Regulating Law Firms

As we say goodbye to 2016, it’s time to embrace 2017. For 2017, law societies should place an emphasis on regulating law firms.

A law firm’s culture seeps into the very make-up of its constituent lawyers. An unethical culture breeds unethical lawyers. An ethical culture breeds ethical lawyers.

In “Regulating Law Firms in Canada“, Professor Adam Dodek states that the absence of law firm regulation undermines the legitimacy of law societies. I agree.

Under the pressure from law firms to meet deadlines, win cases, win motions, appease clients, and surrounded by a certain firm culture, lawyers may find themselves suddenly doing things they never thought possible. For example, a mid-level associate in a large firm may fail to disclose a potential conflict of interest. But by disciplining only that individual lawyer, law societies “miss part of the story of how the practice of law operates and how it should be regulated.”

Professor Dodek explains:

Law firms are front and center in the lawyer-client relationship. As Lucie Lauzière has written, “[t]he law firm is now the intermediary between client and lawyer.” This is certainly true in terms of advertising, solicitation, client intake, conflicts of interest, retainer agreements, billings and many other interactions that clients and potential clients have with the delivery of legal services via “the firm.” With larger law firms, the influence of a collective culture may be even stronger.

Law Societies should regulate law firms because of the enormous power that law firms exert over the behaviour of its constituents. Behaviour once seen as obscene, now normalized by a law firm’s culture, may become second nature to its lawyers. Through the regulation of law firms, law societies can promulgate ethical standards.

There are many ways to regulate law firms. The three most powerful ways to do so are licensing, audits, and discipline. First, law societies should license law firms. This should include a vetting process. Second, law societies should audit law firms as a whole. The audits should include looking at professional conduct practices. Third, law societies should discipline law firms for the behaviour of its lawyers. The discipline of law firms can include fines, suspension of license for the firm, revocation of license for the firm, the imposition of policies, and announcements to the profession of “bad” behaviour of the firm.

Firms need to take responsibility for their individual lawyers. Not every bad apple is a rogue apple. And its time for our law societies to go beyond the individual and take a hard look at the law firms themselves.

(This post was previously published on slaw.ca.)
In my slaw post  John Kleefeld commented that law societies are moving towards changing the regulatory process. Specifically, British Columbia has examined this issue and released a paper in October 2016 titled “Interim Report of the Law Firm Regulation Task Force”.  In the report it was recommended that law firms not be licensed:
 “Given the administrative burden and costs associated with authorization, and the fact that there is already a licensing process at the individual lawyer level, the Task Force recommends that initially, firms not be required to go through a formal process in order to obtain a license to provide legal services. At this stage of regulatory development, registration will suffice.”

The Canary in the Coal Mine

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In many ways the taxicab industry is the canary in the coal mine. Silently ringing the alarm to tell us that technology companies are circling in on highly regulated industries, ready to disrupt them, ready to leave a wreckage at whatever the cost.

The scariest part of it all?

These new technology companies operate outside the law. In Your Profession, Your Future hosted by the Advocates’ Society, Monica Goyal explained that these new start-ups operate outside the law because they simply cannot afford to operate inside the law.

What will happen when new legal start-ups operate outside the law?

Once one of these apps gains marketshare, some law society out there will sue them. These new apps will hire lawyers. These lawyers will bring the inevitable argument: “This is a technology company and NOT the unlicensed practice of law.”

Regardless of the lawsuit’s outcome, law societies will fail to prevent the onslaught of legal services provided by technology companies. Therefore, law societies must begin to regulate actors beyond lawyers.

Currently in Ontario only lawyers and paralegals are regulated. This is concerning considering that the reign of lawyers is ending and the infiltration of new legal providers is beginning.  “Ultimately,.. the disruptive effect of technology will trigger the end of lawyers’ monopoly (“the Great Disruption”, John McGinnis and Russell Pearce).” Given the inevitable triumph of new actors, regulation of all legal providers must occur, from the lawyer all the way up to the big company.

No one, no “thing” should be above the law. Professor Dodek’s remarks in “Regulating Law Firms in Canada” could easily be extended to start-ups and entrenched legal technology companies (e.g. LegalZoom):

Ultimately, law societies should regulate law firms because of the fundamental rule of law idea that no one is above the law and that the law applies equally to the most powerful as well as to the weakest in society. Law firms exercise significant power within the Canadian legal profession and within Canadian society. The perception that the most powerful within the legal profession lie outside of regulation has the potential to seriously undermine public confidence in self-regulation of the legal profession. It is not enough to simply regulate the individuals who make up law firms because law firms have an independent existence and identity. Individual lawyers promote their practices to the public through the vehicle of the law firm. The public sees law firms but does not see law firms being regulated.

Dodek’s article: http://bit.ly/1NQZgov