Alternative business structures could result in fewer, more well-funded firms
By: Dale Orlando, McLeish Orlando LLP
Published in: The Lawyers Weekly, June 27, 2014 issue
On Dec. 9, 2011, Law Society of Upper Canada members 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 (last June) and numerous comments at the 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:
- Multidisciplinary practice with up to 49 per cent non-lawyer ownership;
- Multidisciplinary practice with over 50 per cent non-lawyer ownership;
- Law practice with up to 49 per cent non-lawyer ownership; or
- Law practice with over 50 per cent 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 per cent of litigants are unrepresented in some courthouses 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 practices. 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 U.K. In these jurisdictions, most of the ABS firms practice predominantly in the personal injury sector. The biggest example of this is Slater Gordon, the first publicly traded law firm that got its start in Australia. It now boasts 66 offices across the country and spends upwards of $12 million 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 dramatically change the way they do business if they intend to compete and survive. 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 small hardware stores what happens when 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 spiked significantly in the past several years, will continue to grow in prevalence and importance, likely to the detriment of 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 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 up-front 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.
Dale Orlando is a founding partner in McLeish Orlando and past president of the Ontario Trial Lawyers Association, practising exclusively in the area of plaintiff’s personal injury litigation.
This article originally appeared in the June 27, 2014 issue of The Lawyers Weekly published by LexisNexis Canada Inc.