The Dangers of Non-Lawyer Owned Law Firms

OTLA has published a submission to the Law Society of Upper Canada in response to the discussion of Alternative Business Structures. You can find it here.

Should non-lawyers be allowed to own law firms in Ontario?

This is a question that the Law Society of Upper Canada (“LSUC”) is currently grappling with. The LSUC, which regulates the provision of legal services in Ontario, is considering whether or not to allow non-lawyers to own a majority control of a law firm. Currently, only lawyers and licensed paralegals are permitted to have an ownership interest in law firms in Ontario. This could soon change. The impetus behind the push for non-lawyer ownership is the belief is that allowing non-lawyer ownership will make legal services more affordable and therefore more accessible. However, there is very little evidence that alternative business structures (“ABS”) will indeed promote greater access to legal services. In fact, there is evidence that where ABS have been there has been little impact on providing great access to the most under-serviced areas of law such as family and criminal matters.

A report from Harvard Law School, “When Lawyers Don’t Get All the Profits: Non-Lawyer Ownership of Legal Services, Access, and Professionalism” reviews the impact of non-lawyer ownership in two jurisdictions that have allowed unlimited non-lawyer ownership of law firms – Australia (since 2001) and the U.K. (since 2012). The report reveals that access to justice has NOT increased in these jurisdictions since the introduction of non-lawyer ownership. Nick Robinson, the lead author of the report, told the Lawyers Weekly in a recent article:

“I think if you look at England and Wales and Australia, it hasn’t been the sort of magic bullet for access problems, and particularly for poor and moderate-income populations.”

The experience to date in Australia and the U.K. suggests that the under-serviced areas of criminal and family law will remain under-serviced even if alternate business structures are permitted. In practice, as can be seen from Australia and the U.K., the area of law that will attract the most interest is personal injury. The reason is simple: there is the potential to earn higher profits in personal injury law. This potential for higher profits attracts the non-lawyer owners. However, there is no access to justice problem in personal injury law. Competition in the personal injury field is intense. If a person has a viable personal injury legal case, they will certainly have a number of lawyers ready and willing to represent them on a contingency fee basis and will not ask the client to pay for any costs until the case is completed.

While there is no persuasive evidence that ABS will result in greater access to legal services, allowing ABS will almost certainly create new and more numerous conflict of interest problems. One need look no further than Australia where broad-based public ownership of legal firms is permitted. This has led to the growth of Slater and Gordon, a publicly traded law firm. There is an inherent conflict with public ownership of legal firms.

The board of directors of a publicly traded company has a duty to its shareholders to increase the value of the firm – that is the board’s primary directive.

Lawyers, on the other hand, have at least two duties that supersede any duty to make profits:

  1. duty to their client, and
  2. duty to the administration of justice.

Both of these duties may result in a lawyer taking action that does not maximize profits for the law firm. With ABS, a lawyer will be in a conflict with his duty to the company to maximize profits and his duty to his client and/or profession. While most law firms make money and indeed need to make money in order to survive, this cannot be the primary goal. The old saying still applies:

Law is a profession not a business.

There is another area of concern with non-lawyer ownership. In the U.K. with the advent of ABS, insurance companies have taken control of many plaintiff personal injury law firms. In this model, a person who is injured may only have the option of retaining a lawyer who works at a law firm owned by an insurance company. There is obvious potential conflict if the same insurance company insures the person who caused the injury. Insurance companies are in the business of making money, and this means paying out less in claims than the insurance companies receive in premiums. The lawyer who is notionally representing the injured client also has a duty to their employer to reduce the payout to the injured plaintiff. How is this fair to the injured client? In Ontario, the Ontario Trial Lawyers Association has vigorously fought the insurance industry’s lobbying efforts to limit claims and reduce payouts. If personal injury law firms were owned by insurance companies, you can be sure that the lawyers would not be waging the same fight.

The real loser in this situation is the injured client whose compensation for injuries will necessarily be reduced.

While some non-lawyer ownership may ultimately be beneficial to the legal profession and the general public, allowing unrestricted ABS is not the answer. If there is going to be any non-lawyer ownership of legal firms, the non-lawyer’s should be restricted to less than majority, non-controlling interests, and not include insurance companies. If not, the public will suffer.

 

Contributed by Kris Bonn, an OTLA Director and lawyer practising with Bonn Law Office PC in Trenton, ON.

Kris Bonn
Written by

Kris focuses on helping people who have suffered serious personal injuries, car crash victims and long-term disability claims. Kris also helps people who are facing impaired driving and over 80 related criminal charges. Kris has successfully argued cases before juries, judges and the Court of Appeal in Toronto. Kris is active in the community as a Director of the Ontario Trial Lawyers Association and the local Brain Injury Association Quinte District. He is a member of the Hastings County Law Association and the Advocates Society. He supports local charities, including the Trenton and Belleville Hospital Foundations.

  • personalinjury

    Thanks for awareness posting.

  • Perhaps I am missing something but have a couple of simple questions:

    1. In Austraila and the UK is there any real evidence that access to justive has gotten worse as a result of ABS?

    2. Are there many not-for-profit law firms in existence today or do most set out with the intention of making a prfoit for their owners?

    3. Did the OTLA put up an equally big fuss about law firms being able to be LLPs or individual lawyers to become professional corporations, the main reasoning which is to limit lawyers liability?

    4. Do all these law firms represented by OTLA have defined pro bono policies like oh say Slater and Gordon or any of the lesser known ABS firms in the UK?

    I am just curious how many seemingly intelligent folks can spout supercillious trite and expect to be taken serious.

    Amazing!

    • Will Campbell

      Thank you for your comment! This is the kind of discussion that is vital to determining whether non-lawyer ownership is worth exploring in Ontario. I suggest that you review the materials OTLA has published (and will continue to publish) on the subject, where you will find that the issue is not whether ABS will reduce access to justice, but that there is no evidence suggesting that ABS has any positive effect on public access to justice.

  • Mark

    New South Wales, in permitting non-lawyer shareholding in law firms, has required that confidentiality and other duties to clients must always supersede disclosure duties to shareholders. Would Canada not implrement the same?

    http://www.nationalmagazine.ca/Articles/December-2014-Web/ABS-What-horrors-within.aspx

    • Mark, what is still missing in ABS is a lawyer’s professional duty to put his or her clients’ interests ahead of earning profits. In an ABS where the majority of owners are comprised of non-lawyers, the number one priority is, as it should be, earning profits. A business person and certainly a board of governors of a public company do not have the same professional obligation as lawyers. The lawyer’s professional duty goes beyond confidentiality and disclosure. The lawyer must put the client first, even to his or her own detriment, that is the nature of the fiduciary duty owed by lawyers to their clients. There is also the risk that when profits become the primary duty, there is more incentive and pressure to potentially skirt regulatory rules.