Regulating Law Firms in Canada

In Canada, the regulatory focus of law societies has always focused on the people who provide legal services rather than on the vehicles through which legal services may be provided. The traditional model of the delivery of legal services then was the sole lawyer in private practice. This model has survived for over two centuries. However, law firms of all sizes are now omnipresent in the Canadian legal profession. While law firms are ever present in the practice of law, they are peripheral in the regulation of lawyers in Canada. At the very least, this discrepancy presents a question that should be addressed: should law firms be regulated?

Law Societies should regulate law firms. They should do so primarily on the basis of ensuring public confidence in self-regulation and respect for the Rule of Law and only secondarily out of concerns regarding public protection. The proper question is not why should law firms be regulated but why do they largely escape Law Society regulation? It is widely recognized that law firms have their own culture. It is contested whether this culture strengthens or weakens ethical conduct of the firm’s constituent lawyers. Resolution of this issue is not necessary for the purposes of my argument. Once it is acknowledged that the law firm is an independent actor exerting significant influence on the practice of law, the burden of justifying why it should be regulated necessarily shifts.

The absence of law firm regulation creates a problem of legitimacy for Law Societies mandated to regulate the practice of law in the public interest. This regulatory gap also raises Rule of Law concerns and may threaten public confidence if the public believes that the most powerful groups of lawyers escape regulation. Bar leaders in Canada have ratcheted up the expectations of self-regulation through the strength of their rhetoric and their actions against perceived incursions of self-regulation. As a result, lawyers in Canada have set the bar for what self-regulation is supposed to accomplish at a very high level. Consequently, the failure to regulate law firms may threaten self-regulation of the legal profession in Canada.

This paper presents an argument and a blueprint for law firm regulation. It has five parts in addition to this introduction. In Part I, I detail why Canadian law societies should regulate law firms. Part II undertakes a “regulatory audit” of how Law Societies in Canada currently regulate law firms. In this section and in this paper I focus on the Law Society of Upper Canada as the regulator of the largest number of lawyers in Canada as well as the jurisdiction with which I am most familiar. Then I turn to comparative experience in Part III by examining how law firms are regulated in three comparable jurisdictions: the United States, Australia and the United Kingdom. Then in Part IV, I present a suggested template for law firm regulation. Finally, Part V provides a brief conclusion.

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