Are We Closer to a Tipping Point on Regulatory Reform in Legal Services?

Topics: Access to Justice, Government, Government Regulation, Law Firm Profitability, Law Firms, Legal Industry, Midsize Law Firms Blog Posts, Regulation & Compliance, Small Law Firms, State Courthouses

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A number of U.S. states, including California and Arizona, have been considering reforms in the ways the practice of law is regulated, in particular rules on fee-splitting, ownership of law firms by non-lawyers, and restrictions on the unauthorized practice of law.

The move to loosen these restrictions comes as pressure mounts to increase the public’s access to solutions to their legal problems.

Now Utah seems to have surged ahead in the legal reform league table, with the Utah Supreme Court giving quick approval of recommendations coming out of the Utah Work Group on Regulatory Reform that would loosen some restrictions on advertising, fee sharing, and non-legal ownership of law firms. The recommendations would also establish a new regulatory body that would create a new process for regulating those entities providing legal services.

The Work Group’s recommendations are set out in a new report, published on August 27. A few days after the report was released, the Utah Supreme Court voted unanimously to approve its recommendations and begin implementation. The report identified two tracks for reform:

  • Track A: Changes to the rules of professional conduct — These changes would loosen various restrictions on advertising and marketing practices, such as online lawyer-matching services, pay-per-click ads, link-sharing, and blogs. More significantly, the recommendations call for easing restrictions on i) lawyers giving value to third-parties in return for those parties channeling work to the lawyer; and ii) the abilities of both lawyers and non-lawyers to participate in the ownership of legal service entities. This latter recommendation could possibly create the sort of entities now allowed in the U.K. and other jurisdictions as “alternative business structures.”
  • Track B: A new regulatory body — The recommendations call for the creation of a new regulatory body tasked with the regulation of legal services that will be more focused on outcomes and assessments of risks rather than bright-line rules around what practices are allowed. This is a “regulatory sandbox” approach that allows providers to experiment and pilot new solutions in return for protection from ethics enforcement actions. (For more on how regulatory sandboxes function, see a recent white paper that explains how a regulatory sandbox for legal startups would promote innovation.)

The truly revolutionary aspect of the Utah Work Group’s framework is its focus on empirical methods, the use of data in decision-making, and the evaluation of risks to consumers in a pragmatic, evidence-based approach.

Unlike current prohibitions on law firm ownership and unauthorized practice of law, this approach is not based on bright-line definitions about what is and is not allowed, but rather the inquiry is shifted to new questions, such as “Does this work? What evidence is there of risk to consumers? What policy objectives is this policy intended to fulfill, and does this solution measurably reach those objectives?”

The reforms in Utah and other states are widely seen to be opening the door for more technology-based solutions that will target gaps in the nation’s access to justice. The reforms also support the engagement of professionals who may not have law licenses, but nonetheless have expertise in the operations, management, and ownership of legal services entities.

This interest in empiricism, the reliance on data rather than broad ethical principles, and the belief in experimentation that these new reforms represent put Utah at the forefront of this movement to open the legal services industry and serve more people who need those legal services.

Utah is moving forward, with states like California and Arizona on its heels, and we might soon reach a tipping point that will forever change how we think about the regulation and ultimately delivery of legal services.