LEGAL STARTUPS AND THE UNLICENSED PRACTICE OF LAW

When is a legal startup practicing law without a license?

Attorneys practice in a guild-like monopoly. It has been this way since state bar associations were founded. The bar associations’ main purpose is to establish high barriers to entry to provide legal services – to be an attorney, you have to graduate from college, graduate from law school, and then take and pass the state bar exam. The bar associations justify this role by saying that they protect the public from bad wanna-be lawyers who would give bad advice and swindle the unsuspecting. In Florida, the Florida Bar has the power to prosecute non-attorneys for the “unlicensed practice of law” when that person steps on the Bar’s toes.

The tech startup market has begun to make inroads into the legal field. One of the latest legal startups is LegalSifter – a program which says it will analyze contracts between parties and determine, via an algorithm, whether the contract favors one party or the other. LegalSifter users upload a contract, the program analyzes it, and then gives a report showing who the contract favors and, according to the promotional material, how it can be improved. Sounds great, right? Hopefully their program works, because decreasing startup costs and increasing transparency are both good things.

One problem – what LegalSifter is doing could be the “unlicensed practice of law,” and could therefore be illegal in Florida.

So what exactly is the unlicensed practice of law?

Florida defines the unlicensed practice of law as the following:

[I]f the giving of such advice and performance of such services affect important rights of a person under the law, and if the reasonable protection of the rights and property of those advised and served requires that the persons giving such advice possess legal skill and a knowledge of the law greater than that possessed by the average citizen, then the giving of such advice and the performance of such services by one for another as a course of conduct constitute the practice of law. Florida Bar v. Sperry, 140 So. 2d 587 (Fla. 1962).

Confusing, right? Let’s parse that out. Basically, what the court is saying is the unlicensed practice of law is this:

  • the person practicing law without a license gives advice or performs a service;
  • the advice or service affects the legal rights of the person receiving the advice; and
  • giving the advice or service requires knowledge of the law greater than that of John Q. Public.

So the unlicensed practice of law is when a person gives another person advice about their legal rights, when giving the advice requires greater legal know-how than an an average person has.

Is LegalSifter practicing law?

Let’s look back at what LegalSifter is saying it will do – based on its website, the service analyzes a contract and then gives advice on how to improve it as well as whether it favors one party or the other. This certainly sounds like the program is advising its users about their legal rights and options.

If it does what it says it does, LegalSifter is most likely “practicing law” the way Florida defines that term.

Is there a disclaimer?

Yes. But the real question you should be asking is “does it matter?”. Honestly in this situation I don’t know if it would matter or not, because the bar association would be the one determining whether or not it could file charges for the unlicensed practice of law. In doing that, the bar would look at the actual service provided and not the disclaimer. It seems that the sole purpose of LegalSifter is providing legal advice about contracts, so I’m not sure the disclaimer would protect LegalSifter (but I could be wrong – how’s that for a disclaimer).

Can a company be guilty of the unlicensed practice of law?

Yes. When we usually think of the unlicensed practice of law (if we think about it at all), we think about a shady character pretending to be a lawyer. Cases such as The Florida Bar v. Consolidated Business and Legal Forms, Inc., 386 So.2d 797 (Fla. 1980) show that companies can be held to be practicing law without a license.

Here’s a distinction though – in the Consolidated Business case mentioned above, the unlicensed practice of law was being done by people under the guise of a corporation. Do we get the same result if it’s the algorithm, not the people, doing it? As far as I know there have been no cases actually dealing with this issue. But given what we know about state bar associations (circling the wagons, protecting the monopoly, so forth) I wouldn’t be surprised to see this issue dealt with before too long.

Conclusion:

Anything that makes legal or quasi-legal services more affordable and accessible is a good thing. Companies like LegalSifter are trying to accomplish that, at least in theory. But be careful asking for legal advice online – sometimes free advice is worth what you pay for it.