Clarification Notice CN01 of 2025: Key Insights into the Legal Sector Codes
The Charter Council has issued Clarification Notice CN01 of 2025 in terms of paragraph 13.6.2 of the Legal Sector Codes (LSC), consolidating guidance and answers to frequently asked questions raised by stakeholders following the gazetting of the LSC on 20 September 2024. This notice aims to assist law firms and advocates in interpreting and implementing the LSC effectively.
It is important to note that compliance with the LSC remains elective for legal practitioners and law firms registered with the Legal Practice Council (LPC). However, for those who opt in, full adherence to the codes and timelines is required.
1. Effective Dates and Measurement Periods
As outlined in Statement 003, Paragraph 3.1.11, there is no transitional period for LSC implementation. If a Legal Sector Measured Entity (LSME) has a financial year beginning on or after 20 September 2024, it must apply the LSC from the start of that financial year.
For example, an LSME with a financial year beginning on 1 September 2024 must be measured in terms of the LSC from 1 September 2025 to 31 August 2026, and for all years thereafter.
2. Reporting and Annual Targets
Entities opting for B-BBEE measurement must submit annual reports to the Charter Council, including a verified scorecard (where applicable) and a progress report. This must be done within one year after the start of their measurement period. Example: An LSME with a financial year beginning 1 March 2025 must submit its report by 1 March 2026.
Annual targets in the LSC are aligned with the anniversary of the gazette date, and to avoid overlaps, target updates should coincide with the start of the measurement period. Example: For a firm with a financial year from 1 January to 31 December 2025, Year 1 targets will apply in 2025, Year 2 in 2026, and so forth.
3. Modified Flow Through Principle
Given its unique characteristics, as a service-based profession, ownership structures in law firms are not the same as in a typical corporate commercial entity. Therefore, the Modified Flow Through Principle does not apply
4. New Entrants and Start-ups
Clarification Notice CN01 affirms that Paragraph 20.4.3 of the LSC overrides conflicting tables in LSC 000:
- A non-Black new entrant = Level 4
- A 51% Black-owned entity = Level 2
- A 100% Black-owned entity or Black advocate = Level 1
5. Management Control (M&C)
The EAP targets do not apply to a board of directors in a Large LSME but does apply to executive management and all the lower levels of management. The EAP targets do not apply to QSE management control scorecard.
An Equity Director who is also part of the executive management structure of a QSE or Large LSME can also be counted in the management control element under Senior Management.
6. Skills Development
Clarification has been provided that the 2.5% requirement in LSC 300.3 refers to headcount, not payroll: This is calculated as the number of Black trainees or candidate legal practitioners as a percentage of all legal practitioners and employees.
An LSME can only claim the bonus point for absorption if, itself, employs the candidate attorney permanently. The aim is to incentivise LSMEs to retain candidate attorneys trained by themselves. Even where they retain less than fifty percent, they will still get recognition for those that they do retain.
7. Procurement and Enterprise Development
Based on the unique features of the legal profession and the objective to benefit Black legal practitioners, paragraph 34.5 provides for two categories in the Enterprise Supplier Development element namely preferential procurement and enterprise development with the addition of LSTF contributions. Measured Entities are expected to achieve 40% of each of the sub-elements i.e. procurement, enterprise development and LSTF contribution.
Conclusion
Clarification Notice CN01 of 2025 plays a vital role in ensuring consistent and accurate application of the Legal Sector Codes. While participation remains voluntary, law firms and advocates choosing to comply must take note of the measurement timelines, documentation requirements, and structural responsibilities outlined in this notice. The above points is a summary of the important information mentioned in this notice. Attached hereto is the notice with all the information. You can also contact EAP for any assistance with the interpretation of the codes or if you require any advice for a strategy.