Bridging the Justice Gap in Business Law

Thursday, June 28, 2018 By Erin Dwyer-Frazier
Section Review: Business Law
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Erin Dwyer-Frazier

When Congress passed the “Tax Cuts and Jobs Act of 2017” (the Tax Bill), one change stood out: the “Qualified Business Income” (QBI) deduction newly available for many small businesses, including pass-through entities, sole proprietorships, partnerships and even independent contractors, including the growing number of freelancers or “gig” workers. A great deal of ink has been spilled already on the potential benefits of the Tax Bill for small businesses, including lots of articles about whether people should “go solo” to take advantage of these benefits. 

Despite having read a great deal of that spilled ink about the Tax Bill, I still find myself unsure about whether the change in tax treatment for small businesses actually makes going into business for yourself a good idea, absent other factors, of course. But it’s certainly a notion that has taken hold on the internet. In the coming year, there’s a good chance that attorneys will see an uptick in the number of potential clients interested in starting small businesses, taking on freelance or contract work on the side, or otherwise generating QBI. Many of these new entrepreneurs will not fit the standard profile of a “business” client and will not be able to afford traditional, hourly-rate representation or large initial retainers. At the same time, most will have income that will disqualify them from pro bono legal services as well. 

Small business attorneys are thus met with a dilemma: The Tax Bill may have created a large pool of potential new clients, but first we have to find a way to get those clients over the “Justice Gap.”

The Justice Gap and Low-Bono Clients

The Justice Gap — a blanket term for the growing number of clients in need of legal services whose income disqualifies them for pro bono legal services, but who cannot afford traditional legal fees — has been gaining increasing attention in the legal community of late. Attorneys have been trying to close the gap — performing what is colloquially called “low-bono” legal work — both formally and informally, for years now. In recent years, legal incubators, like Justice Bridge (affiliated with UMass Dartmouth) and the newly independent non-profit Lawyers for Affordable Justice (where I am on the panel of attorneys and a member of the Board of Directors), have been trying to ensure that low-bono legal work is a viable business proposition for new attorneys and solo practitioners, as well as connecting clients with attorneys who can provide the services they need.

While there has been growing recognition of the need for affordable legal services for “gap” clients, that focus doesn’t often fall on business and transactional work, perhaps because business clients are perceived as having the means to pay for legal services. 

Lawyers for Affordable Justice Executive Director Damian Turco said this about working with underserved “gap” business clients: “Many small businesses and start-ups need legal representation but are without the means to hire attorneys. Lawyers interested in servicing this segment of the market should automate tasks and document creation, enabling a comparable quality of service at a lower price. Lawyers should also consider referring small business and start-up work to the two Massachusetts legal incubators, Lawyers for Affordable Justice and Justice Bridge.” 

While referrals to incubators and other low-bono attorneys are one (much appreciated) solution, small business attorneys shouldn’t rule out working with these clients; there are other strategies that allow for cost-effective representation of low-bono business clients. As Turco noted, automating client intake and document creation is an important first step when taking on low-bono clients. For simpler projects, clients may be able to perform some of the work, particularly non-legal tasks, such as data entry. When automating these systems, know that your clients will most often require assistance with figuring out what they need. At the end of the day, advice and counsel are core services that separate attorneys from online legal form generators, and thus they remain important services to provide. 
Serving Low-Bono Business Clients

Working with low-bono business clients requires three main things: simplification, creativity and crystal-clear expectations.

  1. Simplification means narrowing down the focus to what your client really needs and making it as easy as possible for your firm to meet those needs (and those needs only). It’s a bit like the business/transactional equivalent of limited assistance representation; you may not be able to solve all of your client’s problems, but you can solve some of them.

    As with any business client, low-bono business clients need to balance their potential liability with the ability to operate their business. For these clients, conventional solutions, like hiring an attorney to form a corporation for them, may make it impossible for them to operate their business at all. Conventional solutions are not what every client needs.

    For example, while many clients will know what incorporation is (and may have already incorporated), others will have no idea about what a corporate formality is, let alone how to maintain one. Automating data collection for the incorporation process is relatively simple. And creating a “teaching packet” of necessary and recommended corporate records, which can be updated to meet individual needs, allows you to create critical initial documentation for your clients, like corporate bylaws, while giving them the ability to manage the documentation themselves going forward.

  2. Creativity means thinking outside the box about how you structure your services and what services to provide.

    When working with freelance or contract workers, you will often find that their greatest need is not incorporation but contracts: client or consulting agreements, copyright assignments, or terms and conditions for their website, etc. And while online legal forms exist for all these agreements, your clients will always do better with a contract customized to their business needs. But they also frequently need simple contracts. If your client is a freelance graphic designer and is, for example, creating a custom T-shirt design for $75, presenting that client with a 10-page client agreement packed with legalese is not a great way to actually close the deal (so to speak).

    With thorough and automated data collection about the client’s business and a set of relatively basic contract forms, you can create contracts that are both affordable and more useful than an online form. Delivering added value will have clients returning to you as their businesses grow in complexity.   

  3. Crystal-clear expectations are important in every area of the law, but when working with low-bono business clients, three main expectations are especially important to establish as early as possible.

    The first, of course, is what precisely you are doing for them — detailed engagement descriptions are especially important when you’re providing a limited scope of representation. These protect you from potential liability, but also make it easier to say “No” if the client asks you to perform work that exceeds the scope of the limited engagement.

    The second is a realistic timeline for how long the work will take. Many low-bono clients will have never worked with an attorney before and have unrealistic expectations of how long projects can or should take. One of the first intake questions to ask your clients, especially if you are doing small business work or are a solo practitioner, is when they need the work done. If their response is unreasonable, tell them so. Clients who have never worked with an attorney before may truly have no idea how long legal work can take (and that they aren’t your only client). If you can reset their expectations upfront, you may still be able to work with them. If they can’t or don’t reset their expectations, it’s always better to know that upfront. Working with low-bono clients does not mean you need to accept every low-bono client who walks through your door, no matter how much you sympathize with their situation.

    The third expectation that needs to be established is how much the representation will cost. This includes both your legal fees and any costs associated with the work (do not assume clients know that it costs money to incorporate, that some states have annual or semiannual fees, or that printing and copying cost money — all of this information must be laid out upfront). At my firm I use almost exclusively flat-rate legal fees, with clients covering any filing costs. This is a personal choice because it’s easier for me to manage, but it’s also been important for my clients because they feel more secure hiring me when they know how much it will cost upfront.

    Clients with limited experience utilizing professional representation may have no idea how much their project should cost or will have gotten wildly different quotes from different attorneys. If you use an hourly rate, clients will need an estimate of how long the project will take (and if you don’t know, be upfront about that). It’s also helpful to split the bills into parts or invoice frequently so no single bill is too large. Don’t wait until the end of the representation to send a large bill, as surprises are not your friend. Both payment amounts and payment terms should be negotiated upfront to avoid misunderstandings.
A Path Forward

Working with low-to-moderate income entrepreneurs and new small businesses is not always simple, but it can be quite rewarding. It’s always a pleasure to work with clients who are following their dreams and doing creative and interesting things. Just because clients begin as low-bono does not mean they remain that way; as businesses grow, your relationships can grow with them. But sometimes that means being flexible when they first show up at your door. 

Erin Dwyer-Frazier is the principal attorney at the Law Office of Erin Dwyer-Frazier. She focuses on providing affordable and innovative legal solutions for small businesses, entrepreneurs, artists, and other creators, with a focus on business formation, contracts, and intellectual property, especially trademarks and copyright.