Legal Marketplace: Out of the box

There are barbarians at the gate. But as Canada’s law societies ponder whether to let them in, law firms and legal service businesses have signaled over the past year that they’re tired of waiting for changes to prohibitive rules on non-lawyers entering the legal industry.

Slowly, but surely, they are creating their own market for accessible and multi-service operations, a move that would have set tongues wagging a decade ago.

The change has been welcomed, but the spirit of innovation collides with a centuries-old principle aimed at keeping law firms independent and law­yers shielded from conflicts of interest, even as law societies have begun contemplating the introduction of alternative business structures, inspired from Britain’s reforms to its legal industry. The CBA’s Legal Futures Initiative is also examining how to liberalize the delivery of legal services so that lawyers can better meet existing legal needs.

In the meantime, ways are being found around the current set of rules.

The change has been welcomed, but the spirit of innovation collides with a centuries-old principle aimed at keeping law firms independent and law­yers shielded from conflicts of interest

In March, PricewaterhouseCoopers announced the formation of PricewaterhouseCoopers Immigration Law LLP, a new independent law firm affiliated with the accounting firm. The immigration lawyers joining the new legal outfit had formerly been part of Bomza Law Group. It is a surprising move considering that multidisciplinary practices (MDPs) — a partnership run by both lawyers and non-lawyers — have effectively been discouraged, if not banned, in Canada since time immemorial.

But by setting up a creatively constructed business structure, it appears that Bomza has been able to join the international accounting giant without contradicting the age-old practice — essentially forging a path that sidesteps a tradition that has been around “since forever,” says legal historian Christopher Moore.

“The legal professional is almost like the priesthood in that way.”

As Moore points out, traditionally, the most difficult question has surrounded disclosure: how does an accountant’s moral obligation to disclose reconcile with a law­yer’s responsibility to protect solicitor-client privilege?

Despite the hurdles, things have been changing in Canada since the eighties, says Moore.

“There has been this move toward business values taking over the professional ethos of the lawyer. And as long as business values are pre-eminent, law firms are going to think about doing these sort of mergers, because they just look like a smart business decision,” he said.

“And, once and awhile, the questions rise up whether it is a smart business move, whether it is possible for lawyers to provide that sort of essential, impartial, sort of independent advice if they are so tightly bound up with all the other parts of the market.”

“The legal professional is almost like the priesthood in that way.”

The first experiments with tinkering with that model took off in the early 2000s as some of the world’s top accounting firms looked to diversify and bring in new income streams, ultimately deciding to partner with top-tier law firms worldwide. In Canada, amid a qualified endorsement of more open rules by the Canadian Bar Association and various law societies, it led to an alliance between New York-based Donahue & Partners, and Ernst & Young, a London-based ‘Big Four’ (then, the ‘Big Five’) accounting firm — which became Canada’s only large-scale MDP firm.

Yet, as the big conglomerates began falling worldwide — thanks in part, analysts say, to the stunning collapse of Enron and its auditor, Arthur Anderson — the Canadian partnership ruptured. U.S. and Canadian law societies subsequently ushered in rules that expressly forbid practices that weren’t run exclusively by lawyers, requiring non-lawyers in MDPs to sign over “effective control” to a lawyer, swear to provide no legal services, and operate different offices for each different service.

“MDPs didn’t fall out of fashion: The Law Society of Upper Canada regulated it out of existence by creating rules that make MDPs unattractive to non-lawyers,” says Mitch Kowalski, author and legal futurist. He says things are shifting, notwithstanding any ethical questions. “All of these issues can be dealt with by thoughtful regulation; they are not deal- breakers. MDPs do not inherently create any ethical issues.”

MDPs didn’t fall out of fashion: The Law Society of Upper Canada regulated it out of existence by creating rules that make MDPs unattractive to non-lawyers.

Australia and the United Kingdom have spent the last decade opening the door for alternative business structures — which include MDPs, and more — effectively pulling down the partition between the legal clique and the open market. Meanwhile, in Asia, where such legal traditions aren’t as entrenched, accounting firms have begun forming and acquiring law firms to tap the huge financial markets there.

Canada has been slower to act. Opposition was fierce and loud when law societies first considered liberalizing the rules at the end of the last century, but now, as the option comes around again, discussion is more muted.

“Back in 1999 when the approval of MDPs was being debated at the Canadian Bar Association’s annual meeting, it was like a blood feud,” says Jordan Furlong, a principal with the consulting firm Edge International. “The intensity of the debate and the open hostility by many lawyers to the prospect that accountants in some way would be in charge of delivering legal services was remarkable. It’s interesting to me the contrast: 15 years ago, this was like barbarians at the gate.

“And today?”

Little fanfare.

That’s perhaps owing to the fact that PricewaterhouseCoopers Immigration Law is an affiliate of the accounting giant. “It is a complimentary or adjacent service. Which fits in with their whole approach,” Furlong says.

Neither the law firm, PricewaterhouseCoopers, or the Law Society of Upper Canada would agree to an interview.

But if Bomza was just a mutation, it is emblematic of broader evolution.

A committee formed under the LSUC to study the rules came back in February, and signaled that change is coming.

“The working group concluded that there are negative consequences inherent in current regulatory limitations on the delivery of legal services in Ontario that could be addressed with the thoughtful liberalization of business structures and the related liberalization of what non-legal services can be provided by entities providing legal services,” the report says.

They’ve submitted different scenarios for consideration: some combination of allowing law firms to offer solely legal services, or be allowed to offer various other products as well; and whether firms may have minority partners that are non-lawyers, or whether they should be allowed to be entirely run by non-lawyers.

Morris says 56 per cent of the Canadian market for legal services is not being catered to at present. Low-cost, high-volume firms like his are trying to tap them.

Alternative business structures will be accepted in Canada within the next five to seven years, Kowalski predicts. But, by then, the practice already may be commonplace. As Bomza shows, a practice can easily circumvent the rules by avoiding the formal relationships that occurred prior to the Enron collapse.

Meanwhile, as the lines blur as to what constitutes a law firm, there is a push toward accessible legal services businesses — like Toronto-based Axess Law, which has set up shop in a Markham Walmart.

Furlong calls Axess the H&R Block model — a plethora of easily recognizable offices dotting strip malls and plazas, offering a slew of services on the cheap.

An easy point of access for those in need of a notarized document or a will, they join the ranks of a burgeoning field of entities that aren’t strictly law practices, setting the stage for a new type of practice where lawyers never enter a courtroom.

Mark Morris, co-founder of Axess, says they follow the MDS rules to a tee — yet he adds that things would be “significantly easier” if they were loosened.

While Axess employs a spate of law clerks, they can only offer support roles under the current rules — lawyers are the only ones who can provide legal services, even if it’s a quick document motorization or a will, which are two of Axess’ most popular services. When National spoke with Morris, he had just finalized his 20th will of the day.

Morris says 56 per cent of the Canadian market for legal services is not being catered to at present. Low-cost, high-volume firms like his are trying to tap them. His is effectively an ABS that exists under the current rules.

“Where we function, we don’t think about [the MDS rules] that much. We don’t think it about that much because we’ve created a new model,” he says. There are barriers, however — Axess can’t set up a system of franchisees, for example. Instead, it retains a corporate model and opens up branch offices that act as independent law firms, within Walmarts.

Natalie McFarlane, a legal entrepreneur based in Toronto and founder of LawLignment, has faced similar challenges. She’s been trying for the past couple of years to set up a law practice to service for-profit social entrepreneurs.

“I had to do mental acrobats to be onside with the law society rules”

When she sought to establish a professional corporation for the purpose of practising law, the LSUC rejected her originally chosen name, Positive Impact Law, on the grounds that it risked violating advertizing prohibitions.

McFarlane also soon came to realize that to make her services more cost-effective for her target market, she would have to invest in technology or partner with a professional that has the skills to help her build a platform. Though she found an engineer who agreed to join her, they had to set up two separate entities so as to properly separate the legal service from the technology arm (called AgileAgree). “I had to do mental acrobats to be onside with the law society rules,” says McFarlane, who nevertheless forges ahead in her efforts, all the while drawing inspiration from the likes of Axess.

“I’m particularly happy to see these changes coming from within the industry in spite of the regulatory constraints,” she says. “It’s about people challenging them to think differently.”