The Billable Hours Crunch

The Billable Hours Crunch

Billing by the hour remains central to private law practice despite its adverse impact on client service and lawyers’ quality of life. More than a decade ago, a 2002 ABA Commission on Billable Hours study discussed the negative effects of hourly billing and urged alternative billing arrangements.

Most lawyers in practice today consider hourly billing as “the way it’s always been done” but the practice didn’t enter the legal profession until the 1960s. Before then, lawyers and clients used many factors to set fees, including the result obtained, value of the services to the client, customary fees in similar cases in the locale, experience of the lawyer, and length and difficulty of the matter. The final fee often wasn’t determined until the conclusion of the matter, and required a level of trust between client and lawyer. But, as practice became more complex and clients requested more precise accounting, time as a measure for billing gained widespread acceptance. Initially, hourly billing established only a baseline fee, with adjustments for other factors such as success and value to the client. However, by 1970, pure hourly billing was the norm.

The great advantage of billing for time spent is that it readily allows lawyers to plan and measure their productivity. A significant downside, however, is the incredible pressure placed on lawyers to continually increase their workload to maximize profits. A 1958 ABA pamphlet suggested a quota of 1,300 hours a year for associates. The ABA found that, in 1965, lawyers billed between 1,200 and 1,600 hours annually. By 1980, a full workload was measured at 1,600 to 1,800 billable hours per year. In contrast, today the annual number for large firm associates is from 1,900 to upwards of 2,400 to earn top bonuses, and around 1,800 to 1,900 for partners.

Studies show that, on average, lawyers actually work three hours for every two billed. Therefore, to bill 2,200 hours per year, or 40 hours per week, a lawyer needs to work 12 hours a day, five days a week. Working 40 hours per week with three weeks of vacation/sick/personal days, yields 2940 working hours or 1,960 billable hours over a year’s time. To pick up additional hours, the lawyer could work for 7.5 hours per day on 48 weekend days per year. Those additional 360 weekend work hours add 240 billable hours, for a total of 2,200 billable hours.

These hour requirements refer only to time directly billed to clients. They don’t include time spent on any other activities essential to a successful law practice such as administrative or management duties, recruiting and mentoring, pro bono work, continuing legal education, client development, and community or bar activities.

Nearly all of the large law firms surveyed in the ABA study use billable hours as an important component in determining partner compensation, and the vast majority tie associate base compensation and ­bonuses to hours. Very few firms give full credit for time spent on non- billable activities, leading to a significant reduction in participation in such activities. The clear message sent to lawyers is that the number of billable hours is the only thing valued by the law firm. However, many lawyers would gladly make less money in exchange for working fewer hours to achieve some balance in their lives.

A 2004 survey by Robert Half Legal Staffing Service of 200 lawyers at some of the largest law firms and corporations in the U.S. and Canada found that 87 percent took work home an average of nine nights per month, with 10.5 percent working from home 20 to 24 nights per month. The respondents cited the combination of heavy workloads and new technology, especially wireless handheld devices and network systems that allow remote computer access. A decade later, with increasing connectivity through technology, clients and law firm employers expect their lawyers to be almost always available and on the clock.

No one is in top form at all times while putting in such long hours, which leads to the possibility of poor quality work or even malpractice exposure. The pressure of such a grueling schedule can lead to burnout and force many lawyers out of the private practice of law, especially those with additional family responsibilities. A 2007 MIT study revealed that a lack of work/life balance was the top reason women lawyers left law firms, and among the top three causes for men.

Another argument against billing by the hour is that it puts lawyers in conflict with the best interests of their clients by emphasizing quantity over quality. It rewards lawyers for taking a long time to do something, rather than incentivizing efficiency, creativity, or the use of technology to streamline practice. A seasoned lawyer who obtains excellent results much quicker than a less experienced lawyer actually might earn lower fees, even at higher rates, than a less knowledgeable lawyer. Furthermore, paying by the hour favors aggressive time recording and repetitious or unnecessary work, and may even encourage “padding” hours to increase profits.

While tracking time spent on particular tasks is an essential tool for time management, it may not be the best way to set legal fees. But there’s resistance to change, in part due to the relative simplicity and ease of use of the billable hour model. As with most shifts in the legal profession, the push comes from the client. Many general counsels under pressure to cut costs are looking for alternatives to traditional fee arrangements with outside counsel.

Any modification in a system so entrenched in the practice of law clearly takes time but is a worthwhile endeavor. Introducing some alternative billing arrangements arguably better reflects the value of services provided by lawyers to their clients, as well as eases the time pressure on lawyers to the benefit of the profession as a whole.

Valerie Fontaine

Telephone: (310) 839-6000

E-mail:  info@seltzerfontaine.com

2999 Overland Avenue, Suite 120

Los Angeles, CA 90064