What You Need to Know About the Alternative Business Solution

On December 9, 2011, Convocation identified as a priority for the coming year the examination of Alternative Business Structures (ABS) as a means of delivering legal services in Ontario.  Based on the contents of the first report to convocation of the ABS working group (June 27, 2013) and numerous comments at the Law Society’s ABS symposium in October of last year, some form of ABS is likely to be approved in Ontario in the coming months, and that will likely have implications for the personal injury bar.  ABS is a term that applies to any form of non-traditional business structure designed to deliver legal services to the public and includes such things as non-lawyer investment and ownership of law firms as well as bundling the delivery of legal and non-legal services within a single practice. The four models of ABS that are being considered by the LSUC are:

  1. Multidisciplinary Practice with up to 49% non-lawyer ownership
  2. Multidisciplinary Practice with over 50% non-lawyer ownership
  3. Law practice with up to 49% non-lawyer ownership
  4. Law practice with over 50% non-lawyer ownership

The driving force behind the movement towards ABS as a means of delivering legal services seems to be centred on the notion of facilitating access to justice.  It is noted in the last LSUC Annual Report that as many as 70% of litigants are unrepresented in some court houses across the province.  The apparent lack of affordability of legal services is paradoxically coupled with statistics that show some solo and small firm practitioners are facing increasing financial difficulty in maintaining their practice.  ABS are seen as a means of enhancing competition and driving down the cost of legal services while also promoting innovation in a field that is seen by many to be antiquated.   The LSUC makes it clear that their mandate is to protect the public interest in relation to the provision of legal services and not to protect lawyers.

In order to determine the likely impact of some form of ABS on the practice of personal injury law in Ontario, it is important to review the experience in other jurisdictions that have already embraced ABS as a means of providing legal services.  Australia was an early adopter of ABS followed by the UK.  The experience in these jurisdictions reveals that most of the of ABS firms practice predominantly in the personal injury sector.  The biggest example of this is the firm of Slater Gordon, the first publicly traded law firm that got its start in Australia.  It now boasts 66 offices across the country and spends 12 to 13 million dollars annually on television and pay per click advertising.

If full blown public ownership of personal injury law firms is allowed in Ontario, it is clear to me that firms that intend to continue to practice in the area will have to make dramatic changes in the way they do business if they intend to survive and compete.   I expect to see consolidation of much of the personal injury work into large, well-funded firms with multiple offices across the Province.  Ask the owners of all of the small hardware stores what happens when the Home Depot decides to open in their community.  Consolidation will be necessary to match the type of investment that large entrants to the field are likely to make.  Personal injury lawyer advertising, which has seen a significant spike in the past several years, will continue to grow in prevalence and importance, likely to the detriment to the profession at large.   I suspect the ratio of lawyer to non-lawyer employment in the remaining firms to be heavily skewed in favour of non-lawyers with lawyers being restricted to only doing the work that non-lawyers cannot.  The prosecution of claims within the firms will by necessity be heavily system driven with very little decision making being made on the front lines.  There is a risk that quarterly profit reporting to the board of directors will inform the claims handling decision making process.

I question the necessity and advisability of adoption of the ABS model for personal injury practice.  There is an abundance of personal injury lawyers in the Province competing for the available work.  Access to justice simply is not an issue since the vast majority of plaintiff’s personal injury lawyers charge clients on a contingency fee basis meaning that meritorious claims of all sizes are readily accepted without clients having to worry about upfront retainers or ongoing payment based on unaffordable hourly rates.  The competitive nature of the practice also ensures that the percentage of recovery charged by counsel remains reasonable.  Likewise, since most personal injury lawyers charge a percentage of their client’s recovery, there is already incentive to become as efficient as possible.  Conversely, if the majority of the personal injury market is controlled by a small number of firms, there is a risk that the lack of competition will lead to firms charging a higher percentage of recovery.

This article orginally appeared in the June 27, 2014 issue of The Lawyers Weekly published by LexisNexis Canada Inc.

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