Annex B: Note by the Law Society of Scotland: restriction on setting up in practice - the three year rule
1. Up until 1996 a solicitor could become a principal immediately on completion of the traineeship - either in a partnership or as a sole practitioner. In the late 1980s and early 1990s there was increasing evidence of concern about solicitors with little experience setting up their own practices and being unable to cope with the demands of providing an adequate service to their clients; proper risk management; and compliance with the Society's Practice Rules, particularly the Accounts Rules. This concern was demonstrated by an increasing number of complaints; claims of professional negligence; business failures; and prosecutions before the Scottish Solicitors Discipline Tribunal. The matter was also the subject of a recommendation in the Report of the Royal Commission on Legal Services in Scotland in 1980.
2. The Royal Commission believed that a restriction on practising on a solicitor's own account until the solicitor's name had been on the Roll of Solicitors for three years was an idea which safeguarded the interests of clients. In the Royal Commission's view, young solicitors should be expected to learn to accept more responsibility for their own work and relationships with clients before being allowed to take on the much heavier responsibility of partnership and the liability which that entails. The Royal Commission was also of the view that it would be wrong to allow a solicitor who was a trainee one day to become a principal the next - "A young solicitor needs time to learn about the administration of a firm's business before he assumes the responsibilities of partnership; and only limited start on this can be made while he is a trainee." (paragraph 16.56)
3. In the mid 1980s the Council set up a Competence Committee with the remit to consider and recommend means of detecting, identifying, preventing and eradicating incompetence within the solicitor branch of the legal profession in Scotland, and to recommend action to be taken to improve competence generally. One of the early recommendations of the Competence Committee was a compulsory practice management course for new principals, and Practice Rules to that effect came into force in 1989. The course was held over two days on a residential basis. However there continued to be problems arising from inexperienced practitioners and the Council of the Society accepted recommendations from the Competence Committee in respect of further measures.
4. A number of initiatives were developed to address these problems, including compulsory Continuing Professional Development ( CPD) (1993); powers to the Council to inspect practices and to give advice and guidance to practices in connection with risk management as part of the Professional Indemnity Insurance Rules (1995); and restrictions on solicitors practising as principals on their own account until they have obtained three years experience as an employed solicitor (1996).
5. The Solicitors (Scotland) (Restriction on Practice) Practice Rules 1996 - as the three year rule is properly called - were passed by Council after circulation to all members of the profession and after debate at the 1996 Annual General Meeting. The Practice Rules were amended slightly in 2001 to take account of Limited Liability Partnerships and to take account of career breaks e.g. maternity leave. The current Rules provide - in Rule 3 - that a solicitor shall not practise as a principal unless he has been employed as a solicitor for a cumulative period of three years, one year of which shall immediately precede commencing practice as a principal. The solicitor must have an unrestricted practising certificate for the period of employment.
6. The Rule does not apply if the solicitor is assumed into a partnership or incorporated practice where a partner, director or member has practiced as such for three years.
7. In today's increasingly complicated and pressurised world, there is a clear public interest in requiring solicitors to gain experience in an employed position before embarking on their own practice. Risk management is not merely a matter of technical legal knowledge - it involves experience of practice including dealing with staff and attending to administration. Solicitors increasingly specialise from an early stage in their careers. Being a sole practitioner imposes an additional burden on a solicitor as there are no other partners to share financial and managerial burdens. New and inexperienced sole practitioners may lack the resources to provide adequate working capital to run the practice.
8. Putting together all aspects of a business package to create a successful business requires a range of skills and maturity which it is difficult if not impossible to obtain at university or during a traineeship. Practical observation of a successful existing practice will provide the recently qualified solicitor with knowledge of filing systems; accounting systems; interaction with clients and members of staff; and office administration without which the new sole practitioner would be handicapped. There is also the important aspect of putting together a financial statement and business plan not only for the solicitor's own benefit but also to obtain overdraft facilities which are usually necessary at the start of any new business venture. The identification of key business objectives and how best to fund and manage them is a matter where mature judgement is important. The risk of creating problems for members of the public due to inexperience of such matters must be a factor that the Society requires to take into account in fulfilling its statutory duty to promote the interests of the public in relation to the solicitor profession.
9. The Practice Rules contain power to the Council to grant waivers in particular cases, which power has been delegated to the Professional Practice Committee. Since the current Rules came into force on 30 November 2001 nine such waivers have been sought and 7 of those granted. Factors which the Committee take into account in considering a waiver include experience of running other businesses before administration as a solicitor; circumstances such as unexpected redundancy; and experience of practising as a lawyer in another jurisdiction. In the same period approximately 1,000 new solicitors have been admitted.