Alternative business structures pushed for B.C. law firms

Debate centres on whether public ownership would improve access to legal services

Since becoming the world’s first law firm to go public a decade ago, Slater and Gordon (ASX:SGH) has had a spectacular rise and a disastrous fall in the markets.

The company has faced class-action lawsuits over allegations that it misreported its financials. Its AUD$18.8 million market value (as of November 2) is a fraction of the AUD$2.8 billion it was worth at its trading peak in 2015.

The controversy has raised concerns around whether Australia’s decision to deregulate law firms and allow public ownership in them is a decision worth modelling.

“I think what’s happened to Slater and Gordon in some ways proved that alternative business structures can be permitted if they’re properly regulated, without posing risks to clients. Lots of shareholders lost money, but as far as I’ve heard, no clients at Slater and Gordon have been aversely affected,” said Noel Semple, a faculty member in the University of Windsor’s faculty of law and the author of Accessibility, Quality, and Profitability for Personal Plight Law Firms: Hitting the Sweet Spot.

He argues that liberalizing the traditional law firm model by including non-lawyer capital and perspectives has allowed firms like Slater, QualitySolicitors in the U.K. and others to offer quality legal services, more affordably.

“It’s not just about the money; it’s about the ideas,” he said, adding that while rules around ownership have been liberalized in Australia, the U.K. and to some extent in Ontario and Quebec, legal services industries have to remain and do remain highly regulated.

Risk aversion, caution and a lack of empirical evidence to support the touted benefits of deregulation have to date steered most legal regulatory organizations, including the Law Society of British Columbia (LSBC), away from allowing alternative business structures (ABSs) that include alternative ownership models.

In B.C., regulations bar anyone who isn’t a legal professional from investing in and owning a law firm. Proponents of that brand of ABS argue such regulation stifles innovation and ideas and, as a result, impacts Canadians’ overall access to justice.

“All of this takes time, energy, money, different points of view, different ways to enable lawyers to function in the greater business environment,” said Darren Hart, CEO of Victoria-headquartered Hart Legal.

Between technological disruption, the rise in self-represented litigants in family law and a shift in demographics, Hart said the pressures are huge for firms to remain competitive. His expectation: that law societies will increasingly allow non-lawyer ownership in firms.

Hart Legal has a dozen and a half offices and satellite offices in Western Canada and the U.S., an expansion that has been supported by outside investors through an exclusive partnership with Hart Management: individuals can invest in the management company, which bills Hart Legal for a range of non-legal services, like marketing or accounting.

Alistair Vigier, vice-president of business development at Hart Legal, believes the venture is the first of its kind in the province. It was set up with the guidance of B.C.’s law society, though he admits it can take investors a while to understand what is a “complicated” model for raising capital.

“Everyone assumes a law firm’s just sitting on a giant pile of cash. But just like any other business or company, we have cash flow too. It’s very expensive to grow into a new place,” explained Vigier. “If non-lawyers could own shares directly in law firms, we could simplify the model by actually selling the franchises directly to them.”

The LSBC, however, has stated it’s “skeptical” that allowing non-lawyer ownership in law firms will improve access to, and the delivery of, legal services.

A 2011 committee report outlined cautious support for ABS but advocated waiting to see “if the case for improving access to legal services through ABSs can be more clearly demonstrated,” and recommended developing specific proposals for such structures.

In a statement to BIV, the society reaffirmed it continues to monitor developments related to ABSs. At present, it’s examining an initiative around regulating law firms, and it acknowledges that alternative business structures could tie into that particular issue.

“The risks in relying on profit-driven business to solve social welfare problems should be obvious: sometimes it works, and sometimes it really doesn’t,” said Carol Liao, an assistant professor at the University of British Columbia’s Peter A. Allard School of Law.

Liao acknowledges one of the believed benefits of ABS, a point also addressed in the law society’s report: that public ownership of law firms could lead to consumer- and market-driven legal services or what is sometimes called “Walmart Law” – cheaper, higher-quality and more accessible legal services.

She points out, however, that the jury is out.

Research on non-lawyer ownership by Nick Robinson, a post-doctoral research fellow at Harvard Law School at the time his 2014 paper was published, doubts whether this model improves access for low- and middle-income demographics. It also found that focusing on non-lawyer ownership as a substitute for other access to justice strategies could potentially have a detrimental impact on access.

“So many people talk about ABS as though it’s doing something that’s not permissible now when so much of what is encapsulated in that term is already permitted,” said Liao. “Law firms are free to explore innovative ideas. They’re free to pursue technological innovations. They’re free to contract with businesses to aid them in delivering services.”

The question of ownership is contentious, though just one option under the umbrella of ABS. There are other “alternative” law firm structures that don’t challenge the issue of ownership or investment but do challenge and liberalize the traditional legal service delivery model.

Multidisciplinary practices, for example, bring together certain legal and non-legal services under one roof. TNG Legal Services MDP, based in the Okanagan, was the first to do so with notary and legal services, and it remains just one of two such practices in B.C.

“There was an awful lot of pushback in terms of ‘Why would you want to work together?’ So we spent quite a bit of time educating folks on how we could do better together,” said Linda Caisley, a partner and a notary at the practice’s downtown Kelowna office.

The business case was clear: with around 360 notaries in B.C., adding legal services would allow the group to grow. The combination, along with advancements in technology, has also made it more financially viable to bring services to small, rural communities.

“The value-add to the lawyer was the fact that notaries service a lot of clients, and is an entry point into legal services for many people,” said Tim Janzen, also a partner and notary at TNG. “The value-add to us is because we’re not losing the client.”

There are other examples of initiatives that fall under the broad umbrella of ABS. Roper Greyell in Vancouver earlier this year became one of a handful of law firms in Canada to appoint a non-lawyer chief executive officer. Labour Rights Law Office, which has a bricks-and-mortar location in Coquitlam, has rolled out a virtual law office to help facilitate access and reduce the cost of its legal services.

Semple’s book outlines a number of measures family, personal injury and employment law firms could implement to increase access to justice, including scheduled fee payments, offering unbundled services, and relying on non-lawyer consultants and executives to assist with research and development within firms.

“The argument is that there needs to be some sort of a disruptive innovation to the legal services sector. And I agree,” said Liao. “If there’s a way to increase access to justice without taking on all the risks and potential downsides of ABS in the way I’ve defined it, why not find those options?”•