Opening a New Law Firm

Lawyers, like other professionals, can face various liability issues arising from the operation of their businesses. Liability issues can extend beyond professional misconduct or negligence, for which you are required to have insurance, and involve business operations, regulatory issues and employment law.  

 Potential liability issues lawyers might face may involve: 

• Rent and lease agreements: Lawyers may be sued by landlords for missing rent payments or breaching lease agreements. This can include disputes over lease terms, maintenance responsibilities or early termination of the lease. 

• Supplier agreements: Failure to pay for goods or services received can result in lawsuits from suppliers. Lawyers need to ensure timely payments and adherence to contract terms to avoid such disputes. 

• Wrongful termination: Lawyers may face claims from former employees alleging wrongful termination, discrimination or retaliation. 

• Wage and hour claims: Disputes over unpaid wages, overtime pay or misclassification of employees can lead to legal action from staff. 

• Harassment and discrimination: Lawyers can be held liable for harassment or discrimination claims within the workplace, whether related to gender, race, age, religion, sexual orientation or other protected statuses. 

• Office premises liability: injuries occurring on office premises can lead to lawsuits. This includes slip and fall accidents, inadequate security or unsafe conditions. 

• Breach of contract: Clients may sue for breach of contract if lawyers fail to deliver agreed-upon services or breach confidentiality agreements. 

• Fee disputes: Disputes over legal fees can result in clients taking legal action. This includes claims of overcharging or billing for services not rendered. 

• Non-compliance with regulations: Failure to comply with legal regulations, such as tax laws, workplace safety standards and data protection laws, can lead to penalties and litigation. 

• Infringement claims: Lawyers may face claims for infringement of intellectual property rights, such as copyright, trademark or patent violations. 

• Mismanagement of funds: Issues related to the mismanagement of client funds, trust accounts or firm finances can lead to legal consequences. 

In conclusion, while professional misconduct and negligence are significant liability concerns, you must also be vigilant about various other business and operational risks. Proper management practices, adherence to contracts and regulations, and maintaining a safe and fair workplace can mitigate these risks effectively. 

Given the breadth of potential liability issues, it's crucial to understand how these risks manifest across different types of business entities within the legal profession. The structure of a law firm – whether it operates as a sole proprietorship, partnership or limited liability partnership – affects the nature and extent of liability that each lawyer faces. 

Sole Proprietorships

A sole proprietor carrying on a practice as a sole practitioner, a sole proprietor with employed lawyers, or a sole proprietor as a member of an association of independent practitioners with or without employed lawyers, has unlimited personal liability for claims arising out of the practice, including claims caused by the actions of employed lawyers and other employees.   

Partnerships   

Each partner in a partnership has unlimited personal liability for claims arising out of the practice of the partnership, including unlimited personal liability for claims arising out of actions of other partners, employed lawyers and other employees while carrying on partnership business.   

Limited Liability Partnerships   

All partnership assets are subject to claims of creditors.   

Partners have unlimited personal liability for:  

• Their own negligence, wrongful acts or omissions or misconduct; 

• The negligence, wrongful acts or omissions or misconduct of another partner when they knew of the misdeed but failed to take remedial action; and, 

• The negligence, wrongful acts or omissions or misconduct of an employee, agent or representative of the partnership whom they negligently supervised. 

Partners who are not directly involved in wrongful acts are not personally liable for the negligence, wrongful acts or omissions, malpractice or misconduct of other partners or employees acting in the ordinary course of carrying on the practice. However, they are at risk for their share in the partnership assets, and all insurance coverage held by the LLP is available to satisfy claims against an offending partner or partners.    

All partners are liable for ordinary debts of the partnership.   

Professional Corporations   

Lawyers do not get the benefit of limited liability if they practice through a professional corporation in Alberta. Section 133(1) of the Legal Profession Act provides:   

Space-sharing arrangements   

Sole practitioners often join space-sharing associations to give the impression that they are part of a larger organization with more resources. However, in such arrangements, lawyers usually also highly value their independence and do not want to be liable for the actions of other members of the association. However, these goals are incompatible. If a space-sharing association looks like a partnership and acts like a partnership, the courts are likely to treat it as a partnership for the purpose of determining liability to third parties, irrespective of the internal arrangements.  

Members of a space-sharing association who wish to avoid partnership-like liability must make it abundantly clear to clients and others that they are not partners, and that each entity within the association operates independently, defeating the goal of projecting a firm-like image. A notation like "An Association of Independent Practitioners" on the letterhead of a space-sharing association, with no other separation of the practices, is of limited value in preventing partnership-like liability.   

 A member of a space-sharing association is exposed to several potential partner-like liabilities based on the activities of other members of the association: 

• Negligence in the provision of legal services: Normally covered under the Law Society's compulsory professional liability indemnity program through the Alberta Lawyers’ Indeminity Association (ALIA), including negligence of support staff if the lawyer is vicariously liable for them. However, if ALIA’s Group Policy has been breached in such a way that coverage is denied or the claim is otherwise excluded from coverage, other members of the association may be exposed.   

• Fraud on a client or a third party by a lawyer: Generally, fraud by a lawyer is not covered by ALIA’s Group Policy. Other members of the association may be exposed.    

• Defalcation of funds entrusted to a lawyer: Part B of ALIA’s Group Policy may cover the loss if trust funds were received or held by the lawyer in the capacity of a barrister and solicitor, but not if the funds were not held in that capacity. Part B does not cover misappropriations by anyone other than an indemnified lawyer (e.g., misappropriations by a support person, employee or contractor would not be covered). ALIA does not pursue innocent partners or associates for recovery of funds paid out to cover misappropriation claims.  

• Public liability & tenant's legal liability: Should be insured (make sure all members of the association and their employees and agents are named as insureds). 

• Trade debts: If incurred in the name of the association (e.g., office supplies, process service, transcripts, medical reports, space leases, equipment leases, courier services, etc.). 

 Many lawyers consider the risk of partnership-like liability to be more than offset by the benefits of associating with other lawyers, because space-sharing associations are increasingly popular.   

A space-sharing association should have a written agreement setting out the arrangements among its members, including mutual indemnities in case partnership-like liability is imposed. But remember: an indemnity is only as good as the credit-worthiness of the indemnifier. Make sure you review the agreement before agreeing to join an association.