Closing the access to justice gap for small businesses

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Imagine a local tech founder who downloads a free contract template to write and finalize a partnership agreement. Without the budget for a review by legal experts, the partners sign the agreement. Some years later, a dispute arises, and a misunderstood clause strips the founder of their intellectual property rights, causing the business to collapse.  

Like our imaginary tech founder, many small businesses cannot get the legal help they need, and the whole system ends up paying for it later.

The economics of unmet legal needs 

Small businesses are a major driver of Canada’s economy. They represent 98 per cent of all businesses, employ around 47 per cent of our private-sector workforce, and generate more than 34 per cent of Canada’s private-sector gross domestic product. Despite this large footprint, many small businesses face barriers when accessing the Canadian justice system. The public often views the access-to-justice crisis through the lens of criminal defence or family disputes. As a result, this damaging gap in the commercial sphere gets ignored.

When entrepreneurs, innovators, and not-for-profit organizations face complex legal questions, they fall into a systemic void known as the “missing middle.” This is because traditional legal aid, which is often reserved for individuals facing serious criminal, family, or immigration matters, excludes them. At the same time, because many small businesses operate on constrained budgets, they cannot get professional guidance due to its high costs; experienced commercial and litigation counsel across Canada routinely charge between $350 and $600+ per hour. 

Consequently, standard legal services for small businesses operating on narrow margins become more of a luxury rather than an operational expense. When businesses cannot afford these fees, the outcome becomes predictable: business owners draft their own contracts, sign take-it-or-leave-it agreements without negotiation, and ignore fundamental tax planning and intellectual property protections. 

What is even more concerning is that legal costs escalate dramatically if a business enters litigation over a poorly drafted contract, a misunderstood regulatory compliance issue, or an intellectual property dispute. While it may have cost our imaginary tech founder around $4,000 to have a lawyer draft a partnership agreement, a two-day trial over an issue in that agreement can cost them more than $25,000. Thus, a small business that already struggles with paying the steep legal setup costs may risk bankruptcy when facing litigation. 

Where clinics step in

Business law clinics exist to address this very issue. Across Canada, law schools operate clinics that match students with entrepreneurs and nonprofits that are stuck in the middle: too wealthy for legal aid, but not wealthy enough for a private lawyer. Meanwhile, students learn something that law schools rarely teach: how to translate legal doctrines into advice that a business owner without a law degree can use. 

The University of Victoria’s Business Law Clinic is a good example of this, with upper-year students advising clients on real files, under the supervision of a practicing lawyer. 

Consider a person managing a small business who is uncertain about whether to incorporate, who owns the work the team produces, and whether the individuals receiving compensation are considered employees or contractors. These are the kinds of issues a clinic is meant to address, but are often neglected when legal advice is too costly. If left unchecked, they become the same type of conflicts that our tech entrepreneur faced.

Clinics like ours demonstrate how the concept works. However, what they lack is scale. Access is currently limited by geography (if a local law school offers one) and capacity, as intakes occur only a few times a year, and there are only so many students who can take on files. That is not a flaw in the model; rather, it indicates that clinics need additional support. 

Government grants or tax credits to assist small firms with legal fees, as well as financing to expand clinics, would transform scattered local success stories into something more akin to a national safety net. 

Additionally, free basic legal literacy education for new business owners, addressing the common legal issues that arise, would help entrepreneurs identify when they need a professional rather than learning the hard way. 

This not only benefits business owners, but it also pays for itself. Owners who grasp their basic legal obligations make fewer costly mistakes and prevent unnecessary litigation. Businesses that survive their first legal mishap are less likely to face insolvency proceedings, which cost the system significantly more than a contract review. 

Fewer disputes also reduce the load on an already strained judicial system, which should be reserved for cases that require a trial rather than preventable contract disputes. Every dollar spent on sound business legal advice saves the system from having to spend more money later correcting an error that didn’t need to happen. 

Our tech founder’s partnership agreement would have cost $4,000, but instead, the business was lost. The solution requires no miracle, simply the type of assistance that clinics like UVic’s currently provide, made available before the damage was done. The tools needed to close the gap already exist. What is absent is the commitment to support them at the scale required to address the problem.