Is Your Law Firm Prepared for the State’s Regulatory Reforms?
Back in August, Arizona became the first state to allow alternative business structures (ABSs) by eliminating the ER 5.4 rule that prohibits fee sharing and non-lawyers from having economic interests (ownership) in law firms. While Utah and California are currently allowing ABSs in a trial manner, the Arizona Supreme Court decided to take another road and the reform will be effective January 1, 2021 on a permanent basis.
The reforms will also allow non-lawyer “Legal Paraprofessionals” (LPs) to provide limited legal services to the public, including being able to go into court with their client. These Legal Paraprofessionals will give many Arizonans access to legal representation for a lower fee. LPs will have to pass a severe screening process to be able to practice in administrative law, family law, debt collection and landlord-tenant disputes, with limited jurisdiction in civil and criminal matters. Find more details here.
What is the importance of the creation of Alternative Business Structures?
The elimination of the prohibition on non-lawyer investment in law firms will have a major impact on the growth of law firms all over Arizona. The task force behind the reforms proclaimed that the elimination of ER 5.4 (the rule barring non-lawyers from fee sharing and barring non-lawyers from having an economic interest in a law firm) could lead to:
1. The adoption of new technologies in the legal industry
2. Strengthening access to justice by promoting free market competition
3. Allowing legal service providers to form multidisciplinary practices with other professions
4. Enabling the creation of ‘one-stop shops’ offering legal and other services.
It’s worth mentioning that not everyone thinks that the creation of ABSs will be a positive thing. A survey commissioned by the Supreme Court found that 38% of Arizonans did not support the reform. People fear that ABSs will adversely affect a lawyer’s independence and cause conflicts of interest between lawyers and their non-lawyer partners.
Arizona Vice Chief Justice Ann Timmer chaired the task force that recommended the reforms and was very aware of the public concerns about ABSs. That’s why the Supreme Court also decided to tighten the ethical rules revolving around lawyers’ independence, client confidentiality, and conflicts of interest. They also decided that ABSs will have to be regulated as an entity. Before the reform, the court only regulated lawyers, not entities like law firms. Any law firm that partners with a non-lawyer will have to submit itself to regulation by the Arizona Supreme Court.
The court also took into consideration the data from the UK and Australia, where ABSs have been common for years. The data shows that complaints against lawyers did not increase when lawyers started partnering with non-lawyers.
What are your next steps?
These reforms give law firms several options for growth. Some firms might consider hiring LPs to expand their operation. Others will look to capitalize on potential partnerships with non-lawyers to take them to the next level.
As we approach the end of the year and these reforms go into effect, please let us know if we can be a resource to help you navigate a potential sale or growth investment.