Can law firms profit from limited license technicians?

Washington is the first state in the country to granted a limited law license to non-attorneys. Termed Limited License Legal Technicians (LLLTs), these professionals may operate their own firms or work along side lawyers. In this month's edition of the Washington Bar Association's magazine, I debate Jerry Moberg  on whether there is a business case for law firms to hire LLLTs. The bottom line is that I think it's possible for firms to make this work, but it will be harder than many anticipate. Here's the article.


Is there a business case for bringing LLLTs into a firm?

As every lawyer in the State should be aware, Limited License Legal Technicians (LLLTs - usually pronounced “triple-L-Ts”) are now a reality in Washington.[1] LLLTs, of course, are legal professionals who have completed neither law school nor the Rule 6 Law Clerk program, yet hold a license to practice law in Washington State in a limited fashion. The wisdom of the program has been questioned, including as whether it will help close the access to justice gap and whether LLLTs will adequately serve their clients’ legal needs. While we believe those are still worthy discussions, they is not ones we engage here. Instead, we address the issue of whether it could make good business sense for lawyers to incorporate LLLTs into a firm, as lawyers are now permitted to do.

Upon completion of the required instruction, passing a “bar examination” and 3,000 hours of lawyer supervised “law-related” work experience the LLLT is entitled to a limited license. The LLLT must maintain malpractice insurance and pay annual licensing fees. LLLT’s can practice solo or within a law firm. If they are in a law firm they may have some ownership of the firm but may not have a controlling interest.[2] One commentator has pointed out that this rule makes Washington the first state in the nation wherein “non-lawyers are authorized to share fees with lawyers and have ownership interests in law firms,”[3] though Washington D.C. also has such an allowance.[4]

LLLTs may. . .

LLLTs may not...[5]

●       Provide legal advice to clients.[6]

●       Advise clients on the appropriate legal procedures to obtain desired results.[7]

●       Advise clients on the documents needed to achieve a result in a legal proceeding.[8]

●       Draft legal forms for clients (e.g., court forms promulgated by the Administrative Office of the Courts).[9]

 

●       Represent a client before a court or other formal proceeding.[10]

●       Negotiate on behalf of a client.[11]

The authors of this article come from two practice areas identified by our Bar Association as underserved. Jerry Moberg has civil litigation practice that includes a growing family law component. Family law is thus far the only practice area approved for LLLTs, though additional areas are likely to be approved in the coming year. Greg McLawsen runs an immigration law firm focused on serving families. Though not yet approved as a practice area, both Greg and Jerry agree that it is very likely LLLTs will be authorized to practice immigration law in the future.

Can LLLTs offer unique value to firms?

Why would a law firm want to employ a LLLT instead of utilizing paralegals?

Jerry. I currently have two paralegals enrolled in the LLLT program and believe it will be a benefit to have licensed LLLTs practicing in my firm. Firstly, a LLLT can operate without direct supervision of the attorney. He or she can take in clients, meet with them and perform the allowable services with a fair amount of independence. Since the LLLT’s rates will be less than an attorney, these services should be available to more clients at an affordable rate. To be successful the law firm will have to create efficient and streamlined procedures. Interactive webpages, well designed document engines, and efficient office procedures will enable a firm to profitably provide a valuable legal service to the underserved “middle class.”

Greg. I’m skeptical about whether it will make financial sense for firms to use LLLTs, at least in the near future. The jury is out on whether LLLTs will be substantially less costly than recent law grads. As chair of the WSBA Solo and Small Practice Section, I know it is not uncommon for recent graduates to freelance for $25/hour. Why hire a Lawyer Lite when you can just hire a lawyer? And a paralegal practicing in a firm, under attorney supervision, can do all the drafting allowed of a LLLT. Sure, efficiencies can be achieved by deploying technology. But value may be captured from such efficiencies regardless of having a LLLT involved. Some simple drafting processes can be mostly automated. To the extent legal drafting can be automated, the remaining “touch” might best be left to an attorney’s discernment. Finally - as explained in more detail below - a small slice of a small pie is, well, small. To the extent LLLTs succeed in lowering the cost of legal services there will be less value for a firm to capture. I suspect few small firms will have the sophistication needed to run a LLLT practice at a volume high enough to be worth the effort. (Though if anyone can do it, Jerry is probably the one). Certainly price point isn’t the only way for a business to complete, but if LLLTs aren’t performing comparable work for less than a lawyer then the program is not serving its intended purpose.

In the balance of this piece we examine some basics of how a firm might stand to benefit financially from LLLTs, and discuss the merits of various models.

Case (1) - The Associate Model.

Law firms traditionally capture profit from the margin between labor costs and the rate billed to clients. On this familiar model, an associate billed to clients at $150/hour may be compensated at $50 or $75/hour. Will firms be able to capture value by selling the hourly services of LLLTs at a markup?

Greg. First, as noted above, there’s an open question as to whether LLLTs will be much lower cost than recent law graduates. If not, one may as well use a new associate. But assuming LLLTs will have a lower price point, that makes them challenging on the traditional associate billing model. If a LLLT earning $40/hour is billed out at $80, a firm captures a modest $40/hour. A solid 40-hour workweek would render $1,600, from which a firm would still have to pay overhead associated with the LLLT. The law firm would have to achieve extraordinary volume to make this model significantly profitable.

A second, deeper issue concerns the price elasticity of demand in the legal services industry.[12] In order for LLLTs to pencil out for firms, such demand needs to be elastic, meaning that a reduction in price will increase demand for services. While that outcome seems intuitive, it is not simply true by necessity. LLLTs will bring work into a firm only if there is a latent market of clients who already want to purchase services but can’t stomach the price - the Bar’s recently updated Civil Legal Needs survey suggests that price may not be the biggest barrier to getting legal assistance.[13]

Jerry. I am not as confident as Greg that there are a large number of $25/hour lawyers out there practicing. It would be hard to meet even minimal overhead costs at that rate. Therefore, I think the most likely route for many will be to use LLLT’s at a rate of $65-$75 per hour. At that rate the LLLT’s salary and overhead is covered with a reasonable profit margin. In metropolitan areas that rate will be higher.

Case (2) - Associate Model 2.0.

A variation on the traditional model involves LLLT services billed at flat rates to clients. Although fees vary across communities, it may be reasonable to expect that a LLLT will be able to assist in ‘simple’ dissolution for fees of $1,000 or less. A few counties in Washington permit the client to enter a decree by mail without a personal appearance, which can further assist the client in obtaining an affordable dissolution.

Jerry. Flat rate LLLT billing is an important alternative. We are looking at a flat rate for qualifying dissolutions at around $750 from filing to decree. At that number to be profitable the procedures have to be streamlined and efficient. We are looking at a highly interactive web page where the client inputs most of the information and the LLLT’s creates the necessary documents and advises the client. This rate assumes that a majority of the clients will be willing to file in a “mail in county” to avoid the cost of travelling to and attending a court hearing. Otherwise, the client would present the pleadings pro se at the final hearing.

Greg. Again, streamlined or automated processes are profitable regardless of who is pulling the technology lever. Flat rates offer some increased opportunity for firms, since the rate is not tied directly to the hourly involvement of a LLLT. Ultimately, however, a percentage of a small fee pencils out to a small profit and volume is required to achieve substantial gains. Many lawyers struggle enough with the administration of a traditional firm. My guess is that few will have the appetite for creating a well-oiled legal-technology cyborg.

Case (3) - Creating a Vertical.

A different approach to LLLTs – not mutually exclusive of the preceding approaches – focuses on the possibility that they will expand the law firm’s client base and refer higher value business to the firm’s lawyers. When the ‘simple’ dissolution handled by a LLLT becomes complicated it can then be completed by an attorney within the firm.

Jerry. In the law firm context, LLLT’s will have much greater flexibility in handling the case. If the LLLT is bumping up against the limitations of the LLLT license the attorney can take over responsibility of the file and assign additional tasks to the paralegal that might exceed the functions allowed by the LLLT. In a solo LLLT practice this is not a viable strategy and may well result in substantial limitations on the LLLT and the temptation to exceed the bounds of the limited license. If the dissolution becomes complicated then the attorney may have to intervene. This would require a renegotiation of the fee agreement. In flat fee cases this can be problematic unless the client clearly understands that if complications arise the flat fee will be renegotiated. The best protection against starting a dissolution that seems simple and becomes complicated is to screen the case at the entry stage to determine if it “qualifies” for a flat fee arrangement.

Greg. It seems reasonable that LLLTs will generate some referrals for legal work beyond matters they can perform. But is this a reason to bring them in house within a firm? Couldn’t the same result be achieved with a referral arrangement - going both ways - between independent LLLTs and a firm? Sure the firm captures revenue if the LLLT referral is in-house, but as discussed above I’m skeptical that the profit from such work would be “worth it” for the firm.

Moreover, recall that the raison d'être for LLLTs is to meet the needs of community members who cannot afford traditional legal services. Merely because a LLLT’s case has become complex does not mean that the client will then be able to afford the services of an experienced attorney. And finally, attorneys struggle enough to attend to traditional marketing, plus content marketing through blogs and social media. Will they now care to add the administrative overhead for a LLLT, merely in hopes some small fraction of her clients will refer high-end work?

Whether or not LLLTs can help a firm’s bottom line remains to be seen, but we agree that these are exciting times for lawyers willing to envision a more creative future.


[1] When speaking recently at Seattle University School of Law, the second author was surprised that not a single member of the student audience had heard of the LLLT program - surprising since the students could reasonably view LLLTs as their future competition.

[2] RPC 5.9(b)

[3] Sands McKinley, LLLT Paves Way For ABS in WA, http://bit.ly/1JRrhOg (March 27, 2015) (last visited July 9, 2015).

[4] D.C. Rule 5.4(b).

[5] See APR 28(H).

[6] APR 28(F)(1) (LLLTs may, “Obtain relevant facts, and explain the relevancy of such information to the client...”) (emphasis added).

[7] APR 28(F)(2)

[8] APR 28(F)(9).

[9] APR 28(F)(6).

[10] APR 28(H)(5).

[11] APR 28(H)(6).

[12] I owe this observation to my the exceptionally brilliant and over-credentialled, J. Suzanne Singh, PhD, MBA (http://linkd.in/1Rxxcfz).

[13] Washington State Supreme Court Civil Legal Needs Study Update (June 2015), 6, 45 (finding that 70% of households experience one or more legal problems annually, three quarters do not seek assistance, but of those did seek assistance only one third could not afford services), available at http://bit.ly/1K63Gtl.