The legal market is shrinking, as most of the large Canadian listed companies when I began practicing no longer even exist

The end of a decade and commencement of a new one leads me to reflect on the fate and prospects of my own field.
Over my career, I have seen vocations rise and fall. At one time senior executives with lucrative stock option plans were Canada’s highest paid employees, but government regulation put paid to that. Investment bankers had the rooster’s walk for many years, but that profession is dramatically hollowed out. There are far fewer of them and, at every level, they earn much less than they once did. Fresh MBAs volunteer for entry-level positions that once paid six figures.
One reason is that there are far fewer Canadian companies to do deals. It is not only the Nortels and Research in Motions (now Blackberry) that have gone from greatness to actual or near extinction. Most of the large Canadian listed companies when I began practicing no longer even exist or, at least, not with Canadian head offices. And fewer Canadian head offices reverberate through the economy resulting in generally less business.
This has affected the legal market, too. With less Canadian business, and more competition from paralegals and automation, there is need for fewer lawyers. The average public school teacher in Ontario now earns as much as the average lawyer. The ever-efficient marketplace reflects this with less competition for positions in Canadian law schools, at a time when more law schools are opening.
But what about my own field of employment law? Is it something I would recommend as a livelihood to a new entrant? Although I find it tremendously enriching and enlivening, on that metric, the answer is no.
It is quickly becoming dramatically less lucrative for most, for four reasons:
Firstly, employers are increasingly using employment contracts, which dramatically reduce employees’ entitlement. Moreover, they are refining those contracts based on recent court awards to ensure they are enforceable. That dramatically reduces the number of potential dismissal cases and clients;
Secondly, there are far more lawyers competing for fewer cases. Lawyers entering the practice have been selecting employment law to a much greater degree than before, since it is more accessible than other areas such as tax, unionized labour law or securities.
It is not only the number of new lawyers but other legal areas, such as personal injury law, as a result of legislation, that have become less lucrative. Lawyers from those fields are entering employment law as well.
When Diamond & Diamond Lawyers LLP began advertising employment law services, you knew there had been a sea change. With many more lawyers and far fewer cases, there is much less work for the majority of employment lawyers who do not already have well-entrenched market share and corporate clients.
Thirdly, changes to the rules of practice in Ontario, effective this month have increased the small claims court limit to $35,000 and the simplified rule limit to $200,000, leaving a small minority of cases where full trials will be permitted.
There are serious cost consequences now for suing for more than $200,000 and recovering less. Less litigation is permitted under the simplified rules with discoveries limited to three hours and trials to five days.
Furthermore, there is a maximum cost of $50,000 based on completing a five-day trial, a maximum, which will reverberate through settlements, reducing them at every stage. After all, if a court will award in costs a maximum of $50,000 after a full trial, how much is likely to be offered by employers at an early stage, such as after only a demand letter, pleadings, mediation or even after discovery, even for settlements close to $200,000? In short, fewer cases, more lawyers to divide them among and less recoverable costs for each trial should prove a toxic mix for most employment lawyers.
Fourthly are the changes to the nature of work. More workers are in the gig economy and those who are employed tend to jump between employers. With fewer employees, there is less work and, with shorter service, less lucrative cases.
Finally, as a result of these business and economic pressures, I have seen employment law, as practiced by most practitioners, become increasingly commoditized. Too many employment lawyers operate on the basis of a business model rather than on developing their craft and skills.
Most employment lawyers have never conducted a trial in their careers and relatively few have done many. They rely on mediators to settle their cases for them but lack the skill set to manoeuvre that settlement to their client’s best advantage.
They have not developed the skills to prepare proper pleadings, or the skills to conduct effective examinations for discovery or cross-examine at trial. The fact that they don’t even know where the courthouse is makes them appear less than formidable to skilled and practised lawyers.
Most are on their own or in firms with only other relatively young lawyers lacking the ability to effectively mentor them and teach them the skills required to develop. Whereas I have biweekly lunch-and-learns at my firm imparting what my three senior lawyers — each with 35 years or more of experience — have learned, I know of no other employment firm doing this.
All of this may seem somewhat academic since relatively few cases go to trial and virtually all clients want their cases settled. However, when I evaluate how much to offer on behalf of a client, whether employer or employee, a key part of that deliberation is whether opposing counsel will collapse like a bad suit rather than take a case to trial. In other words, the skill of the lawyer has everything to do with how well they are able to settle the case.
Lawyers are increasingly using the Diamond & Diamond model, turning to contingency fees as a way of attracting clients. But contingency fees are another problem for clients as they motivate lawyers to effectively sell out their clients by settling quickly and easily for much less than a case is worth in order to obtain most of the potential fees with as little work as possible.
In employment law as in life, the rule of 80-20 applies; it takes 80 per cent of the work, usually more, to obtain the last 20 per cent of the settlement. Most employers will settle for a large discount without much resistance, which is very tempting for employee counsel on contingency. When acting for employers, I find it tremendously advantageous to have lawyers operating on a contingency fee on the other side.
The contingency model offers huge payouts for little work and commodifies the practice. Unfortunately, many of the lawyers flocking to the field are treating it like a business, not a profession. But it will end up being a race to the bottom and there will be a shake out as people scramble to cut fees as they become desperate for work. Unfortunately, the client will be the loser.
Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.