ABS: What horrors within?

By Noel Semple December 4, 20144 December 2014

There is no evidence that alternative business structures will steal clients away from lawyers and encourage unethical behaviour.

ABS: What horrors within?

Illustration by Margaret Hagan

“Professor, I was wondering if you could tell us anything about the Chamber of Secrets," said Hermione in a clear voice… “What exactly do you mean by the ‘horror within’ the Chamber?”

"That is believed to be some sort of monster…" said Professor Binns in his dry, reedy voice.

J.K. Rowling, Harry Potter and the Chamber of Secrets

An alternative business structure (ABS) is a law firm that includes non-lawyers as investors, managers, or partners.  Such arrangements are effectively forbidden throughout Canada today.  However prominent voices, such as the CBA Legal Futures Initiative, are now calling for regulators to roll back these rules and welcome ABS firms to our legal landscape.

A future with ABS is a chamber of secrets, rumoured to contain both glittering treasures and savage monsters.  The treasures may include enhanced access to justice for clients, and new innovation and flexibility for legal professionals.  The value of these treasures cannot be known unless and until we roll back the regulation currently blocking the entrance to the chamber.

However many are reluctant to do so, because two monsters are also said to reside in the chamber. One of these beasts, it is said, eats legal ethics by corrupting lawyers. The other allegedly eats lawyers themselves, by stealing their clients.

While the treasures in the chamber are uncertain, the two monsters are entirely figmentary.  Our regulators therefore have nothing to lose — and possibly a great deal to gain — from opening the door to alternative business structures.

An ethics-eating monster?

Regarding ethics, lawyers are expected to devote themselves wholeheartedly to their clients and to the rule of law. Under ABS, the fear is that interlopers not bound by our oaths would undermine this devotion.  Non-lawyer investors or partners in a law firm might demand that lawyers cut corners on quality to boost profits, “cherry-pick” the most profitable cases while abandoning others, or divulge client confidences for business reasons.

But doesn’t the current legal practice environment create equal or greater pecuniary temptations?  Some firms impose crushing billable hour expectations on associates, but we still expect the associates to resist the temptation to inflate their dockets.   Some lawyers are economically dependent on the executives of a single corporate client, but we still expect those lawyers to stand up against corporate fraud if they encounter it.

Any new temptations to unethicality associated with ABS are insignificant compared to these traditional lures.  If lawyers can resist the old temptations, then they should have no difficulty whatsoever resisting the new ones. The assumption that non-lawyers who might take a role in law firms are inherently more avaricious than lawyers is simply groundless elitism.

In any case, law societies have many tools at their disposal for deterring and responding to unethical behaviour, regardless of whether it arises in a traditional firm or an ABS.  Each lawyer’s core ethical obligations to clients and to the legal system would remain under ABS, along with the regulatory mechanisms that enforce them.

There is no evidence of diminished lawyer ethicality in the UK, Australia, or any of the other common law countries that have already opened the door to ABS.  This is in part because new threats arising from ABS structures were addressed by new conduct rules. For example, 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.

A lawyer-eating monster?

Then there is the worry that ABS will steal clients from personal client lawyers (those who serve individuals and small businesses as opposed to larger corporations).

We are reluctant to admit we fear this second monster. We know we’re supposed to make regulatory decisions with exclusive regard to the “public interest” and not with a view to saving our own skins.  But secretly we find him even more terrifying than his ethics-eating brother.

Among lawyers who serve individuals, the phrase “alternative business structures” evokes RocketLawyer, “Walmart Law,” and Richard Susskind’s The End of Lawyers. One can imagine a swarm of new ABS firms marshaling information technology, offshore legal sweatshops, and under-trained paralegals to render personal client lawyers obsolete.

Fortunately, this second monster is no more real than the first one. The regulatory prohibition of ABS does not meaningfully suppress competitive threats from computerization and offshoring.   A completely distinct regulatory prohibition – the prohibition of unauthorized practice of law — does suppress these threats to a certain degree. It would survive a liberalization of ABS rules.

The competitive challenges for Canadian personal client lawyers are real, but they cannot be traced to the ABS chamber of secrets. These practitioners will have to compete with internet-enabled do-it-yourselfism; regardless of what position the law societies ultimately take on ABS.  Routine transactional work such as drafting simple wills and processing uncontested divorces is already subject to stiff competition from these sources, in today’s ABS-free landscape.

However dispute-based “personal plight” legal needs (family law, criminal law etc.) constitute bread and butter for most personal client lawyers today.  Here, I believe the prospects are relatively good for Canadian lawyers, with or without ABS.

Those who do personal plight legal work must master complex and shifting law.  They must both advocate and negotiate effectively.  They must form effective alliances with clients who are legally inexperienced and often going through personal crises.

Personal plight work will require highly trained local professionals for the foreseeable future, whether or not ABS is allowed.  In fact, a liberalized approach to ABS may make personal plight practice more viable. For example franchise models like the UK’s QualitySolicitors offer small firms back-office and marketing support so that they can focus their efforts on actually practicing law.

There is no evidence from abroad that ABS dooms the small firms that dominate personal plight practice.  In fact, since New South Wales welcomed alternative business structures, the proportion of solicitors working in small firms or alone in that jurisdiction has actually increased.

That being said, ABS may also mean larger firms providing personal plight legal services, on the model of Co-Operative Legal Services in the UK.  However this too is more of an opportunity than a threat for Canadian lawyers.  Given the jurisdictional specificity of our law and the continuing prohibition on unauthorized practice, such firms would have to hire Canadian lawyers in order to serve Canadian clients.  Many personal client lawyers might welcome a career option currently unavailable to them: to practice in a large firm.

No horrors within

Access to justice, flexibility and innovation are among the treasures that may lie within the ABS chamber of secrets.  The only way to find out is to roll back the regulatory impediments that block the door.  The two much-feared monsters in the chamber are imaginary, so there is no reason not to.

Noel Semple is a faculty member at University of Windsor Faculty of Law.  His book Justitia’s Legions: Legal Services Regulation at the Crossroads will be published by Edward Elgar Press in February 2015.

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