Today, if you want to work as a solicitor serving the public then you need to work in a regulated law firm. From 25 November 2019 however the SRA will scrap this rule. This means that a solicitor will be able to set up in business selling legal services to the public without opening a regulated law firm.
If you are doing ‘unreserved work’ (such as will writing, employment law, contract drafting, general legal advice) then the implications of working outside of a law firm are a real game-changer:
- strictly speaking you are not required to purchase any professional indemnity insurance, which costs law firms on average 5% of their turnover each year;
- you do not need 3 years post qualification experience, which currently limits which solicitors can set up their own business;
- you do not have to pay law firm set up and practising fees, which even for smaller firms would still typically save them thousands of pounds a year.
Contrary to a common misconception, you are not even restricted to working on a ‘freelance’ self-employed basis. For unreserved work you can structure yourself however you like. You could work in your own name on a freelance basis but you could also set up your own ‘unregulated commercial practice’, such as a limited company. You could then go on to employ as many staff as you wish and grow the business. That’s right: you can set up a law firm without having to actually set up a law firm. When I first read the new SRA Standards and Regulations I kept looking for a rule which prohibited solicitors from setting up a business solely to sell legal services unless it is authorised as a law firm in its own right. But it doesn’t exist. There is no such rule for unreserved legal work. In effect this means that, provided you are doing ‘unreserved’ legal work and subject to certain restrictions, you can save many of the expenses and overheads of setting up a law firm but still sell solicitor services to the public. This has significant implications both for new entrants to the market and the existing ones.
Limitations of being a freelance solicitor
There are some limitations, in particular:
- you cannot use the word ‘solicitors’ in the business title or otherwise give the impression that the business itself is regulated as a law firm (5.4 of the new Code of Conduct for individuals);
- you cannot hold client money in your own name, although your company could hold it instead in the context of unreserved work;
- you cannot offer immigration work, financial services work (including the insurance distribution activities which most firms are registered to conduct) or claims management activities;
- the restriction on offering ‘claims management activities’ outside of a law firm or FCA regulated entity seems to extend to claims work including claimant employment law work. This is how the SRA appears to be interpreting the rather tricky to follow 9.8 of the SRA Authorisation of Individual Rules.
There are also frankly some significant disadvantages from the client’s perspective which you should be conscious of and decide how to navigate:
- clients do not get the benefit of the SRA ‘minimum terms’ of professional indemnity insurance cover, or indeed any insurance cover whatsoever for unreserved work potentially;
- clients of freelance solicitors will have more limited access to the SRA compensation fund and no access at all if working with a solicitor’s ‘unregulated commercial practice’.
What about freelance solicitors offering reserved work?
As a reminder, when we say ‘reserved work’ we mean the following legal activities:
a) appearing in court – although tribunal work such as in the employment tribunal would not constitute reserved work provided it is not in the appeals tribunal);
b) conducting litigation – which very broadly involves litigation from the point of issuing of Court proceedings onwards;
c) conveyancing – specifically preparing instruments of transfer or charge and applications for registration under the Land Registration Act among other things;
d) probate activities; and finally
e) administration of oaths (that well known cash cow of the legal services market!).
If you want to offer any of these services then the position is a lot more complicated:
- you will need to have 3 years experience;
- you must trade and receive fees in your own name and not through a company or other separate entity;
- you cannot use a trading name;
- you cannot employ staff, not even administrative;
- you must have insurance cover for both reserved and unreserved work which, although not at the level required under the SRA’s minimum terms, must be “adequate and appropriate” for your work. It remains to be seen if this will in fact be materially cheaper than minimum terms cover;
- you cannot hold any client money save for costs and disbursements which you have already incurred but not yet paid / billed.
Immediately it can be seen that for certain work such as conveyancing this is not currently a realistic prospect, at least not until escrow services become a more popular option in such transactions. The limitation on employing staff also means that realistically if you want to grow a business this is not the right model for you in the long run.
Should I practise as a solicitor outside of a law firm after November?
For B2B employment lawyers, will writers, contract lawyers and general legal advice and so on, this model could potentially save you a significant amount of money each year. There are nonetheless some important factors to consider however:
- are you going to do reserved work? If so will you really materially benefit from being freelance?
- do you need to hold client money?
- can you bring work in without holding the business out as a solicitor’s firm?
- could you really operate in the best interests of the client without professional indemnity insurance? If you do not have large financial backing to pay out for claims and do high-risk and high-value work this has to be questioned in my view;
- do you rely upon legal professional privilege? If so you need to be satisfied that this will remain in place and consider how to manage this if working with other people in an unregulated practice (unreserved work only).
For existing law firms you could theoretically transfer to one of the new models if it suited your circumstances but you would have to fund your ‘run-off’ cover for the professional indemnity insurance first (*visible wincing*).
Whatever your individual circumstances what is clear is that the market solicitors work in will change from November. We shall have to see how dramatic or otherwise the changes are but the foundations are certainly there for some seismic shifts. Make sure you understand what this means for you and your business. The table above summarises the key differences between the new models of the future and I hope it helps you navigate the new landscape.
Note: this article was updated on 13/03/20 to clarify that the SRA appears to have prohibited solicitors from conducting claimant employment law and other claims work outside of a law firm or FCA regulated entity.
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