TLOMA Today

With March upon us, Spring is right around the corner….the season of rebirth, renewal, and growth - a time for the earth to manifest its’ latent potential within all things. Seeds germinate, flowers bud, insects buzz and leaves unfurl. Despite our growing separation from the natural world for those of us in the big city, we are still affected by this gentle stirring around us. Our senses detect a natural opportunity for a fresh, clean start; our bodies are primed to lighten things both in our lives and at the office. As the natural world emerges from its winter slumber, I generally experience a renewed sense of joy and inspiration.  So whether you are a snow lover or sun lover – the March Newsletter will hopefully give you some great tips and information for inspiration. For me this is the time of year when Spring Cleaning is definitely on my mind. At home, it’s pretty obvious but you can also enter a period of Spring Cleaning at work too.  

As you close out Q1 and start Q2 many of our organizational tasks align with “Spring Cleaning.” So, what’s your plan? Here are a few questions to ask yourself and your team:

• Have the strategic organizational objectives for 2018 been established?
• Has it been determined how those Firm objectives translate into initiatives?
  
  

If the answer to either question is no, you may be a little behind; however, regardless of where you stand on the questions raised above, here are a few pointers to ensure that you get on target and stay there.

The first quarter is all about wrapping up the previous year, planning for the new year and ensuring compliance with new legislation (and we’ve certainly had more than a few changes for 2018).

With three more quarters to go, at this point you may want to focus on internal improvements to meet Firm goals. How about:

• Are there any processes that need to be updated and documented or software systems due for an upgrade?
• Have you fallen behind on any key employee training programs, such as Anti-Harassment Training or New Employee Onboarding?
• Are there any hiring gaps or mission critical positions that need to be filled?
• Are there clear inefficiencies in your office/department that are a waste of time and money?

Annual goals should be realistic and a strong (HR, Facilities, Finance, Marketing and IT) infrastructure is critical in supporting those goals. Perhaps it is time to assess internal processes, systems and infrastructures, identify gaps, and prioritize corrective action to ensure compliance and successful alignment with Firm needs, as well as facilitating important discipline-related trainings.

Use your “Spring Cleaning” as a time to dust off the cobwebs of your personal or team strategy and continue progressing toward your goals.

By the second half of the year, the Firm will be working more efficiently and effectively towards meeting Firm objectives. And as much as we don’t always enjoy it, it’s imperative to spend time reviewing goals and planning ahead because before you know it, Q4 will be knocking at our doors and the wheel will turn all over again.

While thinking about your Spring Cleaning, Firm goals and everything else on your list, I hope you will also save the dates for TLOMA’s upcoming events and come on out to the next round of sessions. We have three sessions in March and a great opportunity to network on March 22nd. Hope to see you there!

March 01, 2018
Developing Results-Focused Email Campaigns 

March 06, 2018
3 Ways To Reduce Records Storage Costs

March 20, 2018 
Electronic Client Payment Options

March 22, 2018
March into Spring - A TLOMA Networking Event

And so ends another of Medel’s musings. Please remember that any questions you may have about all things TLOMA can be directed to Liz Barrington, Karen Gerhardt or myself at any time.  

Cheers,
Michelle

For those that attended the TLOMA 2017 Conference & Trade show, we know that you have saved the date, but for those that could not attend, now is your chance!  Mark your calendar for September 26 – 29, 2018.  The Conference Committee has begun planning and we know that you will be excited as we are about the Conference program and networking opportunities!

If you have yet to attend the annual Conference, here are some attendee comments from 2017…

“I enjoyed the conference and meeting so many wonderful people.  It was nice to be with other professionals in the legal environment, knowing that you share similar concerns and goals.”

“This was a great conference that had a good mix of entertainment, education, interaction with business partners and networking.  It was a lot of fun.”

We are looking forward to sharing all the fun and educational program details with you over the upcoming months!

TLOMA 2018 Conference & Trade Show
September 26 – 28, 2018
White Oaks Resort, Niagara-on-the-Lake, ON

Nearly one and a half years after Bill 132 became legislation in Ontario, it is startling to learn how many companies still do not have policies and protocols in place as mandated by the Sexual Violence and Harassment Action Plan Act (Supporting Survivors and Challenging Sexual Violence and Harassment), 2016. In light of the #MeToo movement and countless sexual harassment allegations against high profile people that have been made public in the past few months, it is crucial for organizations to be compliant in all aspects of this legislation.

The following are key points employers must know regarding Bill 132:

• “Workplace sexual harassment” was added to the definition of “workplace harassment.” By now, employers should have reviewed and updated their existing policy on workplace violence and harassment to make sure this new definition is included.
• Employers are required to address harassment through clearly defined mechanisms which include processes, procedures, investigating and reporting;
• A workplace harassment program must be developed and maintained in consultation with the Joint Health and Safety Committee or a health and safety representative;
• Employees and Managers must be properly trained on the above-mentioned program and policies;
• All reports or incidents of harassment require an employer to conduct an appropriate investigation given the circumstances;
• Confidentiality surrounding complaints must be maintained to the best of the company’s ability;
• The employer is obligated to write a report following every investigation of workplace harassment and provide the complainant with a summary of the findings;
• The Ministry of Labour (MOL) can now order an independent workplace harassment investigation at the employer’s expense.

Employers are required to conduct workplace investigations into all incidents or complaints of workplace harassment and inform both the worker and alleged harassment of the results.

Our firm receives many calls from employer clients who are faced with the onerous task of having to conduct a workplace investigation.  Often, they simply do not know where to begin.

Here are some key takeaways for employers when conducting a workplace investigation so as to ensure compliance and minimize liability:

Act swiftly – Time is truly of the essence when it comes to acting on a report of harassment, violence or sexual harassment in the workplace. Memories fade and accounts by witnesses can be muddled if you do not conduct a timely investigation.

Document everything – From the date someone came forward to report an incident, to who was present as a witness that could be interviewed down the line.

Maintain confidentiality – Whenever possible, do your best to keep your paperwork locked up and share only what is absolutely necessary to the involved parties.

Informal versus formal – Harassment investigations can range on a spectrum from simple and straightforward, to quite serious and complicated with many witnesses and a lot of “he said, she said.” In some cases, the complaint may involve a senior level or executive employee. In these situations, it may be best to have a professional guide you through the process or perform the investigation on your behalf.

Review company policies and training – It is important to know whether the involved parties had been trained and/or signed off on harassment policies that were in place at the time the incident occurred.

Remember the 5 W’s during the interview stage – Who are you interviewing? What techniques and types of questions will you ask? When will you perform your investigation? Where will you conduct the interviews to ensure privacy? Why are you investigating? Be prepared to explain the purpose of the investigation to all parties involved by way of an opening statement to set the stage for obtaining the most important information.

Actively listen – Encourage the interviewee to do most of the talking and most importantly, document as much of the information you are receiving as possible without paraphrasing.

Be impartial – Do not prejudge the alleged harasser. She or he must be interviewed on their version of events and have the opportunity to answer the same questions as the complainant and witnesses.

Make a determination – Based on all of the facts gathered and interviews conducted, make an investigative determination as to whether the complaint or misconduct has been substantiated.

Complete an investigation report – Several elements comprise the investigative report: context for investigation/background information; scope and purpose of the investigation; summary of the complaint/allegation; actions taken; summary of the findings; and conclusions (including reasons for the conclusions). This list may vary depending on whether you are conducting an informal investigation versus a formal one.

The outcome of the investigation will depend on many of the factors listed above and then some. Be extremely cautious not to make a rash judgement when determining the outcome of a workplace investigation. If you are unsure as to whether or not to terminate an employee due to a finding of harassment or sexual harassment, consult with an employment lawyer. Many employers make the mistake of terminating with cause without realizing the high threshold required to prove so in a court of law.

On the surface, these steps may appear to be elementary; however during the course of an investigation and upon interviewing multiple people, it is easy for a manager to get side-tracked and overwhelmed. The process itself is critical to prove that your organization did its due diligence down the line. Finally, be sure to document everything every step of the way!

This article provides general information and should not be relied on as legal advice or legal opinion.

Special thanks to Legal and HR Assistant Lisa Cavuoti for assistance with the research and writing of this article.

The 2017 Federal Budget proposed many new tax changes, one of which is of specific interest to law firms. The Budget announced a repeal of the Income Tax Act provision, which allowed for the deduction of Work In Progress (“WIP”) when calculating the taxable income of a law firm.

With 2018 in full swing, many questions have arisen regarding how to account for and implement these changes. BDO experts Katie Kaplan and Jeremy Martenstyn led a session for TLOMA members summarizing the new legislation and explaining how it will impact the different treatments of WIP in order to allow law firms to account for the changes and to quantify their impact on law firms and their respective partners.

Overview

Section 34 of the Income Tax Act (“the Act”) has allowed designated professionals, including lawyers, who complete work over a period of time, to defer taxation on that income until the entire project was completed and billed - a concept referred to as billed-basis accounting.

The Federal Budget 2017 will eliminate this election, meaning that designated professionals will not be able to deduct costs associated with WIP until billed. The government plans to implement this change over transitional period of five years, effective for tax years that begin on or after March 22, 2017. For firms with a December 31 year-end, this will take effect for the 2018 calendar year.

What does this mean?

With the changes in place, designated professionals will now be required to set up an asset on their balance sheet for their WIP inventory at year-end, equal to the lower of cost or fair market value (“FMV”). By removing this cost from the income statement this will effectively result in increased income.

For the purposes of computing income of a taxpayer from a business for the five-year transitional period, 20% per year of the current WIP cost for each year will be required to be included in income until the five year period has expired, resulting in a 100% inclusion. Although this sounds simple, two important items to remember are:

• The 20% per year income inclusion is based on the current WIP balance for the year in question, not the WIP balance when the rules became effective.
• The profit component may still be eligible for a deduction, assuming WIP is included on the balance sheet. Therefore, the determination of the value of WIP that is calculated for the net income inclusion each year is important.

Issues

The introduction of these changes has created much concern amongst designated professionals, especially lawyers. Some of the main concerns include:

Cash Flow

The new rules will allow WIP costs to only be deducted in the year services are billed. This may cause a mismatch between cash outflows (taxes owed) and cash inflows (billings).

Inventory Valuation

WIP must now be carried at lower of cost and FMV meaning that firms will need to determine cost and profit components of their WIP, which may be burdensome. As the profit component will still be eligible for a deferral of tax, most firms will likely go through the exercise of determining cost. The lower the cost component, the  larger the deferral will be, but determining cost remains complicated as there is  limited guidance regarding what should be included in cost. In general, costing must include an overhead allocation, but again, there is no specific guidance at this time on how to allocate overhead.

The Canadian Bar Association & Chartered Professional Accountants of Canada Joint Committee issued a submission to the Department of Finance with proposed changes to the Act as well as guidance on how professionals should determine the cost of inventory. We expect that the Canada Revenue Agency (“CRA”) will be providing more guidance on how they expect the cost of WIP to be calculated in the next few months.

For firms with a contingency practice, the CRA has posted a notice to its website indicating that there will likely be no impact to contingency fee arrangements. This has yet to be confirmed by the Department of Finance and was included in the Joint Committee submission. We expect the CRA to clarify its position on this in the next few months.

WIP Allocation to Partners

Generally, there are three different scenarios to consider:

• When a partnership records WIP at FMV on its balance sheet and income statement
• When a partnership records WIP at cost on its balance sheet and income statement
• When a partnership does not record WIP on its balance sheet and income statement

When a partnership records WIP on its balance sheet and income statement at FMV or cost.

In the past, WIP was 100% deductible using Section 34 and the deduction was made pro-rata to each partner pursuant to a partnership agreement. To comply with the new changes, firms may now need to determine how they will allocate the decrease in the WIP deferral. One potential option is to allocate the decrease based on an adjusted average accumulation rate or income in the past. Another option is to reallocate the entire WIP balance each year. For partnerships where the partnership agreement provides for how WIP is to be allocated, the partnership agreement should be followed. For partnerships where the agreement is silent, a determination will need to be made as to how the WIP adjustments will be allocated.

When a partnership does not record WIP on its balance sheet and income statement

Firms that do not track or allocate their WIP by partner will need to determine how the increased taxable income resulting from these changes will be allocated to their partners.

Partnership Agreements

Partnerships may need to amend partnership agreements in respect of income allocation, taxable income allocation, draws, retirements, etc.

Income allocation considerations include:

• Does the partnership income determination follow accounting standards or is it only determined for tax purposes?
• Do draws reflect billed revenue plus WIP?

Since tax is payable on the cost component of WIP, the partnership may want to determine draws on the same basis to help align cash flows. If this is not an option, the partnership will need to devise rules for the net income inclusion that arises for tax only.

The changes announced in the 2017 Federal Budget will require many adjustments in order to remain compliant. To learn more about the changes or to see how BDO can help, please contact Katie Kaplan or Jeremy Martenstyn.

This material is for educational purposes only. As it deals with technical matters which have broad applications, it is not practical to include all possible situations. For this reason, each individual situation should be reviewed by a qualified professional. Although every effort has been taken to ensure the accuracy of this material, no organization or person involved with this material accepts any legal responsibility for its contents or any consequences from its use.

Subpoenas! Objections! Habeas corpus! It’s Automation and Affadavits: Rise of the Robolawyers ... and it’s coming to a theatre near you!

OK, so it’s not a future John Grisham - Ridley Scott collaboration. But in recent years, much has been made of the potential impact of Artificial Intelligence (AI) on the legal industry. And in some cases, potential has become reality.

Think of ROSS, the spinoff of IBM’s Watson - a robotic attorney that performs legal research. Or Lex Machina, whose software assesses court decisions by the millions, identifies trends, and offers savvy strategies. Or iJuror, the app that assists in jury selection. Or LawBot, a chatbot developed by Cambridge University students that helps victims in England report crimes.

A brave new legal world is already upon us, powered by Big Data and machine learning. But what does it really mean for the legal industry of the future? Should we get ready for a case law-cultivated C3PO, or a Robocop in robes?

AI is the hot topic that everyone in the legal vertical is talking about these days. The benefits of AI in legal industry performance are well understood - incredible efficiency and accuracy, for starters. All that’s left is further development and increased adoption, making AI an extremely important technology to watch.

Augmentation, not automation

AI is expected to replace much of the document-search and due-diligence work currently being done by paralegals, articling students or junior lawyers.

Software programs and algorithms are already being used to perform tedious tasks like data collection, record searches and fact verification. And with corporate clients often unwilling to continue to pay premium rates to firms for routine work by junior staff, “yeah, that work is going to go away,” Queen’s University alumnus Jordan Furlong tells Queen’s Law Reports.

“I’m not sure that is a tragedy, if what we are going to lose is the drudge work,” he says. “I’m not sure that the jobs that are going to be replaced are the ones that we should necessarily mourn.”

It’s more a case of augmentation than automation, say AI proponents.

Consider that:

• According to IBM, about 2.5 quintillion bytes - as in, a number with 17 zeroes - of data are generated every day, a number that is increasingly rendering human document review a fool’s errand; and
• According to a paper by the University of North Carolina School of Law’s Dana Remus and MIT’s Frank Levy, immediately putting in place all legal technology would reasonably result in about a 2.5% decline in lawyers’ hours.
  
  

“There is this popular view that if you can automate one piece of work, the rest of the job is toast,” Levy tells the New York Times. “That’s just not true, or only rarely the case.”

In other words, there’s a significant opportunity to work with technology, not against it, and carve out a valuable industry niche. Potential job creation may extend to legal engineering (managing and developing AI), algorithm writing and reviewing AI-assisted work.

Leveraging the ‘human touch’

While legal precedent, due diligence and precision are staples of the legal industry, there will always be a need for the human touch.

Proponents of AI believe that bot-based research will in fact free up lawyers from the day-to-day banalities of the profession and focus on what makes them great - critical analysis, creative thinking and offering their clients thoughtful advice.

“There are roles that junior or new lawyers can play inside and outside the current structure - roles that have more emotional content,” lawyer and online entrepreneur Jeff Fung tells Queen’s Law Reports.

Adds Furlong: “I’m inclined to think that a lousy lawyer with instantaneous access to all the legal information in the world is still a lousy lawyer. You still need to have the qualities we consider to be outstanding features of good lawyers - which include analysis, empathy, good judgement and all sorts of different things that Watson doesn’t pretend to have.”

More access to justice, more opportunity

And then there’s the access-to-justice issue. AI is already addressing the legal needs of those who, because of cost and circumstance, have been unable to receive adequate legal advice.

DoNotPay is an online application, created by an English teen, that helps people fight parking tickets and fines. By asking a series of questions, and generating a letter for the appropriate authority, DoNotPay has helped well over 200,000 people in London, New York and Seattle beat parking and traffic tickets.

It’s a model that Ronald Vogl, executive director of the Stanford Program in Law, Science and Technology, believes will be replicated elsewhere over time - with chatbots becoming the first point of legal contact for the poor.

“Every legal-aid group has to turn people away because there isn’t time to process all of the cases,” Vogl tells The Atlantic.

And that, some believe, presents an opportunity - not a hindrance - for law firms.

“I think we will see ... more jobs in the legal market,” Andrew Arruda, CEO and co-founder of ROSS Intelligence, tells CNBC. “At the firms where ROSS is at, we see more work being done, more clients being able to be served, and therefore not a decrease in staff - but an increase in productivity and output.”

‘If you can’t beat ’em, join ’em’

Most of us are resistant to change, and the legal profession is no different.

But change isn’t just coming. It’s already here. As of mid-2017, there were at least 50 companies focused on developing legal AI software.

So should the legal industry fear or embrace AI?

“Both,” says Sofia Lingos of the American Bar Association’s Legal Technology Resource Center. “It’s wise to embrace it now, so that it can be a tool, as opposed to an impediment.

“No one wants to be competing against Watson ... if you can’t beat ’em, join ’em.”

“What does it mean to feel included?”

This is a question I have asked my workshop participants over the past 14 years. Usually people can think of a time when they felt like part of a group. Words that come up include safe, wanted, valued, happy. Safety is the key term on this list, because without safety the other feelings can be elusive.

Simon Sinek advocates for what he terms "Circles of Safety" in organizations. In his book, Leaders Eat Last he makes a strong case that given the amount of time spent at work, it behooves the organization to ensure their employees feel safe. His Circle of Safety is defined by feeling safe, feeling trust and having a sense of belonging.

In my work with clients, I have certainly seen how not feeling safe can undermine relationship building, engagement, and a culture of learning in an organization – all of which are important for getting to inclusion. Because you see, I believe that inclusion is an outcome, not a focus. And it is this tendency to make it a focus that, I believe, has resulted in the glacial pace of change in D&I.

What does it mean to turn the work of inclusion on it’s head a bit, and make it an outcome rather than a focus? It means that in organizations, we focus on the precursors to inclusion: the things that set the stage for it. I call these the ABCs: Awareness, Belonging and Community.

Awareness

Awareness requires not only that we know ourselves and who other people are, but that we also understand the contexts that people live in. This is important because who we are impacts our experiences in the world, what we see, and how we are perceived and treated. Given the #MeToo movement, it should come as no surprise that the world and our work environment can feel different depending on if we are male or female (or gender non conforming). Similarly, workplaces can also feel different depending on racial identity, sexual orientation (actual or perceived), age, religion etc. It’s crucial to remember that we can be in the same situation as someone, having a completely different experience. And that means that some of you may be loving coming into work, and some of you may dread it – and everything in between. If we don’t recognize this, we don’t ask. If we don’t ask, we may never know. If we don’t know, nothing changes.

On a side note, recognizing who people are and the context they live in allows us the opportunity to actually talk about things that are happening in the world - with the awareness that local and global events impact people differently. And we carry this impact with us into the office. Making space to acknowledge and talk about what is happening around us would go far in helping people to feel supported. Take the recent Colten Boushie verdict, for example. If you have colleagues who are Indigenous, talking about it lets the pressure out of the valve, shows that you are at least aware that they are likely hurt, frustrated, angry, etc., and creates a space to connect.

Creating an inclusive environment in the workplace suggests that we learn to have these (often challenging) conversations at work. It doesn’t have to be a long conversation. But it can make a huge difference. The alternative is to keep our mouths shut and our heads down, avoid “those” people (insert whichever group is impacted by local or global event) and hope that it blows over soon. Brené Brown has a wonderful quote that is fitting here: “Connection is the energy that exists when we are seen, heard and valued.” 

Belonging

The B stands for Belonging, which is all about connection and getting to know each other. It is a natural by-product of raising our awareness and having conversations as outlined above. Belonging is an important part of being human. As social animals, when we don’t feel we belong, we experience stress. Stress produces cortisol, and cortisol impacts our ability to form bonds and cultivate empathy. If that’s not enough of a reason to be concerned, it also impacts problem solving. Creating a sense of belonging impacts engagement and team work, as well as creativity and innovation. (By the way, creativity and innovation are also the results of diversity when inclusion is present.)

Community

Community (the C in the ABCs) encompasses awareness and belonging, and is about how we are together. What is your firm doing to build a sense of community? Do you make time to enjoy each others’ company? Do you have fun together? And while fun may not be synonymous with your workplace, ask yourselves why not, and what injecting a little bit of it could do. If the presence of plants can boost mood and performance, imagine what a social event, a company luncheon, or even just adding some levity into the day could do?

Cultivating awareness, building a sense of belonging and creating community results in people being and feeling seen, heard and valued. And that, ultimately, will lead to people feeling and being included.

To read more about the ABCs of Inclusion, please contact me for a copy of my White Paper.

Name of Organization / Company:  BDO Canada LLP

Organization / Company Overview: BDO Canada has spent more than 90 years providing assurance, accounting, tax, and advisory services to a broad ranges of clients across the country including professional services firms. We aim to create a collaborative working environment that makes it possible for our professionals and clients to achieve their goals. As the leader of the mid-market, BDO delivers highly personalized guidance, industry-specific knowledge, and unparalleled service to exceed the expectations of every client-public or private, big or small. As of today, BDO has over 135 offices in Canada and 3,500 staff.

How many years have you been a Business Partner of TLOMA?: We are a new business partner of TLOMA but hope to be a partner for a long time!

Katie Kaplan:

Where was the last place you vacationed? My husband and I took our two kids (3.5 years and 18 months) on a cruise to the ABC islands and Colombia. Yes, we’re crazy but work hard, play hard is very much our life.

Describe your ideal vacation. This follows up the previous question nicely. My ideal vacation is an active vacation somewhere warm. I like to keep busy, but I also like to escape the cold weather- outside of tax season of course.

What is your favorite movie? I don’t have a favorite one but I do love Disney. Most of my friends and colleagues know this about me already so I’m not giving too much away. My kids are already Disney fanatics.

Name one thing you can't live without. My calendar. I live by it.

Jeremy Martenstyn

Where was the last place you vacationed? My wife and I rented a small cottage on the North Shore of Kauai just before the start of tax season.

Describe your ideal vacation. Any vacation I could take right in the middle of tax season (which will never happen).

What was the last movie you watched? "Win it All" on Netflix. As a conservative accountant, I found the gambling and financial irresponsibility far too stressful.

Name one thing you can't live without. Excel… either that or fulfillment.