Does ABS ownership of law firms better serve the public?

In September 2011, the Law Society of Upper Canada announced that one of its priorities in the upcoming term of 2011-2015 would be to examine alternative business structures (ABS), that is, non-lawyer ownership of law firms. Specifically, the Law Society hopes to determine whether ABS will allow for greater flexibility in the provision of legal services, nurture innovation in this field, and advance consumer access to legal services.

The Ontario Trial Lawyers Association (OTLA) stands in opposition to non-lawyer ownership for a number of reasons, primarily due to concerns about conflicts of interest which OTLA maintains are inherent in an ABS business model. Slater and Gordon, a large Australian multi-national law firm became a publicly traded company in 2007. In June 2015, Slater and Gordon's share prices fell approximately 43 per cent when an investigation was launched by the Australian Securities and Investments Commission (ASIC) after an accounting discrepancy was discovered in the accounting for its UK business.

The Slater and Gordon business model supports Alternative Business Structures (ABS) as the law firm is owned by its shareholders. The drop in Slater and Gordon's share prices paralleled its acquisition of the legislative arm of the UK group, Quindell, which is itself under investigation for its accounting practices.

Opponents of ABS argue that traditional legal practices better serve clients as the interests of the client is the ultimate objective, rather than business profits. Considering the Slater and Gordon example, a significant fall in share prices is often followed by a period of austerity for a responsible business entity which clearly has obligations to its shareholders. 

However, in the case of a law firm, one wonders whether lawyers would be pressured to improve the firm's cash flow by settling claims for clients early on in the claims process. Under these circumstances, would lawyers be more disinclined to wait until a trial or even, until all the medical assessments have been concluded in order to determine full and fair compensation for a client? 

Although traditional law firms are run as businesses as well, lawyers are always governed by strict professional standards and ethics which oblige them to avoid conflicts of interest. This is true regardless of the firm's revenue situation.

On the other hand, shareholders understandably demand a fair return on their investment and are not obliged to be patient through slumps in a fluctuating market. The Ontario Trial Lawyers Association (OTLA) have asked the Law Society of Upper Canada to prohibit ABS business structures in Ontario. The OTLA submits that non-lawyer ownership may have unexpected consequences for clients which are contra to the public and client interests.

Slater and Gordon acquired many smaller law firms over the 3 years in which their 'Work in Progress' balance grew from $300 Million to almost $1 Billion. The concern with a consolidation of this nature and thus, monopolization of legal services is that consumers may be left with less choice and less competition in pricing.

At least one exception to the suggestion that firms with an ABS structure may not function in the client's best interests is the Australian law firm, Salvos Law, writes Mitchell Kowalski, an Ontario lawyer, law professor and writer for various business/law journals. Salvos is owned by the Salvation Army and is actually composed of 2 firms, a commercial law firm called Salvos Legal and a pro bono firm named Salvos Humanitarian. The profits from the former fund Salvos Humanitarian work. Salvos Law has performed many thousands of pro bono cases helping more than 10,000 individuals who could not otherwise afford legal fees, and costing nothing to taxpayers or the Salvation Army organization. This ownership structure is not allowed in Ontario.

Ontario supporters of ABS have asserted that non-lawyer ownership of law firms can aid in access to justice. In response to this claim, Jasminka Kalajdzic, an Associate Law Professor at the University of Windsor was recently commissioned by the OTLA to complete a study of non-lawyer ownership of law firms outside of Canada (primarily in Australia and the UK).

Professor Kalajdzic's research studied whether non-lawyer ownership correlates with any measurable benefits for clients pursuing access to justice, and determined that there is no data that supports a firm connection. Professor Kalajdzic also found no evidence that non-lawyer ownership results in lower legal costs for the public. Further, one of the main gaps Professor Kalajdzic found is that family and criminal law are the major areas of unmet legal needs in Canada, but her research suggests there has been little interest by law firms owned by non-lawyers, in entering these areas of practice.

There has been discussion around the creation of new rules to protect the public against conflicts of interest if ABS ownerships are to be allowed in Canada. However, it is argued that if we were to accommodate non-traditional law practice ownership, there would be a significant increase in cost for infrastructure and the resources to hire, instruct and oversee the compliance officers and investigators necessary to monitor ABS firm practices and to investigate complaints.

In general, the OTLA warn against a deregulation of legal services before it is determined, both by the legal profession and the public, that this change will result in a noticeable improvement for individuals seeking access to justice. Clearly, of paramount importance is the protection of the rights of accident victims and other Canadians relying on the legal system to advocate for them.

It is premature to permit a change in the structure of law firms in Ontario before there is a certainty that this change will better serve the public, and it is clear that discussion of this issue is far from over.