Small businesses caught in legal missing middle

Business lawyers examine access-to-justice issues for companies in B.C.

Clio lawyer-in-residence Joshua Lenon believes there exists a product-market fit gap between law firm services and undeserved businesses |Rob Kruyt

In remarks made in Vancouver earlier this year, Chief Justice of Canada Richard Wagner reflected on the economic costs of a justice system that is not always accessible, affordable, speedy or just.

“While large businesses can hire lawyers or go to arbitration, small and medium-sized ones may not have that luxury,” he said. “In some cases, accessible justice can mean the difference between a going concern and a bankruptcy.

“When justice is not accessible, there is a real economic cost, on top of the social and human costs.”

Research by the Canadian Forum on Civil Justice (CFCJ) has found that over a three-year period, almost half of Canadian adults will experience at least one serious everyday legal problem, such as the threat of legal action or issues related to employment. Resolving such an issue costs almost as much as a Canadian household spends on food in a year – and that is based on 2012 spending statistics. 

The issue – with its associated increases in the need for social assistance, loss of employment and health problems – costs governments an estimated $800 million annually, according to the CFCJ.

What has been labelled an access-to-justice crisis in Canada expands beyond the need for more legal-aid funding and affects more Canadians than those who fall below the poverty line. 

“They’re stuck in the middle,” explained Mary Childs, associate counsel in Miller Thomson LLP’s Vancouver office, in reference to Canadians who aren’t impoverished but who have limited funds to spend on legal advice. “It’s true for litigation and also for business services.”

Childs was one of three panellists at an event hosted by the Centre for Business Law at the University of British Columbia’s (UBC) Peter A. Allard School of Law last week. 

The event – one of a number of events held during the province’s first proclaimed Access to Justice Week – explored the role business lawyers can play in putting legal services within reach of more people in British Columbia.

“The business-of-law question that hangs in this access-to-justice crisis is an important one,” said Carol Liao, director of UBC’s Centre for Business Law, who moderated the session.

“It empowers people to feel like they have access to justice.” 

The panel cited billable-hour targets, administrative work, preferences for larger clients, revenue predictability and difficulty with bill collection and documentation as some of the challenges that potentially frustrate a firm’s willingness or ability to serve Canadians and businesses stuck in the middle of the market. 

“I think one of the main barriers that business lawyers face is that there is a product-market fit gap when it comes to the services that are offered by law firms, and the vast majority of underserved businesses that are out there,” said Joshua Lenon, lawyer-in-residence at Clio.

Of the more than 1,300 consumers surveyed in the 2018 Clio Legal Trends Report, 57% said they had a legal problem they ignored or handled outside of the legal system. At the same time, the report found that issues related to business and employment were among those least likely to be handled without a legal solution. Business-related issues also fetched some of the highest hourly rates. 

The findings suggest that while legal advice may be valued or required in many business-related issues, it often comes at a premium. It’s a particular barrier for small and medium-sized business owners with limited time and resources to invest in such services.

“The biggest challenge, I think, with big firms is finding a way to serve the underserved but who can afford to pay something for it – the ‘low-bono world,’” said Jade Buchanan, associate with McCarthy Tétrault LLP.

“What firms need to do is figure out a business model where they can be meeting the needs of small and medium-sized organizations.”

Unbundling legal services – like unbundling a cable TV package – is an option that allows clients to hire lawyers on more of an as-needed basis, potentially in a consultancy capacity, where a lawyer can help guide an individual through a legal challenge they opt to handle without representation.

Fixed fees, deferred fee arrangements and subscription services are other models used by firms to offer businesses greater price predictability.

“At a certain price point it doesn’t make sense to hire lawyers and pay for it,” explained McMillan LLP lawyer Ryan Black. 

Black is the clinic adjunct at UBC’s Business Law Clinic, which offers pro bono legal services to businesses and non-profits. His No. 1 business-related request since he joined earlier this year has to do with foundational commercial agreements, closely followed by questions around incorporation.

“I think a lot of people just let their web developer copy whatever they found on the internet and put it up as their terms and conditions,” Black told BIV with a laugh. The clinic, which takes cases at the start of the academic year, gives UBC law students practical legal experience while helping business owners explore legal options and questions.

When it comes to the business of law, technology presents opportunities to automate and reduce the amount of administrative work behind a single billable hour. It has the potential to both increase the amount of time a lawyer has for legal work and reduce hourly rates.

According to Buchanan, changes in a number of areas – technology, business models, regulations and legislation – will ultimately help solve issues in accessing business legal services. 

“Sometimes it is just about making legal information and education easily available and accessible for business owners,” Liao told Business in Vancouver.

“For legal issues that arise beyond basic governance, it is about making legal services affordable so that these businesses aren’t financially decimated from legal fees in times of crisis.”