Most of us will be very familiar with the concepts of ‘agility’, ‘pivoting’ and ‘collabs’ – words that have entered the mainstream lexicon over the past four years. Many businesses have had to embrace these concepts faced with significant pressures created by COVID-19 and economic factors. To keep up with the macro-environmental shifts in economy, geopolitics, technology and society, organisations are reimaging their future service offerings to ensure survival and sustainability. Diversification is one way that businesses can look to increase income streams, grow their client base and manage risk. This can include a “one-stop shop” model where customers’ varied needs are met ‘under one roof’.
The legal profession, as a key service provider, faces the same economic and social pressures as any other business. Many lawyers will be considering how best they can innovate and adapt to meet these significant challenges. This article examines the regulatory and legal requirements which relate to situations where diversification is being considered as an option.
Lawyers and Conveyancers Act framework
The definition of regulated services is broadly defined in section 6 of the Lawyers and Conveyancers Act 2006 (LCA) and includes advice on any legal or equitable rights or obligations. It is not unusual for non-law firms to provide legal advice as part of the suite of services which would potentially fall within this category, if those services were provided by a lawyer.
If a law firm or lawyer is exploring options to diversify their services and partner with other industry experts to move towards a one-stop shop business structure, it’s important to consider the requirements set out in the LCA about the provision of both regulated and non-regulated services by lawyers in association with other professionals.
Single entity practices providing legal services and non-regulated services
As a starting point, a lawyer employee may provide regulated services to the public only through a law firm, with limited exceptions (ss 9-10 LCA). A lawyer practising in a law firm may provide legal services and also non-regulated services directly to clients provided that the requirements of rules 5.5 and 5.5.1 of the LCA (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) are met.
Rule 5.5 provides that a lawyer may not engage in another business or professional activity where that activity could reasonably be expected to compromise the discharge of the lawyer’s professional obligations.
Under rule 5.5.1, if a lawyer is intending to provide services other than regulated services, those services must be associated with the provision of regulated services and be provided by the lawyer or an entity in which the lawyer or lawyer’s practice has a controlling interest. For example, a law firm specialising in health and safety law could employ a suitably qualified consultant to provide complementary practical compliance advice.
Multi-entity arrangements – teaming up with other industry professionals
If a lawyer wishes to team up with other external professionals, there are regulatory requirements which need to be carefully considered.
Structuring such an arrangement correctly will be vital to ensuring the regulatory requirements of the LCA are met and the consumer protection goals of the legislation are achieved. There is no discretion under the LCA to exempt any arrangement which does not strictly meet the regulatory requirements, which are outlined below.
“If a lawyer wishes to team up with other external professionals, there are regulatory requirements which need to be carefully considered”
In New Zealand there is no scope for multi-disciplinary practices. This is recognised by the prohibition on income sharing between lawyers and non-lawyers in relation to the provision of regulated services (s 7(3) of the LCA). Such income sharing amounts to misconduct. There is a statutory exception to this in respect of Patent Attorneys (see LCA (Lawyers: Income Sharing with Patent Attorneys) Regulations 2008). Lawyers must therefore take care to ensure that any arrangement with other professionals does not infringe this rule or the rule relating to collateral rewards (rule 5.9 RCCC).
Potential regulatory concerns in the talent structure and operations
Regulatory issues may arise if staff are shared by lawyer and non-lawyer organisations to provide those services which would fall within the definition of regulated services, if provided by a lawyer.
It is not permissible for a lawyer to provide regulated services directly to the public through a non-law firm (ss 9-10 LCA). Care would also need to be taken to ensure there is no potential for clients to be misled about whether the person providing services is a lawyer or not. This means that any shared personnel arrangement would need to be structured to avoid regulatory issues arising under these sections.
The paramount concern is the protection of clients. Any structured arrangement will need to clearly comply with the requirements of the LCA to ensure that there is no uncertainty over the application of regulatory safeguards such as the Lawyers Complaints Service or the Lawyers Fidelity Fund.
Lawyers will also need to ensure that they are aware of any risks relating to retaining legal professional privilege in respect of client advice. Consideration should also be given to the extent of any professional indemnity insurance cover in place.
“Any arrangement must be structured within the LCA framework requirements to ensure that all lawyers involved are meeting their professional and legal obligations”
The use of shared or similar names may be practical or attractive but care needs to be taken to ensure that there is no scope for public confusion to arise about the status of any particular entity (law firm or non-law firm). Lawyers must not mislead in relation to any aspect of their practice (RCCC rule 10.9) and the LCA contains offence provisions in respect of potentially misleading conduct by non-lawyers (ss 22 and 23 of the LCA).
Practical options to innovate in your practice
So how can lawyers work collaboratively with other professionals to provide a comprehensive service for clients? The types of arrangements likely to meet the regulatory requirements could include:
- A lawyer practising in a law firm who provides legal services and also complementary non-regulated services directly to clients (provided that the requirements of rules 5.5 and 5.5.1 of the RCCC are met).
- A law firm working closely with a related non-law firm organisation. Legal staff should be employed only by the law firm and provide legal services through the law firm to clients of the non-law firm. Care would need to be taken to ensure the arrangement does not create any “income-sharing” or conflict of interest issues. Lawyers in this situation also need to manage their obligations of confidentiality to clients and be aware of the need to protect and preserve privilege.
- A non-law firm which employs an “in-house” lawyer to assist it to provide legal services which are not within the “reserved areas” for lawyers as defined in s 6 of the LCA. In such an arrangement the “in-house” lawyer cannot provide services directly to clients (ss 9-10 of the LCA) and needs to ensure that no lawyer-client relationship arises between the lawyer and those who receive legal services (s10(4) of the LCA).
There may be other compliant structures which also provide business opportunities for lawyers and other professionals that are yet to be explored. The Professional Standards (Regulatory) team at the Law Society is available to provide general information and guidance about LCA regulatory matters. Email regulatory@lawsociety.org.nz if you would like more information.¹
Establishing a one-stop shop for clients can diversify revenue streams, enable cross-functional collaboration and improve operational agility. However, any arrangement must be structured carefully within the LCA framework requirements to ensure that all lawyers involved are meeting their professional and legal obligations.
- The Independent Review recommended permitting new business structures, to allow non-lawyers to have an ownership interest in law firms and lawyers to enter into legal partnerships with non-lawyers. The Law Society’s response to this recommendation was that further consideration was needed. You can find out more about this on our website.
