Immigration and Refugee Legal Aid Cost Drivers

2. Legal aid cost drivers - a general overview (cont'd)

2. Legal aid cost drivers - a general overview (cont'd)

2.6 Market cost of legal services

Legal aid is provided in the context of an established market for legal services. The rates charged by individual lawyers vary according to their experience and reputation. Rates also vary depending on the type of work done and the value of the work to the lawyer's clientele. Typically, lawyers working on high value commercial transactions for major corporate clients can bill at a substantially higher rate than can lawyers who work for individual clients of ordinary means. Litigation lawyers commonly base their billings on a combination of the time spent on a particular matter and the value of the outcome for the client, especially where the lawyer is successful and the client receives a substantial amount of money as a result of the litigation.

By definition, the clientele for legal aid services are the least able to pay high legal fees. Individual clients of modest means are the most appropriate comparable client group for purposes of establishing what one might regard as the market rate for the services lawyers provide to legal aid clients. It is estimated that private lawyers currently charge between $100 and $165 per hour to clients of modest means (Legal Aid Ontario, 2001c: 21). This is considerably more than the rates provided in any legal aid tariff in Canada. This market rate can be expected to have an impact on legal aid costs by conditioning the price at which lawyers will be willing to do legal aid work and by conditioning the number of lawyers who are prepared to do such work.

Lawyers who work for legal aid clients have the option of working for private clients and billing their services at the prevailing market rates [23]. Staff lawyers in a legal aid clinic have the option of leaving to go into private practice if they are dissatisfied with the salaries they receive. Lawyers in private practice have the option of declining legal aid work if they do not find the remuneration competitive with what they can earn from private clients. Thus, the prevailing market rates set a benchmark for what legal services cost [24].

In a Business Case submission prepared in 2001 to support a recommended tariff increase, Legal Aid Ontario noted that it is becoming increasingly difficult to find lawyers who are willing to represent clients on legal aid certificates at tariff rates that had not changed since 1987. This reluctance applies not only to experienced counsel, who might be expected to have established practices with clients who are prepared to pay more than provided under the legal aid tariff, but also to newly called lawyers, who will normally be billing at the low end of prevailing market rates (Legal Aid Ontario, 2001c: 19).

Three factors serve to keep rates paid for legal aid services below the prevailing rates in the private market. First, legal aid lawyers have a higher level of certainty that they will be paid for their services than is the case for lawyers dealing with private clients who do not have legal aid certificates. Lawyers in private practice do not incur costs to collect payments from legal aid authorities, nor do they have to write off bad accounts. Accounts receivable are simply not an issue for salaried legal aid lawyers. It is generally conceded that this factor alone justifies an hourly rate for legal aid work that is around 15% below the current market rates (Legal Aid Ontario, 2001c: 21).

Second, lawyers have a professional duty to ensure that the less fortunate in society have access to legal services. Many, if not most lawyers who do legal aid work, do so in part for altruistic reasons. They are willing to work for legal aid clients at a rate considerably lower than they would charge to clients who can afford to pay the going rate. This is particularly true in relation to lawyers who practice in the areas of poverty law, human rights law and refugee law. Many of these lawyers have a deep ideological commitment to serve severely disadvantaged people in the community. They therefore consciously accept substantially lower incomes than their colleagues earn in other areas of legal practice.

Third, many lawyers in private practice, particularly new lawyers working as sole practitioners or in small firms, have difficulty finding remunerative work. For these lawyers, legal aid work provides income that they are unable to earn from private clients. The amount that they will accept for this sort of work is lower than the prevailing market rate.

If all players in the system could be presumed to be "rational" economic actors, in the sense that economists see individual wealth maximization as rational economic behaviour, then one could hypothesize a direct link between market rates for comparable legal services and legal aid program costs. Private practice lawyers would only be willing to do legal aid work if it provided a return at least equal to what they could earn in private practice. Provided there was complete mobility between private practice and legal aid staff work, staff lawyers would remain in their positions only as long as their salaries remained competitive with what they could earn in private practice.

In real life, ideological commitment to legal aid work, oversupply of lawyers in private practice, and career immobility arising from natural inertia and fear of the unknown, complicate the pure, rational economic calculus. As a result, it is difficult to assess with any precision the impact that market rates for legal services have on legal aid costs. The intensity and extent of the impact is conditioned by various factors, such as the availability of alternative paying work, the value lawyers place on income security and freedom from the insecurity and commercial pressures that are features of regular private practice. The cost impact of market rates for legal services is also conditioned by limitations on mobility between private practice and legal aid staff work and by non-economic considerations that motivate lawyers to do legal aid work.

Increases in the legal tariff are naturally followed by an increase in legal aid program expenditures. This is partly a function of the direct additional cost occasioned by the tariff increase [25]. If the premise underlying the LAO business case submission is correct, some of the cost increase may also be attributable to the fact that a tariff increase induces lawyers who previously could earn marginally more money doing other work to join the legal aid pool. This could lead to increased supplier-induced demand, which in turn has an impact on program costs.

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