Changes to Arizona’s Legal Landscape Put Local Businesses in Uncharted Territory

by Alex Karam

Arizona blazed new legal trails this year by becoming one of the first states to permit non-lawyers to share fees with lawyers and also own law firms. Arizona is also one of the first states to allow non-lawyers to practice law.

As with other trails blazed throughout history, these changes could result in a gold mine of new opportunities for businesses and entrepreneurs …. but the trails are hardly smooth and it’s possible all parties — including their clients — could face Oregon Trail-like consequences. 

To avoid being crushed by a metaphorical wagon or bitten by a figurative snake, businesses should fully understand both the benefits and pitfalls of paying referral fees and working with someone who isn’t a lawyer before setting foot on any of these new trails.

Referral Fees Reward Relationships but Present a Slippery Slope

Before the Arizona Supreme Court amended the rules, attorneys were prohibited from giving anyone anything of value for recommending or referring them. Recognizing that referrals have value, the rule revision now allows law firms to thank or compensate clients and partners for the business they send.

Being able to send flowers, a gift card or other small token of appreciation is innocuous and a welcome change. And when a company refers a lot of business, it’s certainly worth having a discussion about additional compensation. It’s fair for both parties to recognize that relationships take time to cultivate and are worth rewarding.

However, the option to pay referral fees runs the risk of turning recommendations into a commodity, where businesses could begin referring cases to firms who will pay the highest referral fee instead of to the best qualified or most experienced attorney. Because their reputations are on the line, companies and individuals should refer to the attorney or firm best suited to the client’s needs. Taking the time to get to know a law firm and building a genuine relationship before making a referral will cement trust and protect business interests in the long run. Ultimately, who will the client blame if the referral results in a poor outcome? 

Legal Paraprofessionals Make Law More Accessible but Buyer Beware

On its face, creating legal paraprofessional licensure sounds like a good move. Authorized to provide services for simple, lower-value legal matters (wills, uncontested divorces, etc.) and even appear in court, legal paraprofessionals will offer more affordable legal representation to individuals and small businesses. 

Expanding access to justice is vital; however, the adage “You get what you pay for” certainly applies. Although there is a test they must pass, legal paraprofessionals are not required to have a degree of any kind, let alone a law degree. There is no requirement that their work be supervised by an attorney, yet legal paraprofessionals are able to appear in court (a key difference between them and legal document preparers). Proponents for this license compare it to a certified nursing assistant, but even that profession requires 120 hours of training and is very often under direct supervision of a doctor.

At a minimum, businesses with complex legal challenges will want to carefully vet any legal paraprofessional before engaging to ensure they are receiving the best representation possible. They should also consider hiring an attorney to supervise the work being done or finding a legal paraprofessional who partners with an attorney to ensure everything is done correctly. Without oversight, legal paraprofessionals could make a costly mistake from which it could take businesses years to recover.

Those considering becoming a licensed legal professional should understand they will be held to the same standards and bear the same risk as attorneys. In that light, it may instead be worth obtaining the associate degree required to become a paralegal. It is also worth noting that Washington State discontinued its similar limited license legal technicians program last year, partially because such a small number of individuals participated in the program.

Proceed with Caution

Arizona is exploring exciting new legal trails by allowing attorneys to pay referral fees and licensing legal paraprofessionals. Businesses can benefit from both, but because the territory is largely uncharted, they must carefully select their partners to protect their reputations and avoid costly mistakes.  

An attorney with Guidant Law Firm focused on corporate law and bankruptcy, Alex Karam assists entrepreneurs, small and mid-sized businesses in every stage of development with entity formation and structuring, contracting with employees and third parties, regulatory compliance, corporate governance, and business acquisitions and sales.

Did You Know: A handful of states are exploring similar measures. Utah began licensing legal practitioners in October 2019, and Minnesota launched a two-year pilot paraprofessional project in March. California and New York are reviewing similar options. 

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