The profound effect of the UK's Legal Services Act on North America

By Jordan Furlong, Principal, Edge International

After engineering a massive and unprecedented revolution in the regulation, ownership and provision of legal services delivery over the past few years, the UK legal profession might be wondering if anyone on the other side of the Atlantic has even noticed what they’ve done. The answer is: yes. Yes, we have. In both the United States and Canada, the impact of the Legal Services Act (LSA) has been far more profound than appearances might lead you to believe.

Rest assured, you have not missed any bombshell announcements. No state or province has yet proclaimed an equivalent LSA of its own, let alone introduced its own version of Bill 9. New regulatory systems and ownership structures have not been debated in any more than academic settings. The first large-scale attempt to steer the conversation that way, the American Bar Association’s Commission on Ethics 20/20, was widely seen as an underwhelming outcome to a once-promising process. Opposition to legal market reform is still staunch among rank-and-file lawyers.

But look just beneath the surface and you’ll find that serious changes to the regulatory structure in the US and Canada are bubbling under. I expect that, within
the next five years, we will see at least
one North American jurisdiction approve major amendments to legal market regulations along the lines of the LSA
— and as soon as one goes, others
should follow like dominoes.

Canada’s legal future

In August, the Canadian Bar Association recommended permitting complete non-lawyer investment in and ownership of law firms, allowing fee-sharing with non-lawyers, and permitting compliance-based regulation of legal entities. The report will be debated by the CBA in February but, even if it is approved, it will not amend any laws in Canada. However, it will completely change the conversation around the purpose of legal market regulation in the country.

Individual Canadian provinces have already been moving in this direction. In Ontario, the largest province, a final report from the Law Society’s alternative business structures working group is expected next spring. Its interim report, issued last summer, made many of the same recommendations as the CBA’s report and raises the possibility of real reform sooner than five years’ time.

On Canada’s east coast, Nova Scotia has been making steady progress towards a regulatory overhaul that would replace the traditional system of reactive, rules-based, lawyer-focused regulation with the proactive, principles-based, entity-focused approach that has already been adopted in Australia and England & Wales. This change would not be as eye-catching and spectacular as the introduction of Canadian ABSs but, in the long term, could prove to be just as important a shift. (The western provinces of Manitoba, British Columbia and Alberta are also active in these areas.)

Changes in the US

Of course, the United States is the big prize here, with more than one million lawyers and a $300 billion legal services market. Changes in US legal market regulation would signal a colossal shift in the history of the legal profession worldwide. While no state has advanced as far as Ontario or Nova Scotia, there are still signs that a sea change might be closer than imagined.

Washington state, for instance, has approved limited-license legal technicians. These are non-lawyers who are permitted to take on small matters that fall within the strict definition of the ‘practice of law’ but are beyond the grasp of most people’s financial reach when provided by lawyers. Nearby California, home to more than 225,000 lawyers but plagued by severe access to justice shortfalls, is proceeding down a similar path.

Other states have convened taskforces similar to the CBA’s to figure out how to respond to what is very obviously a new legal environment. State bars or bar associations in Florida, South Carolina, Washington and Arizona are busy examining these issues, often in the context of twin crises in lawyer employment and access to justice. These moves give growing credence to the argument that the current rules for running the legal market aren’t working anymore.

Perhaps most significantly, the American Bar Association is trying again. Just last month, it launched a Commission on the Future of Legal Services Delivery, which is expected to issue a report by the next ABA annual meeting in August 2015.

It’s important not to overstate these developments: at this stage, legal market reform in North America still consists almost entirely of reports and taskforces. But, as Washington State’s example makes clear, talk of regulatory change, even in small doses, can quickly become a reality. More importantly, the simple existence of these efforts is remarkable in itself: nothing like this was on the horizon in these jurisdictions five years ago.

In 2007, England and Wales started a landslide in legal market reform. Over the course of this coming decade, expect to see similarly major shifts in the landscape from colleagues in North America. This whole process has generated a feeling of momentum towards change that can’t be turned aside.

Jordan Furlong is a lawyer, consultant, and legal industry analyst (www.law21.ca)