This article isn't about blockchain law (my day-to-day work and usual subject of this blog). It's about a much bigger issue.
The legal system in Ontario is complicated, arcane, and out of reach for the majority of people. One important reason why it's out of reach is that the cost of getting answers to legal questions is generally very high. But why is that?
It's no secret that lawyers are expensive. What's less understood is why, and how the cost structure of the profession relates to providing reasonably priced advice. More specifically: why are "quick questions" expensive to answer? This blog post is purely about solicitors (lawyers who provide advice), not litigators (lawyers who go to court).
Why Read This?
Most Ontarians can’t understand how the law applies to their life. That’s a multi-billion opportunity, and a huge problem for a society in which a quarter of jobs require a license. High legal fees/access to justice are subjects that've been extensively covered by newspapers, large reports, academic studies, etc. in Ontario, Canada, and abroad. Why write about these issues? My contribution to this conversation comes from a fairly unique viewpoint: I have launched three businesses tackling different angles of this problem, and run a tech-focused law practice for most of the last six years. I also care about the problem of people not being able to get legal advice.
Very few people have built software in this space and provided legal services to small businesses. I have, and this post reflects these experiences.
Legal Fees: High But Why?
Lawyers are expensive relative to other professionals. The average hourly wage of an Ontarian who provides "Professional, scientific and technical services" is $33.56 per hour. The typical junior lawyer in Ontario is billed at $270/hr (Canadian Lawyer Magazine annual fee survey, 2018). The Law Society of Ontario's fee schedule for their own work sets the price of a lawyer with 10 years of experience at $300/hr. In my experience, business lawyers in Toronto charge around $350-$700/hr, and most legal issues require quite a bit of time to understand and address.
New Clients Are Expensive
Before paying, someone must be able to understand what kind of lawyer they need, and then attempt to hire that lawyer. Unless a family friend is a lawyer, the typical person can't ask a "quick question" because of the administrative costs for law firms in collecting identifying information, checking conflicts, etc. One lawyer I spoke with told me he estimated his small firm's cost of opening a new file at about $300 because of the time involved and record-keeping requirements (they don't advertise, so that wasn't a part of the cost for them).
In additional to regulatory compliance steps, opening a new file often involves a free initial consultation, or at least some time spent by the lawyer in speaking to the new client (if only to know if the lawyer can help the client). This reality makes lawyers reluctant to take on "small" files. Although a client might think they're giving the lawyer $200 of business, if it costs $200 to open the file, and they never go back to the lawyer then that's a $0 client. But the file opening cost is just one reason why a client could end up being expensive for a lawyer.
Clients Pay For Lawyers' Risks
Lawyers worry about providing bad advice, in part because they can't contract out of negligence (like many service providers can). "Bad advice" is a complicated subject but a great example is the legal insurer in Ontario warning to lawyers: "[r]emember that a modest $150 independent legal advice (ILA) consultation can leave you exposed to a significant malpractice claim." The damages aren't limited to the legal fee, or even a multiple of the fee - they're fact-specific and potentially "significant". In a case last year involving General Motors, $28 million was awarded against a major Toronto-based law firm in part due to conflict of interest rules.
The provision of legal services is not immune to the realities of risk and its impact on the economics of legal services. Lawyers run businesses and make thoughtful decisions about what sort of work to do and at what price, in part based on an assessment of the risk involved in providing those services. More risk means higher fees, fewer clients, or personal risk for the lawyer (since lawyers are regulated individually, not at the firm level). Besides the risk of conflict of interest claims, the elephant in the room is the massive amount of law that lawyers need to be aware of.
Clients Pay For The Massive, Disorganized Body of Law in Ontario
No one knows how many laws there are in Ontario, but there are over 10,000 provincial acts and regulations, and many hundreds of thousands of provincial court & board decisions.
There are also an untold number of municipal laws that might be relevant, other provinces' laws, Federal court decisions, regulatory guidance documents, and unwritten administrative practices. The City of Toronto alone has passed 594 by-laws so far this year. And there are new court, tribunal, and board decisions released every day. Yet clients want certainty and lawyers are expected to provide reliable answers.
There are so many laws that people don't agree on how many laws there are, even legislators. In 2011, an Ontario MPP claimed there were over 500,000 laws in an op-ed in the National Post.
In my role as co-founder of the largest global law search engine, I've had a chance to speak with many people in government (the service is used by the justice departments of Canada and the US) and none of them know how many laws there are or how to even discover the answer to that question (people disagree on what counts as law). These laws are disorganized (e.g. court cases are big blocks of unstructured text that can't be read by computers) and are published in many different locations, without any notification to the lawyers who are tasked with understanding these laws. For many years I ran a business providing these missing notifications to major international companies and lobbyists. I know what lawyers (and people in general) are missing out on due to the government not providing law in a way that can be counted by the relevant people, let alone understood by them.
There are about 40,000 lawyers in Ontario who are tasked with dealing with our large number of laws. That seems like a large number of people, but that's only about four lawyers per law (counting just regulations and statutes in Ontario). Lawyers provide legal advice about a huge number of areas and a wide range of laws.
There is a higher standard for legal work than exists in other professions, and a greater degree of uncertainty due to the moving target that is the law in Ontario, plus the uncertain behaviours of the people involved in a legal issue. This means that simple answers can be hard to produce, or require a degree of risk to be taken on by the lawyer, and in both cases: clients pay for it.
Uncertainty + liability = high fees.
There are many rules for lawyers. For example, the 170 pages of rules about professional conduct. These rules are not cost-free because they increase the cost of operating a law practice, and ultimately, that cost is passed on to clients (or results in services not being available).
Example costs that lawyers need to account for: accounting/bookkeeping related to trust accounts, Law Society dues ($2200/yr), mandatory insurance by the Law Society's subsidiary, administrative work related to complying with Law Society requirements, continuing professional development (mandated by the Law Society) course costs, confidential office space for conversations (which can be expensive in some urban markets), mandatory transaction levies, Law Society interactions (e.g. $200k cost of proceedings in an extreme case), etc. Other businesses have high cost structures, but Ontario lawyers have a unique set of requirements that create unusually high costs, and foreclose certain modes of operating.
Who's Doing the Work: Supply of Lawyers
Legal services are provided a la carte by highly educated people, not computers instructed by people (e.g. Google's services) or trained people following a standard playbook (e.g. McDonald's workers). There are two implications to this model of service delivery: the wages demanded by the workers, and the high costs that making use of the workers entails.
It's not cheap to become a lawyer, and the system needs to pay back the cost of the workers' education. Lawyers needed to work for ten months as an apprentice in order to become a lawyer, after seven years of expensive university education. When they begin their apprenticeship, 85% of law school graduates report having debt greater than $40,000. Then they began a licensing process that involves paying many thousands of dollars in fees to the Law Society of Ontario. Then they get to work.
How Lawyers Work to Solve Problems
It's rare that potential clients have their legal issues (or even the facts) organized in a way that they can quickly engage with a lawyer. Lawyers need to speak to their clients to convert their personal stories into legal issues and ultimately legal services. A software developer is told by a client that they need a website. Lawyers are often told very personal stories that weave relevant and irrelevant facts together, and the lawyer is expected to produce legal issues and legal answers from the client narrative. This is especially important when providing services to new clients who are unfamiliar with legal rules, legal thinking, and what lawyers can do to help them (this is the majority of Ontarians).
The workers (i.e. lawyers) are expensive, and they provide custom services to their clients. New lawyers who are hired by a firm are generally expected to learn on their own, and law firms generally lack the training materials that are standard in other jobs. This is a recipe for expensive services.
There's some scope for commoditizing legal services by turning them into fixed fee legal products, but there are limits to how far this approach can take us given the wide-ranging legal issues that people face, and the regulatory environment. In 2014 I founded the first flat rate legal marketplace in Canada (it's now run by a friend of mine), but some Ontario lawyers view this approach with skepticism.
Domain Knowledge Is Expensive
Lawyers are often both legal experts and business experts. Experts in any area of business can often command a premium. Many lawyers specialize in certain types of business and providing good quality advice in their field requires it. This means that lawyers are spending time learning about their area of business and their area(s) of law, and they become domain experts. Domain experts are expensive in every field, and the legal fees charged may reflect a combination of domain expertise plus legal skill. This means that lawyers can end up being in demand not just for their legal skill but also their business skills, and this likely plays a role in high fees for some lawyers, just as there are high fees for skilled business consultants.
Importance of This Problem
I've been thinking about how to solve this problem since I first opened my law practice in 2013. Although my work is so specialized that these issues don't affect my business, they're of profound importance to people in Ontario, and the rule of law.
If Ontarians can't find out how laws apply to them, or how they should behave in a regulated environment then we risk becoming a society in which only those with significant capital can follow the law and everyone else is left copying other peoples' behaviours and hoping for the best.
At least 20% of Ontarians work in jobs that are regulated by the government. That's millions of Ontarians and only 40,000 lawyers to serve them. Access to law is integral to those people's livelihoods, and the impact of laws on our lives in 2019 can't be understated.
I think we can do better but it'll require significant changes in how laws are produced, consumed, and connected to Ontarians' lives. Fortunately, there's a growing awareness that the current system is expensive and not serving most people's legal needs. What's less clear is what the solutions are.
I have a few ideas that I'll be posting to this blog over the coming months about how the business of providing solicitor legal services could be improved, and I've written this post to provide the foundation for my views about how solutions could be developed.