These are some of the words being bandied about these days. It’s not all that promising. Or is it?

With the global economies struggling, these are undoubtedly challenging times. But with every crisis, there always seems to be some opportunities that present themselves. For the legal services sector, that opportunity comes in the form of the legal process outsourcing industry (“LPO”). What began as an idea in the United States a number of years ago has now become a robust industry. The legal process outsourcing industry started out with only a few vendors in the United States. The industry in the United States has grown steadily each year; and in the last few years, it has spread to other common law jurisdictions such as the UK and Canada.

As of 2008, the LPO industry employs thousands of lawyers in India (and other parts of the world) in order to service the needs of their common law jurisdiction clients. Forrester research, in its 2005 Valuenotes Study of “Offshoring Legal Services to India”, cites the value of legal process outsourcing services to be $61 million; and it projects the value of these services to be $605 million by 2010. That’s impressive growth by any standards.

Solutions for the Legal Services Industry?
One of the solutions for a struggling economy and the legal services industry (i.e. both law firms and legal departments) is to outsource certain legal tasks to lower cost jurisdictions. This simple labour arbitrage strategy has been used by businesses for years and it has enabled these businesses to continue to grow in increasingly competitive environments. I am not suggesting that outsourcing is a panacea. I am simply suggesting that it is one of the necessary weapons in any law firm’s or legal department’s arsenal.

In these challenging times, moving lock-step in one direction or another is not going to create the change that we need. What the legal services industry needs (and what its clients need) is a paradigm shift – a fundamental change in the way in which lawyers service their clients.

Clients seldom complain about paying high fees for legal services when the type of work being done warrants the high fees. However, when the work being done is more “routine” in nature or repetitive, clients are unwilling to pay high fees. How do lawyers deal with this? Currently, the “simpler”, more “routine” legal tasks are given to junior lawyers, articling students and law clerks. The problem is that the cost of these individuals doing this work is still too high. That’s not surprising when you consider that the cost of a junior lawyer in Canada can be as high as $150,000 per year; and the cost of an experienced law clerk can be as high as $100,000 per year. Even the cost of a legal secretary can be as high as $75,000 per year. That is significantly higher than the cost of sending the work to a lawyer offshore. With savings in the order of up to 70%, outsourcing the “simpler”, more “routine” legal tasks to LPO providers offshore becomes very attractive.

Canada and the LPO Industry

With all this talk about LPO, you have to ask yourself “where does Canada come into the LPO picture”? The Canadian market for legal services is approximately 10% of the size of the United States legal services market. The legal services industry in the United States is approximately $200 Billion per year in size. At $20 Billion per year, Canada represents a very sizeable legal services market; and as a common law jurisdiction, Canada stands to receive many of the same benefits from LPO that the United States has received.

As conservative as Canada is, many of the same driving forces behind the growth of the LPO industry in the United States will drive the growth of the LPO industry in Canada. These driving forces include lower costs and increased productivity. You’ve probably heard the phrase the “common sense revolution”. With the growth of the LPO industry, one could say that this is a “dollars and cents revolution”!

Inevitably however, one has to address the ethical questions surrounding LPO in Canada. Typically the main ethical questions clients ask center around the topics of conflicts of interest, confidentiality and unauthorized practice of law. Canadian law societies have not yet ruled directly on these types of ethical issues. That’s not to say that LPO is not already on the Canadian radar though. All you need to do is look at the many articles that have been published over the past few years in the National magazine, Lawyers Weekly, Bar-ex, and Lexpert. Even the Law Society of Upper Canada hosted a teleseminar on LPO.

What does the academic community have to say about LPO? According to Allan Hutchinson, a distinguished research professor at Osgoode Hall Law School in Toronto,

There’s no prohibition against offshoring legal services. However from an ethical standpoint, whatever occurs, the lawyer remains responsible for the quality of that work.

This is consistent with the approach being taken in the United States by the Bar committees in New York City, San Diego County, Los Angeles County and more recently the American Bar Association. The Bar associations in the United States have essentially ruled, that US lawyers may outsource legal work to foreign lawyers (or non-lawyers) outside the US, provided the US lawyer (a) supervises the foreign/non-lawyer; (b) preserves the client’s confidences and secrets when outsourcing; (c) avoids conflicts of interest when outsourcing; (d) bills for outsourcing appropriately; and (e) when necessary, obtains advance client consent to outsourcing.

According to legal experts such as Bruce A. Green, New York City, professor at Fordham University School of Law and member of the Section of Litigation’s Council (referring to the New York City bar opinion), these rulings “take settled principles and familiar rules and apply them to a slightly different setting”.

The road is now clear for US lawyers to outsource legal work, including to lawyers or non-lawyers outside the United States, if the US lawyers adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting unauthorized practice of law.

In the final analysis, I would be surprised if the Canadian approach to the ethical questions surrounding LPO is markedly different to the US approach.

Where to from here?

The market and the need for LPO have been defined! The LPO industry in the United States is growing rapidly. The American Bar Association has recently described outsourcing as “a salutary trend in a global economy”; and stated that

outsourcing affords lawyers the ability to reduce their costs and often the cost to the client to the extent that the individuals or entities providing the outsourced services can do so at lower rates than the lawyer’s own staff.

The global legal landscape is changing rapidly due to technology, globalization, and commoditization. The conventional approach to providing legal services is increasingly being challenged. As clients become more sophisticated; and as technology makes law more transparent, clients are increasingly demanding greater value for their money. Law firms and legal departments simply cannot afford to ignore LPO any longer.

We are seeing a clear attitudinal shift towards LPO as “a salutary trend in a global economy”. The next few years promise to be exciting for the LPO industry – in the United States, UK and of course, let’s not forget Canada.