The Future of American Law in a Global Village

Volume 40 Number 4

By

About the Author

Dan Pinnington is vice president of claims prevention and stakeholder relations at Lawyers Professional Indemnity Company (LAWPRO), the mandatory malpractice insurer for Ontario lawyers. He is a past editor-in-chief of Law Practice, a past chair of ABA TECHSHOW and is a prolific writer and speaker on technology, claims prevention and law practice management. 

Law Practice Magazine | July/August 2014 | The Annual Big Ideas IssueAS WE NEAR the middle of the second decade of the 21st century, the idyllic existence law firms experienced through the latter part of the 20th century seems to be coming to an abrupt end. Lawyers had been the only game in town for legal services as they were the only ones with access to the required knowledge and tools. Yet, by many measures, the legal system is not functioning as it should: It has become very complex. Going to court is incredibly time consuming and expensive. Large numbers of self-represented parties are struggling to handle their own matters as they can’t afford or access the legal services they need. 

And the picture looking forward doesn’t look much better. Other major drivers of change are starting to have some impact now on American law and will become more significant in coming years. Globalization and new technologies are opening the doors to new providers and types of legal services. These pressures and changes will shape the legal system of the future and raise some interesting questions and challenges regarding who should offer legal services and how they should be regulated.

WHO WILL PROVIDE LEGAL SERVICES?

Our current legal system is predicated on lawyers delivering “legal services” (the definition of which is discussed in the next section). But can lawyers maintain a monopoly on professional legal services? The answer is most likely not: Access to justice is a problem for many members of the public, and there is a massive and growing legal services gap. This opens the door for others to fulfill this unmet need—and others are stepping up to the plate.

Technology now gives just about anyone with an Internet connection access to information and tools that only members of the legal guild had a decade or so ago. Sites like LegalZoom and Rocket Lawyer have become major legal services players, selling standard forms and documents that are customized for a client. There are Q&A, self-help and online dispute resolution sites. The services offered by these types of sites are usually significantly cheaper than comparable services offered by lawyers and in some cases are free, as discussed in Nick Gaffney’s interview with Tim Stanley.

Most of the websites offering legal forms at the present time are doing basic document automation on common documents like wills, incorporation forms and basic court pleadings. However, construction has begun on intelligent document and advice generation systems that will have artificial intelligence. These systems will be able to handle very complex matters and will ultimately be able to give advice and draft documents comparable to what a lawyer provides.

Nonlawyers are stepping up to provide legal services in some jurisdictions. The state of Washington has created an education and professional framework for Limited License Legal Technicians. These legal technicians will directly service clients on some types of matters but will not appear in court or negotiate on behalf of clients. California and several other states are looking into doing something similar for immigration consultants. Ontario, Canada, is now regulating and licensing paralegals.

So it looks like we will have nonlawyers and computers becoming a much larger part of the legal services market. (For the types of “law firms” that will emerge in the future, see the sidebar.) Note that, for the rest of this article, I will call anyone or anything that provides legal services a “legal service provider.”

WHAT ARE LEGAL SERVICES?

Perhaps the more relevant question here is, What is the “practice of law”? For the purposes of this article, let’s just say that the practice of law includes giving legal advice, which is the work that lawyers have traditionally done. The key point is that the practice of law or the provision of legal advice is important, because either action triggers inclusion in the legal services regulatory regime.

But what about the services offered by some of the newer types of legal service providers? Is a legal forms site that creates a document tailored to your facts offering you legal advice? How about an answer to a query you posted on a Q&A site? Or when a problem with your online purchase is resolved with an online dispute resolution process? In many cases, these websites and online tools are doing work that is the same or very similar to what lawyers do. However, if you take a look at these sites’ terms of service, you will find they all explicitly say they are not practicing law or providing legal advice. It almost seems as if incremental unauthorized practice of law is chipping away at the foundations of the legal profession.

SHOULD LEGAL SERVICE PROVIDERS BE REGULATED?\

By stating that they are not practicing law or providing legal advice, legal service providers shrewdly remove themselves from the current legal services regulatory scheme and nicely avoid all the education, admission, ethics and insurance (in some jurisdictions) obligations that lawyers must fulfill.

As a consumer, if you hire a licensed attorney, you have some guarantee as to the quality of the legal services you receive and some recourse if a problem arises. If you get legal services from a legal service provider that is outside the regulatory framework, it is possible that you will have no guarantees as to the quality of the legal services you will receive and little or no recourse if there is a problem. For the sake of consumer protection, this suggests that all legal service providers should be regulated.

For this reason, regulators may ultimately look to regulate all legal services providers, not just lawyers. This “entity regulation” has started to happen in some jurisdictions. The alternative business structures (ABSs) approach in the U.K. is one example of this. (See the sidebar for more details on what alternative business structures are.)

When considering the regulation of legal service providers, two other related questions come up. First, should legal service providers be on the hook if they make a mistake? As a matter of consumer protection the obvious answer to this question is “yes.” There can be very significant legal, financial and/or personal consequences if a problem arises with the legal services provided to a client. Buying legal services is different from buying running shoes on Amazon or trinkets on eBay. The terms of service on almost all online legal service provider sites have very broad waivers of liability. At best there is a money-back guarantee. This would not properly compensate a client that has been seriously harmed by negligent legal services, for example, with a will purchased for $30.

The second question is whether legal service providers should have malpractice or similar insurance. And while medium and larger firms in the U.S. have professional liability insurance, only one state (Oregon) has mandatory malpractice insurance. However, other countries around the world vary widely on this, and in some countries (e.g., the U.K. and Canada), all lawyers must have a specified minimum level of insurance coverage as a matter of consumer protection. It can also help lawyers avoid dire personal financial circumstances in the event they make an error.

FACING THE CHALLENGES AND OPPORTUNITIES

Lawyers and law firms need to recognize that changes to the legal services market are occurring, and embrace them. People will always need lawyers, or something like them, for some types of matters. For bet-the-company work, there will always be a solid and lucrative demand for services, but it is a very small part of the legal services market. In the middle comes relatively sophisticated or higher-value work that is not rocket science but needs a firm that has specialized and competent people. This too is a market that won’t disappear, but it is not a huge one. At the bottom is the largest part of the market—the commodity work we have discussed above: people buying houses, preparing wills, settling estates, resisting eviction or prosecution and so on.

The fact that people can’t afford the legal services or get the help they need in our current system presents an opportunity that lawyers and law firms must recognize. Lawyers need to innovate and think like businesspeople and entrepreneurs—this is what their nonlawyer competitors are doing. That will probably mean offering new services. It almost certainly means using technology to work better, faster, cheaper and in new ways. To compete with legal service providers that are offering commodity services, lawyers must offer more affordable services.

Another option is to put more effort into showing clients the extra value a lawyer brings to legal services. This involves thinking beyond just doing one matter for a client and instead thinking about what the client’s longer-term needs are. Look beyond the commodity work of just doing an incorporation for a few hundred dollars in fees. Aim to become the business lawyer for the client’s new company. This is where the longer-term and more lucrative fees are.

Consider how prepared you and your firm are to face the changes that are coming to the legal profession. No doubt you have some work to do. Take proactive steps to face these challenges and the opportunities they present.



Alternative Business Structures

The current regulatory approach to permitted business structures and financing rules for entities delivering legal services varies greatly by jurisdiction. The continuum ranges from jurisdictions restricting the delivery of legal services to traditional practice structures, where external ownership of law firms and external capital are prohibited, to jurisdictions that have expanded the range of structures through which legal services may be delivered by permitting new forms of law firm ownership and financing.

“Alternative business structures” (ABSs) is a term that can apply to any form of nontraditional law firm business structure, as well as alternative means to deliver services. It may include, for example:

  • Alternative ownership structures, such as nonlawyer investment in or ownership of law firms, including equity financing.
  • Firms offering legal services together with other professionals or nonprofessionals.
  • Firms offering an expanded range of products and services, such as do-it-yourself online legal forms.

Australia was an early adopter of ABS regulation. Since 2000, legal practices in New South Wales have been permitted to incorporate under ordinary company law without any restrictions on who may own shares or what type of business may be conducted. In 2007, Australia was the first jurisdiction in the world to permit the public listing of a law firm.

England and Wales are currently experiencing rapid change in how legal services are regulated and provided to the public. Under the Legal Services Act 2007 (LSA), the objectives of the regulation of legal services have been broadened. In addition to improving access to justice, protecting and promoting consumer interests and competition are the main focuses. The LSA expressly permits the provision of legal services through ABSs in furtherance of these objectives. Roughly 300 ABSs have successfully become licensed to provide legal services in England and Wales under the LSA, and a similar number are in the pipeline.

The majority of ABSs look a lot like ordinary law firms. Firms of various sizes are themselves ABSs or own ABSs in which nonlawyer staff have become equity partners and in which family members, including spouses, have become part owners. It would appear that the motives here are profit-sharing, income-splitting or both. Some ABS firms offer legal services together with related professional services (e.g., architecture) or expert consulting services (e.g., human resource management).

“Grocery store” law has arrived thanks to Co-operative Legal Services, part of the Co-op Group, the U.K.’s largest mutual business. Its businesses include, among others, a national chain of food stores, banking, insurance, pharmacy and funeral services. The Co-op Group operates more than 4,500 retail outlets and employs nearly 90,000 people. As an ABS, Co-operative Legal Services currently provides fixed fee legal services in conveyancing, family, wills and probate, personal injury and employment law by telephone, online and in person at many of its stores.

While it is too early to see if the LSA’s objectives are being met, none of the dire predictions made by opponents of ABSs have come to pass. Some observers feel that ABSs under the LSA have increased competition and opened the door to innovation. It also appears that ABSs have a lower rate of client dissatisfaction than do traditional law firms.

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FUTURE “LAW FIRM” MODELS

So what will the law firm of the future look like? There are a number of possibilities, some that will be similar to or evolve from existing types of firms and others that will be entirely new. Listed below are the types of firms we will probably see 10 to 15 years from now.

   

Global full service. Following a consolidation of some of the major national firms, there will be a few international megafirms in this group (as has already occurred in the accounting profession). These firms will be multinational and have tens of thousands of lawyers. They will handle very complex matters and will provide legal and nonlegal services.

   

Global niche. This new category of firm will focus on niche issues on an international basis. They will also be multinational but will be small in size.

   

Local/national full service. The existing regional and national firms that embrace change and adapt will count themselves in this group. They will have moved away from the billable hour and be doing more commodity work. Their mantra will be working better, cheaper and faster for their clients.

   

Local niche or boutique. Some of these firms already exist, but there will be more of them. In many cases, they will be breakaways from current larger firms and they will be fairly small in size. Clients will seek them out and pay a premium because they are the best at what they do.

   

Solo and small general practice firms. These firms will still be around but, given the demographics of the bar, they will be fewer in number, especially in smaller communities and rural areas.

   

Legal process outsourcers. Law firms and corporate legal departments are sending more and more work outside to companies that specialize in particular tasks (e.g., research, document review) and nonlegal work (clerical work, back-office support and services). This is one of the fastest-growing segments of the legal services market.

   

Virtual firms. This is a new category. We are at the start of a huge expansion in lawyers providing legal services without bricks-and-mortar locations. Lawyers and clients will use virtual technology to work together. As a variation of this arrangement, in some cases lawyers from different firms will come together and use “virtual deal rooms” to work on a single matter.

   

Alternative business structures. This is another new category in which lawyers and/or nonlawyers will own and operate firms that will provide legal and nonlegal services. These firms are currently operating in Australia and the U.K. and are being considered in Ontario.