.

By 2014, the number of private practice lawyers in Ontario had increased over 15 years by approximately 400 lawyers annually (i.e. 2.1%) from 17,032 to 23,057. The number of in-house lawyers had increased by approximately 300 lawyers annually (i.e. 4.3%) from 5,067 to 9,549. It may not have been intuitively obvious that over 40% of the net increase in practicing lawyers over the last 15 years has been outside of private practice.

Comparing the 10 years starting in 1989 and the subsequent 15 year period starting in 1998, the number of private practice lawyers increased more rapidly in the later 15 year period at 2.1% annually compared to 1.4% during the earlier 10 year period. On the other hand, the in-house etc. group grew more slowly in the latter period at 4.3% annually compared to 6.0%. Nevertheless, the number of in-house lawyers continued to grow more rapidly than private practice and a decline from the earlier very rapid growth of in-house lawyers was likely inevitable. Reflecting on the growth of in-house law departments, the greater rates of growth of the numbers of in-house should be no surprise.

Looking more closely at private practice

We know that there was significant growth in large firms in the 1980s and 1990s and that there has appears to have been diminished growth in large firms since the 2008 financial crisis. Unfortunately, we have no good information looking at these differences prior to 1998. But, there is information from the FLSC archive by firm size since 1998[xviii].

Over the 15 years from 1998 to 2013[xix], the number of lawyers in private practice in firms of more than 50 lawyers appears to have increased by 112 lawyers annually (i.e. 2.9%). Looking at the 5 years since 2008, the annual increase appears to be essentially unchanged at 110 lawyers annually for a lower annual percentage of 2.5%.

During the same 15 years, the number of sole practitioners increased by 114 lawyers annually (i.e. 1.6%) and the number of lawyers in firms of 2 to 10 lawyers increased by 151 lawyers annually (i.e. 2.6%). But in the 5 years since 2008, the number of sole practitioners has increased by 193 lawyers annually (i.e. 2.7%) while the number of lawyers in firms of 2 to 10 lawyers has increased by 207 lawyers annually (i.e. 3.2%).

Combining these “soles” and “smalls”, the increase is 400 lawyers annually (i.e. 3.0%) for the last 5 years of the period compared to 266 lawyers annually (i.e. 2.1%) for the entire 15 year period.

So what is the implication of this information. It seems clear that the experience in the “sole and small” sector has been quite different than in large firms and in-house. The “sole and small” sector was comprised of roughly 15,100 lawyers as of 2013. Over the 5 years ending 2013, some 400 net lawyers annually (up from 266 lawyers annually over 15 years) or 3.0% annually (up from 2.1%) were added to “sole and small” sector.

This increase is very likely the product of increased law school admissions, increased NCA numbers and somewhat diminished large firm growth. No doubt the addition of nearly 150 net more lawyers annually compared to a decade ago is causing competitive stresses.

Putting this change in broader context, it is useful to understand that the “soles and smalls” generally serve individuals. As such, the available work is likely correlated with number of people in the province. In 1998, there were approximately 1,030 Ontarians[xx] per lawyer in sole or small firm practice. By 2013, there appears to be approximately 900 Ontarians per “sole and small”. It follows that there will be greater competition for work in this sector. This analysis also suggests that there will be proportionately more inexperienced lawyers in this sector than there were which is a source of concern especially where practice in isolation is relatively common.

But none of this demonstrates that there are too many lawyers for the available work. There is no basis by which to judge how many is too many or too few especially given the substantial evidence of unmet legal needs. It may be that the increased number of lawyers will simply increase competition for limited work – or it may be that innovation will result in new services being provided to Ontarians – or there may be some combination of both.

Looking beyond new lawyers – projected future supply and demand

The analysis to this point has been historic. One point that can, and should, be taken from this historical review is that trends have changed and that the recent past has often looked quite different than the near future turned out to be. It is all too easy to assume that recent trends will continue when that is not necessarily true. For example, the number of applicants for law schools in the United States grew over many years – and has dropped dramatically in recent years[xxi]. Unlike in Canada, law schools are closing in the United States as demand falls in response to decreased opportunities.

Looking to the future, the Higher Education Quality Council of Ontario recently commissioned a study from Prism Economics and Analysis (the “Prism Report”) projecting the labour market for teachers, lawyers, physicians, nurses, architects and engineers. The headline conclusion for lawyers was “Based on the Lawyers Supply-Demand projection model developed in this research, it is estimated that over the 10-year period until 2025, there will be 1.6 new licensed lawyers for every new practicing position”.

The essential assumption made in the Prism Report is that there will be a significant decline in the number of new practising lawyer positions over the next 10 years while the number of law school graduates and new licensed lawyers will increase slightly. The result is a projected significant difference between supply and demand. This imbalance between supply and demand presumes a significant decrease in demand and no corresponding effect on supply.

On the demand side, the Prism Report assesses two components of demand; expansion demand (the increase in the demand for legal services) and replacement demand (the need to replace lawyers who leave practice because of voluntary withdrawal, retirement or death). As to replacement demand, the Report projects an increasing retirement rate and mortality rate with the “greying of the bar”. The Report notes the tendency of lawyers to retire later in life than the population generally and later than other professions. The Report does not address whether this trend toward late retirement will be true for in-house lawyers although the number of potential retirements from in-house practice may not be significant over the next decade given relatively low numbers in in-house practice in the 1980s.

More significantly, the Report projects a significant decline in expansion demand based on unreferenced projections of “slowing economic growth combined with increased globalization, the adoption of new technologies and rising competition”. As a result, the Report forecasts expansionary demand of some 320 lawyers annually over the next ten year down from a current estimate in the range of 700 to 1,100 lawyers.

It should be clearly understood that the most important variable in the Prism Report is the projected expansionary demand. The ability to make this sort of macroeconomic projection is highly suspect. Looking back at long term general economic forecasts and long forecasts for the demand for doctors, nurses and teachers shows that these sorts of forecasts are rarely right. While the Prism Report may be right that we are about to enter an unprecedented period of significant decline in expansionary demand, it is appropriate to be highly sceptical about the reliability of that prediction. If the expansionary demand since the financial crisis of 2008 is instead assumed, the conclusion of the Report would be quite different.

Figure 2-1 from the Report shows the annual historic and projected change in supply and demand for new lawyers from 2005 to 2025 with the first ten years being actual and the second ten years being projected. Notably, the number of new practising positions is just slightly less than the number of new licensed lawyers during the first ten years. A radical change is projected during the next ten years based on macroeconomic assumptions[xxii].

My point in this review of the Prism Report is not to throw rocks but rather to highlight the inherent fragility of the projection. I fear that the apparent reliability of charts and numbers will add fuel to protectionist fears.

What to make of all of this

It would be great to be able to make wise projections about the supply and demand of lawyers going forward. But, in my view, history shows that doing so is a mug’s game.

Lawyers in 1972 would not have guessed that the number of licensing candidates would remain essentially constant over the next 25 years. The growth of in-house practice and large firms would not have been projected in the late 1970s. Lawyer graduating in the early 1980s would not have predicted that they had become lawyers at such a good time. In 2002, the rapid increase in the number of Canadian and foreign law school graduates coming to Ontario to be licensed was entirely unpredicted. In 2007, the economic crisis of 2008 and its effect on the legal profession (and the economy generally) over the next decade was unpredicted. The rapid decline in US law school applications at the same time as increasing applications by Canadians to domestic and foreign law schools was not predicted either.

The implications are two-fold. The first is that we should not design and implement regulatory policies based on a false belief that we have the competence to “manage” supply and demand (even if we had that authority as a self-regulating profession which we don’t).

The other practical implication is that we should stick to our knitting and address what needs to be addressed. The principal mandates of a self-regulating profession are competence and conduct. The foregoing analysis shows what we already know which is that there are more lawyers going into small and sole practice and that many of these new lawyers are foreign trained. The goal should be proper assessment of qualifications, proper experiential training and practice support to better ensure that those practising in relative isolation have support.

But the implication of an increased number of lawyers is not to build a wall.


[i] November 9, 2016 Convocation

[ii] Yogi Berra is commonly credited for this expression although the Danish physicist and Nobel Prize winner Niels Bohr appears to have said this before Mr. Berra. http://quoteinvestigator.com/2013/10/20/no-predict/

[iii] The Honourable Justice MacKinnon was appointed to the Court of Appeal in 1974 and then Associate Chief Justice in 1978. He served as Associate Chief Justice until 1987.

[iv] Appointed to the Court of Appeal in 1975 and appointed Chief Justice of Ontario in 1977.

[v] When I articled in 1982/83, the market was pretty grim. Articling hire-backs the previous year were very low. Interest rates had exceeded 20%. The economy was in a recession. No one would have guessed that becoming a lawyer in the 1980s would turn out as well for my generation as it did.

[vi] Ontario Universities’ Application Statistics at https://www.ouac.on.ca/statistics/law-school-application-statistics/

[vii] In descending order, Ottawa added 164 first year spots from 2002 to 2016, Windsor added 77 spots, U of T added 42 spots, Queens added 33 spots, Western added 17 spots and Osgoode was essentially flat.

[viii] National Committee of Accreditation of the Federation of Law Societies

[ix] An increase of 478 certificates was from England (255), Australia (131) and the United States (92). 177 was from other countries. India, Nigeria and Pakistan are the largest sources after Australia, England and the United States

[x] Until the market changed dramatically for lawyers in the United States.

[xi] Approximately 50% of the LPP students are from Canadian law schools.

[xii] Federation of Law Societies Statistics http://flsc.ca/resources/statistics/

[xiii] This were presumably mostly in-house lawyers. It is amusing now to see this group of 2,317 lawyers described as “other”.

[xiv] There are of course both new lawyers and lawyers who leave practice.

[xv] Based on LSUC annual information from the Great Library for 1989 and 1998.

[xvi] During this period, the size of large law firm serving large clients also increased significantly. While the numbers are not available, I expect that the number of lawyers serving individuals and small businesses likely grew even less.

[xvii] The Federation of Law Societies (FLSC) has a useful statistical archive with annual information back to 1998. The 1998 statistics from this archive for Ontario appear to have been done on a different basis than for 1999 and following years. Accordingly, I have used 1999 as a base rather than 1998.

[xviii] Unfortunately (and ironically), the available information is less reliable after 2007. Until 2007, the number of lawyers in private practice equaled the number of the lawyers in firms. In 2008 and following, the number of lawyers in firms exceeded the number of lawyers in private practice which makes no sense. It appears that the reason for this anomaly is that the data started in 2008 to double count lawyers who were in more than one firm. I have assumed that this double counting is randomly distributed by firm size and have restated the numbers so that the number of lawyers in firms is forced to the number of lawyers in private practice. This introduces a source of error into this analysis with the effect of the error being unknown.

[xix] The anomaly in the FLSC archive as between 1999 and 1998 was in the practising-exempt category. The practising-insured category was consistent. As data by firm size is not available for 2014, the 15 year period from 2008 to 2013 is used.

[xx] Based on Statistics Canada data as to the Ontario population

[xxi] The number of LSAT tests administered has dropped from over 170,000 in 2009/10 to nearly 106,000 in 2015/16. The number of Credential Assembly Registrations has dropped from approximately 88,000 in 2009/10 to nearly 52,000 in 2015/16 http://www.lsac.org/lsacresources/data/lsac-volume-summary

[xxii] One wonders how the obviously unexpected election of Donald Trump and the Brexit vote affects the assumption of increased globalization for example.

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