Management Assistance Program
The Billable Hour Today
By Jim Calloway
The term “billable hour” has long been a topic of discussion in the legal community. However, for such a simple term, it can be used in different ways. The most obvious answer is that hourly billing and the lawyer’s hourly billing rate is the method, likely still the predominant method, of determining how much clients pay their lawyers. The lawyers in the firm have hourly billing rates, keep track of their time, and fees are determined by simple multiplication: hours times the lawyers’ rates.
The cover story of the August 2007 ABA Journal was “The Billable Hour Must Die”¹ by famed lawyer-novelist Scott Turow. No one who has read any of Mr. Turow’s books would be surprised that it is a well-written and persuasive piece. He repeats the phrase “dollars times hours.” Mr. Turow wrote:
Dollars times hours sounds like a formula for fairness. What could be more equitable than basing a fee on how long and hard a litigator worked to resolve a matter? But as a system, it’s a prison. When you are selling your time, there are only three ways to make more money – higher rates, longer hours and more leverage. As the years have gone on, the push has continued on all three fronts.
Mr. Turow’s criticism of the billable hour was stinging: “It rewards inefficiency. It makes clients suspicious. And it may be unethical.”² The billable hour, in case you’ve been keeping track, has not died. I doubt that Mr. Turow thought it would die because of his feature story.
As many readers know, Oklahoma City attorney Mark Robertson and I co-authored two books for the ABA titled Winning Alternatives to the Billable Hour (2nd and 3rd editions). Although both books are now out of print, one edition was one of the top-selling books for the ABA that year. More recently, Mr. Robertson wrote Alternative Fees for Business Lawyers and Their Clients, which is still available from the ABA.
Most lawyers equate alternative billing with flat fees. Flat fees are very popular with consumer clients – but there are many variations. Task-based billing is another alternative where the lawyer bills a fee per task completed. This can be a good method for limited scope representation when the lawyer does one task, like document drafting, and the client decides if they need further assistance for an additional fee.
BILLABLE HOURS AS A MEASURE OF PERFORMANCE
One of the reasons hourly billing has proved so durable is that it is also often used as a measure of associates’ performance in law firms, particularly larger law firms. Often, law firms have a billable hour target that is disclosed to potential associates during recruitment. An associate who fails to reach the minimum target repeatedly may not be considered for partnership. It is certainly true that this is an objective measurement of performance, and we lawyers do like objective data.
However, it is certainly daunting to have a requirement of billing 2,400 hours or even 2,700 hours annually. As we all appreciate, one cannot bill all their time spent at work, and even larger firms have internal committees requiring a lawyer’s non-billable participation. Then there are items like CLE attendance, meetings with potential clients who do not hire the firm, pro bono service and more that are not billed. But even to ethically bill 2,400 hours a year requires not only a commitment but also good health and a steady stream of work assigned by the partners. Associates trying to hit these numbers often find their personal and family time is significantly impacted.
The signing bonuses and compensation for new associates in top-tier national law firms can be stunning. The time commitment is huge, and of course, if one wants to make partner, developing your own book of business is essential. Certainly, most lawyers in private practice find themselves working long hours, particularly when pretrial preparation for a major trial is underway. But it’s one thing to miss going on a trip for a traveling soccer tournament because you have a week-long jury trial ahead, and another thing to spend all your time at the children’s soccer games talking to clients on your cell phone.
That brings up another use of the term billable hour. It has come to symbolize the massive commitment of hours lawyers might bill and the impact on their personal and family lives. This reflects a personal decision lawyers have to make, but it shouldn’t be done unconsciously. Lawyers and other personnel in the law office are among the firm’s most valuable assets. There are a number of studies showing that the quality of work suffers after more than eight or nine hours are worked in a day.
It was traditionally almost used as bragging rights among lawyers that they went an entire year without a vacation. Large-firm lawyers are trying to meet their billing requirements and properly serve their clients. Small firm lawyers may have another concern that being out of the office for an entire week will impact the number of new clients that month. Any consideration of the number of hours you want to bill or work each month should be informed by the high rates of stress and mental health challenges reported in our profession. As an older lawyer, I note this is one area where the newer generations of lawyers have a better approach to work-life balance. I’ve talked to many lawyers in the twilight of their careers who confessed to me that one of their greatest regrets was the number of their children’s activities they missed while the children were growing up. That is one reason why we are seeing the trend of partners moving on to become in-house counsel for a client. The compensation might be less, but your weekends are generally your own.
It’s not my job to make these personal decisions for you and your career. I just want to encourage lawyers to think about the long-term implications of these decisions, particularly if they are on a law firm’s management team.
EFFICIENCY IMPROVEMENT IS DRIVING BUSINESS OPERATIONS TODAY
Across the world, businesses are increasing the efficiency of their operations, often through increased reliance on technology, and inefficient businesses find that they have trouble competing with innovative competitors. This represents the main challenge related to hourly billing today.
Efficiency in business operations means using technology to create more efficient processes that require less human intervention and rely more on processes and technology. For more businesses, after absorbing the cost of the technology, the result is uniformly positive. If you reduce the hours required for an employee to create a widget from 5 to 2.5 hours, theoretically, the company can produce twice as many widgets for sale.
Implementing a technology process, like automated document assembly, which reduces the time a lawyer must spend on a project, equates to lawyers to a billable hours cut and revenue reduction. It may be a move that is good for the firm and required, but that fact impacts the risk/reward analysis of implementing new technology innovations. However, businesses that don’t keep up with modern technology while their competitors do, often find themselves losing market share and affecting profitability.
Already, many legal documents are created by technology-based processes with supervision and review by the lawyer. That trend will continue. Here’s one example: Suppose the firm has a new client that operates in a dozen states and has many contracts regularly created in each of those states. A few decades ago, that would have been a major (and expensive) legal project to make sure each contract properly complied with state law. And when the client decided to expand to two more states, there was more billable legal work.
Don’t get me wrong, this is still a great deal of work. But today, you can search Google for contract management software and locate articles like PCMag’s “The Best Contract Management Software.” Contract management software covers a wide range of capabilities. How handy would it be for the lawyer to receive a notice from their software/service that Georgia law has recently changed, and that change impacts four existing contracts you should review? The existence of contract management software may be a signal that corporate clients will move more of these functions in-house.
A law firm may be a leader in drafting contracts for a specific industry, and the firm may be able to accomplish monitoring and compliance through the processes they have used for years. But they probably should be aware that a potential threat in the future is a competitor law firm offering to do the same services the law firm provides at a monthly flat fee that is less than the firm’s typical monthly billing. That is just how business operations function today. Technology innovations create winners and losers.
A MODEST PROPOSAL
I’ve noted before in this space that I believe one solution would be that most hourly engagements should have some task-based provisions in them. Tasks that are appropriately done by legal assistants and technology-based processes might be billed at a flat fee within the hourly contract, e.g., draft and file the complaint with the court, send off for service and do other things to ensure a matter is billed at a flat fee. Clients will appreciate it if that flat fee is actually somewhat less than they would have been billed had the lawyer done it on an hourly basis. That becomes a win-win for the attorney and client. As artificial intelligence and automated document assembly products continue to improve and lawyers incorporate templates into their practices, this is not merely a theoretical discussion about the future.
WHAT IS VALUE?
I recently visited a website for a firm focusing on probate, guardianship, wills and trusts practice. The firm has one lawyer and one paralegal. The domain name of the website contained terms associated with peace of mind. The website featured many pictures of families and children as well as pictures of the lawyer and her legal assistant. The outline of services they offer listed many items we would not consider legal but only legal related. But they all spoke to removing uncertainty for one’s future and encouraging with all the support that the firm provides.
Most lawyers produce quality legal work. They are proud of their documents that reflect years of refinement and experience related to the subject matter. If your audience is a client’s corporate general counsel, the care and craftsmanship of the well-drawn contract will be appreciated. Many consumer clients, however, value the documents a lawyer prepares far less than the time the lawyer individually spends with them and the relief that someone they trusted was advising them and handling the legal work for them.
Increasingly, for consumer clients today, it is the user experience that is the most valuable thing they receive from their lawyers. They may assume their good lawyer will produce good documents. But whether they refer clients to you in the future depends more on how you made them feel than that well-drafted provision in paragraph 14. So, automating your document creation to the extent possible may free the lawyer to have more billable time to counsel with the client and follow up proactively during the representation. And that can be good for the lawyer and the client.
TIPS FOR IMPLEMENTING ALTERNATIVE BILLING
- Take your time, using “bite-sized” steps.
- Mine your closed files for objective data. Your recollection may be a bit biased.
- Start with things that make sense to you and the client – g., a flat fee for courthouse filing, no matter who does it.
- Written fee agreements and documentation are keys.
- Pay special attention to areas where you can delegate and automate better.
- Look at the goals from a client’s viewpoint. Predictability is at least as important as cost.
- If your firm rewards based on billable hours, consider changing or expanding the focus to dollars billed and received. (We should have done this long ago.)
- Could one aspect of your practice be transformed? g., corporate formation, minute book and first year’s minutes, up to 2 hours of phone questions answered during the next year, running your new business advice letter, all bundled together. Clients get predictability and “free” calls to the lawyer. You get a year to prove how valuable you are.
- Keep reviewing and improving the process.
Mr. Calloway is OBA Management Assistance Program director. Need a quick answer to a tech problem or help solving a management dilemma? Contact them at 405-416-7008, 800-522-8060 or firstname.lastname@example.org. It’s a free member benefit.
1. Note that this article is now behind an ABA-member-only paywall.
Originally published in the Oklahoma Bar Journal — October, 2022 — Vol. 93, No. 8