Embracing innovation: Nonlawyers should be allowed to own Ontario law firms

gavel and scales KPA Lawyers a KPA Group Law Firm

Alternative business structures for law firms were researched and debated back in 2014. Many lawyers were advocating to reform the current structural limitations of law firm ownership. Currently, law firms in Ontario can only be owned 100 per cent by licensed lawyers, but there was hope that the law society of Ontario (LSO) would provide for flexible ownership arrangements. It has been 10 years since the initial debate and it is important to review the changes that have occurred in the legal industry since then.

In the U.S., certain states such as D.C, Arizona, and Utah, have already changed their bar requirements allowing for non-licensee ownership of law firms. This is also true in other industries such as accounting firms, dentistry and veterinary clinics which allow for a certain percentage of ownership from the non-licensees. Lastly, other large accounting firms are beginning to offer legal services through affiliates (i.e., KPMG Law).

In addition, the Access to Innovation (A2I) pilot project launched by the LSO allows approved providers of innovative technological legal services (which are not necessarily lawyer owned) to provide legal services. Moreover, the LSO began to allow civil society organizations — namely charities and not-for-profit organizations, to offer legal services to the public using their own lawyer employees without outside referral. It’s clear then that the pathway is beginning to open for more flexibility in ownership structure and this would be a good thing.

First and foremost, permitting nonlawyer ownership of law firms will foster innovation and competition. It would allow those who have experience in finance, marketing and client-enhancing services in other industries to vastly improve the client experience in law firms. Rather than continuously foster an environment of lawyers who are afraid to think outside the box for fear of client complaint or LSO audit, bringing in outside business professionals would include those more willing to take risks with their equity to improve efficiencies. Lawyers are not trained to run and grow a business, and by allowing them to partner with those who do, law firms will have a greater opportunity to service their clients. On the other side, it will allow law firms to attract these talented individuals and their skillsets by offering equity ownership to those individuals who can help the business grow.

Second, nonlawyer ownership will foster access to justice to service underutilized communities. While there is much focus on law firms in the GTA, there are many communities in the greater Ontario province that are underserviced and to allow for nonlawyers to own and operate law firms, business people can focus on offering flexible arrangements for making legal assistance more accessible in those regions. We are already seeing the use of technology in providing platforms that farm out those looking for lawyers to those lawyers looking for clients and provide service.

Third, in Ontario, the LSO’s current mandate to have lawyers provide for succession planning for their practice would be greatly aided by nonlawyer ownership. This is because the market value for law firms is much smaller than in other industries due to the regulatory barrier of ownership. As a result, the work involved in selling a law practice to extract liquidity from the long-term equity is often not worth the value being offered. As a result, it is more attractive for an aging lawyer to simply wind-down a practice, laying off its staff, and refer clients elsewhere rather than sell to a new buyer to transition properly. If nonlawyers are permitted to purchase law firms (such as private equity buyers) it would provide for a transition for lawyers and their staff, and more lawyers would look harder at this mode of succession planning as a reward for many years of service.

Critics of nonlawyer ownership often cite concerns about ethics and conflicts of interest. Moreover, they cite an ultimate concern that the purpose of a lawyer and law firm is to maintain the law and access to justice first and foremost and profit is only secondary; as opposed to nonlawyers where the reverse is true. However, without being able to maintain a profitable business over time, clients and the law are not well-served.

Lawyers are trained to practise law and (ideally) maintain trust accounts. As we sit today, there are many lawyers who cannot grow their practice or properly serve their clients because most of their time is spent on back-office administrative issues: bookkeeping, payroll, trust reconciliation, marketing — ultimately nonlawyer services they were never trained to do. While many lawyers use technology or farm out these services to third parties, without being able to have someone in-house who is talented who can assist with these components, the lawyer will have a tough time growing their practice or spending time servicing their clients with legal work. Thus, it is the opposite of what critics fear: without allowing for flexible ownership arrangements, current legal clients are already having trouble getting value from lawyers. I imagine, this is one reason for the A2I pilot project mentioned above.

In addition, to address any concerns pursuant to ethics, stringent regulations can address these concerns. For example, only licensees should be able to speak to clients pertaining to legal services and the rule could be that nonlawyers can only stay behind the scenes. The LSO (which should be updating the Rules of Professional Responsibility) can establish clear guidelines and oversight to ensure this is upheld — they can also ask for additional fees for nonlawyer ownership to ensure it can be paid for. This will allow the legal profession to evolve responsibly.  

The traditional barriers separating law from other industries are gradually dissolving, giving rise to new possibilities for innovation and progress. Allowing nonlawyers to own law firms holds the promise of a more dynamic, accessible, and responsive legal system. By embracing this change and implementing robust regulatory frameworks, we can unlock the full potential of the legal profession in the 21st century. It’s time to welcome the future of law with open arms.

This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.


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