The legal regulation revolution

Almost exactly three years ago, when hardly anyone was talking about a pandemic, I wrote about the California State Bar’s brand new Access Through Innovation In Legal Services Task Force, of which I remarked:

The chances that California’s task force will result in fundamental reform to law firm ownership rules in the United States are higher than they’ve ever been. That doesn’t mean they’re particularly high. … It would be foolhardy to bet against the lawyers [opposing change] here. But if you were ever going to make that bet, this would be the time to do it.

Sixteen months ago, hours before the NBA cancelled its 2019-20 season and North Americans finally began to realize how much trouble we were in, I wrote about a plethora of legal regulation reform task forces, of which I said:

By end of day on March 31, ten American jurisdictions, three Canadian provinces, the ABA, and the US Conference of Chief Justices will have either launched task forces to examine legal regulation reform or have taken significant steps towards encouraging such reforms or actually implementing them. … This wasn’t so much a series of cause-and-effect occurrences as a tectonic shift in the subterranean landscape of the law, manifested in several locations in less than a year.

Today, as North Americans venture briefly out of lockdown (rest assured, we’ll be back wearing masks and socially distancing throughout the fall and winter), we’re seeing the results of these committees, task forces, and other reform efforts arrive, during one of the craziest periods of upheaval the legal profession has ever experienced. It seems like the right time to step back and consider the extraordinary shock-waved landscape of legal regulation change, and what it means for everyone.

This is a long read, folks. Settle in as we look at four different dimensions in which law firm ethics models, legal services regulation, and lawyer licensing and competence standards are all beginning a process of transformation.

1. Regulatory changes that affect lawyers’ businesses

The star of this show is the state of Arizona, which last August repealed rules forbidding lawyers from sharing fees with, or making equity ownership in law firms available to, people who aren’t lawyers.

The state Supreme Court opened the doors to non-traditional legal services providers, and by the following spring, had authorized three such providers to begin operations, all of which were essentially multi-disciplinary partnerships with lawyer owners. Nine other applications were reportedly pending as of May, including one from online legal services giant Rocket Lawyer, although the Supreme Court’s Committee on ABS has convened just once since then and has issued no new approvals.

Setting aside for the moment Arizona’s other reforms (further below), note that three professional services firms whose owners included lawyers were the first to take advantage of the removal of Rule 5.4’s restrictions on non-lawyer ownership. This is not the apocalyptic scenario prophesied by ABS opponents — unethical fly-by-night “non-lawyers” pouring into the market to swindle unsuspecting clients with ten-dollar wills and empty promises.

But it is consistent with the experience in England & Wales, where the legal profession “has used the flexibility [of ABS] to innovate and diversify,” a British analyst observed. “Many firms convert to an ABS structure to enable non-lawyer (including corporate) owners, even as far as setting up Employee Ownership Trusts. … The profession has also used the opportunity to offer a greater breadth of services to clients through joint ventures and non-legal expertise. We’ve also seen other professionals, such as accountancy firms and financial advisers, become ABSs to add legal services to their menu of services.”

It took awhile for the English and Welsh legal profession to grasp that ABS was an opportunity for lawyers, rather than a threat to the profession or to the public. But grasp it they did, and today, more than 1,200 ABS licenses have been issued, many if not most to entities with lawyers owning or involved with them. The ABS reforms of the Legal Services Act 2007 are 14 years old. It’s not an “experiment” anymore. It’s just the way things work now, and they work just fine.

It should take the Arizona legal profession considerably less than 14 years to see the advantages of ABS status. Your law firm can bring in more professional talent; you can offer more professional services; you can deepen your capital pool; and you can spend more on marketing and technology. Arizona’s lawyers will get it, and once they do, other states’ lawyers inevitably are going to want the same opportunity. (See Florida, below.)

2. Regulatory changes that affect the wider legal market

(a) Sandboxes and Laboratories

As I told ABA Bar Leader the other day, the legal profession and the legal market are no longer synonymous, and the divergence of these two sectors is going to widen and accelerate in the coming years. As fascinating and potentially momentous for lawyers as Arizona’s move is, there are other developments in other states that will have a more profound impact on the supply side of the legal market, by opening doorways to the legal market for people who aren’t lawyers and companies that aren’t law firms.

You know about Utah’s groundbreaking regulatory sandbox (recently given an extended seven-year runway), which has already approved more than two dozen non-traditional applicants to deliver legal services in the state. Utah deserves immense credit for stepping forward as the first mover in the regressive and protectionist American legal market. But while they were first, they will be very far from the last or biggest.

California has been talking about a sandbox for a few years now, and I’m hearing some encouraging signals emerging from the State Bar of California’s Closing the Justice Gap Working Group that’s developing recommendations in this regard. California, with more than a quarter-million (!) licensed attorneys, would make a massive splash if it jumped into this pool, although that likely won’t happen before the Working Group’s reporting deadline of September 2022. Utah, meanwhile, is already out there swimming around, inviting others to come on in, the water’s fine.

Florida listened. And it’s hard to overstate how important is the Sunshine State’s entry into this space. The June 2021 final report of the Florida Supreme Court’s Special Committee to Improve the Delivery of Legal Services (note carefully the names given to these task forces) recommended the creation of a Law Practice Innovation Laboratory Program. Structured similarly to Utah’s sandbox, Florida’s laboratory would run for three years (based on experiences elsewhere, expect that period to be extended) and would invite both new and traditional providers to experiment with innovative legal services provision currently prohibited by regulation.

But the Committee went further. It also recommended allowing non-lawyer law firm employees who directly support the firm to take a minority ownership interest in the enterprise. This is a half-step towards true reform — “passive ownership” (e.g., outside investment), which is needed to really enable expansion at scale, remains verboten — but a half-step by a giant is still a long stride.

And Florida is a giant: The state has 77,000 lawyers, and although a surveyed majority of them don’t want to see anything change about legal regulation, lawyers don’t own or control the legal services sector, so while their opinions on these topics are interesting, they are not determinative. It’s to the Committee’s credit that it recognized that.

The Florida report’s Laboratory recommendation cited not only Utah’s experiment, but also two developments north of the US border. Last August, a British Columbia Law Society Task Force recommended the creation of a regulatory sandbox, which received the green light a few months later. BC’s innovation sandbox has already approved six applicants, garnering positive attention for its early commitment to increasing access to justice. Earlier this year, the Law Society of Ontario approved a report from its Technology Task Force recommending a regulatory sandbox in Canada’s most populous province, albeit one restricted to legal services that are “technology-based.”

These two provinces will help lead a much-needed transformation of Canada’s legal regulatory landscape (more on that below), but they’ll provide encouragement to US reformers as well. Those reformers might now also include the State of Washington.

Washington once held the unofficial title of the US’s most progressive legal regulatory jurisdiction, thanks to its late and lamented Limited Legal Licensing Technician project. Now, it’s climbing back into the race. In June, the Washington Supreme Court’s Practice of Law Board released a blueprint for a legal regulatory sandbox. The proposed sandbox would open the door to applicants with non-lawyer partners, although it also comes with a caveat: Successful candidates for the sandbox must show an access-to-justice component to their service. (A similar requirement was briefly floated for the proposed California sandbox, which I consider unnecessarily restrictive.)

I wrote about regulatory sandboxes at Slaw late last year, as well as earlier this year here at Law21, so you can peruse those posts for my further thoughts on this topic. But my overall view is that sandboxes’ most important contribution to the regulatory reform effort is to “normalize” change.

Every jurisdiction that develops a sandbox makes it easier for others to do so; every sandbox that finds a non-traditional legal services provider safe and reliable begins to reverse the demonization of “non-lawyer providers” that the legal profession has been engaged in for decades. Utah got things started; Florida has pushed ahead hard; and California could change everything next September. But I think other dominoes — North Carolina? Illinois? Connecticut? — will fall before then.

(b) Legal Para-Professionals

But wait, there’s more! Modelling their efforts on Washington’s LLLT program, and following (whether they realize it or not) Ontario’s groundbreaking licensing of independent paralegals in the 1990s), a number of American states have created and/or authorized legal paraprofessional programs as a direct response to the access crisis.

From New York State’s pioneering Court Navigator program, to Utah’s new Licensed Paralegal Practitioner program, to Legal Technicians in New Mexico, to Legal Paraprofessionals in Minnesota, to New York (again) potentially licensing social workers to perform legal tasks, to Ontario’s (again) potential Family Legal Services Provider Licence, regulators across North America are recognizing the vast range of legal needs that lawyers are either unable or unwilling to meet, and are arranging for technically trained professionals to start filling that gap.

Arizona requires special mention in this area, thanks to two innovative programs. The first is the establishment of a Licensed Legal Advocate, who can give limited legal advice on civil matters stemming from domestic violence, including protective orders, divorce, child custody, consumer protection and housing. LLAs are to be trained through a pilot program created by the Innovation for Justice Program at the University of Arizona College of Law.

Even more noteworthy are Arizona’s new Legal Paraprofessionals, authorized as part of the same reforms that swept away Rule 5.4 restrictions on law firms. The Legal Paraprofessionals will practice as affiliate members of the Arizona State Bar and be subject to the same ethical and rules considerations as lawyers.

Arizona Supreme Court Justice Ann Timmer has made the point that lawyers shouldn’t oppose legal paraprofessionals — they should hire them, to get basic work done more cost-effectively. And we come back again to the idea that lawyers and law firms — and ultimately, their clients — can be prime beneficiaries of these changes.

3. Reports recommending changes to lawyer licensing and bar admission

This topic intrigued me long before I wrote a report for the Law Society of Alberta last year recommending numerous amendments to the province’s licensing and competence assurance system. So when I read about the remarkable proposals delivered in June by the Oregon State Bar Board of Bar Examiners’s Alternatives to the Bar Exam Task Force, I immediately recognized them as potentially revolutionary.

The task force asked the state Supreme Court to endorse two additional pathways to licensure as alternatives to the bar exam:

I’m concerned that the initial reaction of the Supreme Court to the recommendations was lukewarm, judging from the comments of its chief justice. The task force was correct to note that these proposals do not seek to replace the bar exam and are, in fact, much more rigorous and reflective of practice-ready competence than is the exam. I hope the court’s “mulling over” period is a short one, because these proposals represent an extraordinary opportunity to overhaul the unfair and ineffective bar admission system.

The Oregon Supreme Court might take further notice that it is not the first judicial body to receive such a request. Also in June (what it is about that month?), the New York State Bar Association’s Task Force on the New York Bar Examination released its Third Report and Recommendations, which was approved by the NYSBA House of Delegates that same month.

Media coverage of the report centred on its call for the state to withdraw from the Uniform Bar Exam and develop its own bar admissions test, in a section that included a brutal takedown of the UBE and the National Conference of Bar Examiners. But more importantly for our purposes, the Task Force reiterated its belief that:

New York should consider providing two alternative pathways to admission: (a) a pathway for admission through concentrated study of New York law while in law school; and (b) a pathway for admission through supervised practice of law in New York.

Attainment of minimum competency to practice law in New York can, we believe, be demonstrated by law school achievement as well as by actual practice experience. An examination is not necessarily the exclusive means to judge minimum competence. Alternative pathways should be considered either as stand-alone alternatives or as complements to a written examination.

As far as I can tell, the report is now in the hands of the New York State Court of Appeals, which has been asked to appoint a working group in conjunction with the Board of Law Examiners to develop a New York Bar Examination. Will the Court of Appeals also consider the report’s recommendations concerning law school study and supervised practice? Your guess is as good as mine, but everyone, including the Supreme Court of Oregon, should watch closely. Because also watching New York is … California.

In June — of course — a Joint Supreme Court/State Bar Blue Ribbon Commission on the Future of the California Bar Examination was established “to develop recommendations concerning whether and what changes to make to the California Bar Exam, and whether to adopt alternative or additional testing or tools to ensure minimum competence to practice law.”

And the members of the California commission have made it clear they want to hear from the NYSBA Task Force — maybe because the first mandate given to the commission was to determine “whether a bar exam is the correct tool to determine minimum competence for the practice of law, and specifications for alternative tools, should the commission recommend that alternatives be explored and adopted.”

Hey, did someone say “minimum competence”? Say hello to the Law Society of Ontario’s Competence Task Force, which published a report (in guess which month) titled “Renewing the Law Society’s Continuing Competence Framework”. The report identified key themes that it might use to create new competence programs and requirements, and is actively seeking input from LSO members into these questions. As it happens, I’m an LSO member, and I do have some input, and I’ll address this report and its implications in my next Law21 post.

But suffice to say that the LSO has seized upon the fundamental underlying issue in all of these developments: What are the minimum competencies required to receive or maintain a license to practise law? Sooner or later, every inquiry into the nature of the law degree, the validity of the bar exam, and the effectiveness of the lawyer licensing process is going to come back to this question.

4. Developments relating to the structure and governance of legal regulators

One of the reasons — maybe the main one — that California has even been able to convene and support committees and task forces considering sandboxes and re-regulation is the massive restructuring applied to the State Bar of California back in 2017.

Formerly a unified bar, where lawyer membership was obligatory and the lawyer regulatory and advocacy roles existed uneasily side-by-side, the SBC was split into two organizations: the California Lawyers Association, to represent lawyers, and the newly re-commissioned State Bar of California, to regulate them. The new SBC immediately set about addressing governance reform to deliver on its public-protection mandate, commissioned a groundbreaking report into legal market dysfunction by Prof. Bill Henderson, and hasn’t looked back since.

We’ve not seen structural reform on this seismic a scale in any other US jurisdiction since California’s big split. But it’s worth noting an interesting recent development in Texas, where a circuit court of appeals ruled earlier this month that the Texas State Bar is mostly justified in requiring lawyers to pay membership dues.

As Prof. Milan Markovic noted, the court found the Bar could not apply mandatory dues to activities outside the Bar’s “core regulatory functions,” but most of the Bar’s activities were germane to those core functions, so they need only stop engaging in the “non-germane” ones (including law reform advocacy). Neither side got what it really wanted from the appellate decision, and the matter will return to the trial court.

But the circuit court did point to other remedies: “Texas can directly regulate the legal profession and create a voluntary bar association, like New York’s; or Texas can adopt a hybrid system, like California’s.” Several other major states also have unified bars, and litigation similar to this case is apparently underway there. It’s likely that the plaintiffs in those cases, and perhaps the courts hearing them, will take note of the circuit court of appeals’ suggestions in this regard.

The reason I’m going into such depth here is that I view California’s 2017 decision to split its unified bar into two organizations as immensely important for US legal regulation.

It seems unlikely to me that a state bar or court-appointed entity with both regulatory and representative functions will ever truly reform regulation, because reformation carries too many risks of potentially undermining lawyers’ dominance of the legal market. The conflicts of interest are too large to overcome. Lawyer regulation and lawyer representation simply don’t belong under the same roof.

The Clementi reforms in England & Wales that eventually resulted in the Legal Services Act 2007 were driven in part by a well-founded conviction that the Law Society of England & Wales was not dealing properly with client concerns and complaints about lawyers’ performance, precisely because of its dual role. Among Clementi’s recommendations was the separation of representation from regulation. Canada drew that distinction almost a century ago, vesting regulatory authority in statutorily created law societies and coming up with the Canadian Bar Association to represent and advocate for lawyers. Achieving the same outcome in the US — no time soon, I grant you — would truly be a paradigmatic change.

And even in Canada, longstanding regulatory traditions might be in jeopardy. Earlier this month, the Law Society of British Columbia announced it had retained British consultant Harry Cayton to “conduct an independent review of law society governance and how it meets the needs and priorities of a diverse public and legal profession.”

Mr. Cayton is well-known in BC, thanks to his Inquiry into the College of Dental Surgeons of British Columbia, which recommended a thorough overhaul of the governance and regulation of these and other regulated health professionals and which was accepted by the government soon afterwards. Key among those recommendations for our purposes was this: Regulators’ boards should be smaller, should be appointed not elected, and should draw only half their members from the profession they regulate.

This is dramatically different from the status quo in Canadian law societies, whose directors (“Benchers”) are almost all lawyers who are elected by other lawyers in public campaigns (a small minority of Benchers are appointed from outside the profession). Whether this system ever worked to benefit the public interest, it’s increasingly evident that some current and prospective Benchers represent only the interests of lawyers and use their campaigns to fight regressive ideological battles.

Canada’s regulatory system for legal services has always been dominated by lawyers. I have no idea what conclusions Mr. Cayton will come to when he analyzes governance at BC’s legal regulator in light of the law society’s public-interest mandate, and I would never presume to pre-judge.

But I’ve been advising law societies here for quite some time now that diminishing or even removing lawyer control of law societies’ boards of directors would utterly change the nature of legal regulation in this country — in my opinion, for the better. As was the case in California, and as was suggested by the Clementi Report, there is too much potential for disqualifying conflict of interest, and the appearance of regulatory capture, when lawyers are effectively in charge of deciding how legal services are to be provided, and by whom.

Conclusion

There’s little value in proclaiming a revolution is underway once the citizenry has flooded into the streets with banners and protest songs. It’s kind of obvious, at that point, that change is upon us. Likewise, I don’t see any point in waiting until a majority of North American jurisdictions allow non-lawyer ownership of law firms and the widespread delivery of legal services by non-lawyers is commonplace. That day is closer than it’s ever been, although it’s also not going to be tomorrow: Plenty of jurisdictions, like Indiana, are still holding the line against regulatory reform in legal services.

But I think the tipping point has been reached. In the same way that we’re not going back to the pre-COVID world or the pre-remote-work office, we’re not going back to the pre-sandbox, pre-Arizona era of legal services regulation. There’s too much momentum now. There’s too much genuine interest among lawyers in regulatory positions (not to mention in law firms) in doing things differently. There’s too many precedents set by other states and provinces for decision-makers (especially judges) elsewhere to ignore. This train is headed in one direction.

The pandemic is forcing every one of us to re-examine our lives, to rethink our assumptions about what we do and how we’re doing it. Revolutions are starting to break out all over, as big as generations and as small as you or me. I’ve been urging lawyers for years to look around at their businesses and ask, “If we weren’t already doing it this way, is this how we would do it? If we had never done this before, is this how we would start?” And now we’re all asking those questions, as a society. We’re all asking those questions, as a profession. I’m asking this question, of you.

I think today, right now, is the time. It’s time to leave behind who and what we were, and embrace who we want to be, what we can be, and what everyone else out there needs us to be. It’s time for change.



Leave a reply