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Feb

18

Affiliations and Multi-Disciplinary Partnerships: too onerous

Michael CarabashA while back, I looked into what was required to form a multi-disciplinary partnership with non-lawyers (e.g. accountants, bankers, insurance agents, consultants, Realtors, etc.) to offer legal services. I thought it would be great to have connections with professionals who could provide me with constant and good quality referrals.

But I quickly dropped the idea after discovering a simple truth: compliance with the Law Society of Upper Canada Rules of Professional Conduct and By Law 7 was more than I imagined I could handle! Being a sole practitioner as it is – with trust fund accounting, insurance and law society filings, etc. – is already burdensome enough when compared with other occupations and professions. But it’s got to be down-right scary for lawyers (in my humble opinion) in my position who are considering forming affiliations and multi-disciplinary associations/partnerships with non-lawyers. Here’s why…

For starters, lawyers are ethically and legally not permitted to share, divide, or otherwise split any revenue, cash flows, or profits with non-lawyers generated in the context of providing legal services (LSUC, Rules of Professional Conduct, Rule 2.08(8); see also LSUC, Knowledge Tree, “Fees, Billings and Collection: Referral Fees, Fee Splitting and Division of Fees”). Lawyers can do so through multi-disciplinary partnership, but not through affiliations or multi-disciplinary associations.

Affiliations

So what if a lawyer or law firm started paying non-lawyers for certain business services that facilitated the delivering/promoting of the former’s services? Well this business structure could lead to an “affiliation” under the LSUC’s Rules of Professional Conduct (Rule 1.02) and By Law 7. Simply put, an affiliation exists where one entity (e.g. person, business, organization, etc.) joins a lawyer or law firm to deliver/promote the latter’s services. If this is the case, then the lawyer or law firm would still not be able to share, divide, or otherwise split revenue, cash flow, or profit generated in the context of providing legal services to the affiliated entity (LSUC, Rule 2.08(9)).

Furthermore, the lawyer or law firm would be subject to additional onerous ethical/professional obligations and reporting requirements, such as:

  • Informing clients about the nature and scope of the lawyer or law firm’s affiliation with the affiliated entity and obtain their consent to proceed (Rules 2.04(10.1 ) and (10.2));
  • Establish a system to search for conflicts of interest with the affiliated entity (Rules 2.04(10.1 ) and (10.3));
  • Ensure that the lawyer or law firm’s advertisements do not mislead the public about who is providing the legal services (Rules 3.04(3), Commentary);
  • Ensure that the lawyer or law firm own and maintain control over the law practice and that such practice is not operated on premises used by the affiliated entity for the delivery of the affiliated entity’s non-legal services (By-Law 7, s. 32); and
  • Disclose to the LSUC a report disclosing information between the lawyer or law practice and the affiliated entity with respect to financial agreements, ownership/control/management of the law practice, the lawyer’s compliance with conflict-of-interest requirements, and the lawyer’s compliance with confidentiality requirements (By Law 7, s. 33(2)).

The bottom line is that forming an affiliation with non-lawyers is too burdensome and not worth it (because fees cannot be split).

What about a multi-disciplinary association? Well, if non-lawyers teamed up with lawyers to support/supplement the latter’s provision of legal services to clients, then the Law Society of Upper Canada’s multi-discipline rules could be triggered. Such rules impose obligations on all of the members of the association. For example, the non-lawyers would:

  • Not be able to practice their profession, trade, or occupation except to support/supplement the lawyer or law firm in providing client services (By Law 7, s. 18(2)(1)).
  • Have to give effective control to the lawyer or law firm over its practice of its profession, trade, or occupation (By Law 7, s. 18(2)3);
  • Not be able to practice its profession, trade, or occupation independent of its agreement with the lawyer or law practice on the premises used by the association (By Law 7, s. 18(2)5); and
  • Have to agree to be bound by the Law Society of Upper Canada’s Rules, Guidelines, By-Laws, etc. (By Law 7, ss. 18(2)2).

For their part, the lawyer or law practice would have to agree to comply with various onerous obligations, such as being responsible for ensuring that the non-lawyer members of the association use appropriate skill, judgment, and competence in performing its profession, trade, or occupation and in complying with the Law Society of Upper Canada’s Rules, Guidelines, By-Laws, etc. (By Law 7, s. 19). As aformentioned, lawyers would not be able to split or share their revenues, cash flows, or net income with the non-lawyer members of the multi-disciplinary association. So again, the costs far outweigh the advantages of this structure.

So that leaves us with the Multi-Discipline Partnership

A multi-disciplinary partnership involves non-lawyers supporting/supplementing lawyers in providing legal services to clients. The non-lawyer members of the partnership would, once again, have to comply with the same onerous conditions as non-lawyer members of a multi-disciplinary association. And so too would the lawyer . The only difference is that lawyers and non-lawyers would be able to share revenues, cash flows, and profits through the partnership.

Overall, if non-lawyers are going to get involved in promoting and delivering legal services, then the Law Society of Upper Canada is going to have to re-tool its Rules and By Laws to open up the market. We’ve already seen the large Bay St. law firms hire business managers to help run their law practices more as businesses than as legal professions; let’s keep moving down that road so that we can make legal services more accessible to the general public.

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