What is it with the billable hour?

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Posted by Jim Hitch, CEO of Legal Futures Associate Casedo

Hitch: Things are moving

Is the billable hour to charging what democracy is to governance? Not the best, simply the least worst?

Looking back over the last couple of decades, the death knell for the billable hour has been sounded on numerous occasions, and yet it is still firmly with us. For some, law firms’ love affair with the billable hour is fading, whilst for others, it is a trap more and more of us are falling into, not just within law, but beyond it too. What’s going on?

The charge sheet against the billable hour is certainly long. As the New York Times put it, the billable-hour system serves no one: “Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell.”

To be fair, the paper was talking about the big firms, but you get the point. In less colourful terms, Tim Williams’ rather pre-emptive obituary for the billable hour back in 2016 has a handy dozen-point list of reasons it should be dead. And here we are, six years later, and the patient is very much with us. But the issues remain the same.

The most pressing is that the billable hour discourages innovation because it actively rewards inefficiency and by extension the slowest. It’s a real ‘keeping down with the Joneses’ tool. As Tim Williams writes, it penalises advances in the firm’s effectiveness. The faster the firm can solve a problem, based on deepening expertise, the less the firm earns.

If you want to earn more money, you need to charge more, to charge more on time-based fees, you need to work longer.

Through my work at Casedo, I’ve had a legal professional bemoaning that all these new-fangled technologies just keep the billable hours down. It’s so ingrained as a way of working that the benefits of working better on the things that matter can come a poor second to the bottom line – not through any deliberate greed but simply by not being aware that there are alternatives.

If lawyers are happy to pass up the opportunity to improve their document-analysis workflows so they can focus on using their for-the-most-part formidable brains, instead sticking to admin tedium by choice, there is something seriously amiss.

And alternatives there are, but it’s not clear how widely they’ve been implemented, and barriers to any such implementation can come from the very top, including from the courts themselves (the New York Times observed that, in the US, “prior court rulings… essentially require lawyers to use the billable-hour approach if they want to assure approval of their fee petitions”).

This may or may not be the case in the UK, but there are certainly downsides to alternatives such as contingency fee arrangements (high risk for inexperienced or inefficient firms); fixed-fee arrangements (“it can limit flexibility within a matter and raise conflict of interest issues”) or using incentives (cash flow risks).

Automation can relieve gargantuan amounts of repetitive and tedious contract review and similar work, a current mainstay of many lawyers’ days. But the machine-learning tools available (not to be confused with artificial intelligence) are not yet there and will only ever replace the grunt work that lawyers do.

For the complex work, the teasing out of complex arguments from a stack of documents, making connections between seemingly unconnected law and client statement — the human brain is needed for its intelligence, experience and depth. Good lawyers don’t need to worry quite yet.

The list of alternatives to the billable hour is longer, but there is more at play than just the bottom line. I think it may be these other aspects of the billable-hour model that finally see the end of it, rather than on purely in financial terms.

That said, one concerning aspect of the billable-hour system so far not mentioned is its cost: by Tim Williams’ estimate, somewhere close to 12% of a firm’s gross revenues are spent supporting the timesheet system.

Clients for the most part seem to hate billable-hour charging because of uncontrollable-cost risks and we need to note other fallout of billable hours as a way of charging.

Burnout is a huge issue for lawyers. A junior associate is expected to bring in around 1,800 billable hours a year; a breakdown by the Yale Law School career development office, showed this to translate into 2,420 actual hours worked, which is more than 50 hours a week.

As lawyer-turned-author Scott Turow put it, “we have created a zero-sum game in which we are selling our lives, not just our time”.

That was back in 2007 and here we still are. But things are moving. Mental health has shot up in terms of cultural awareness and Millennials are ‘out’ as openly demanding this that matters of work/life balance be taken seriously.

As Simon Harper of Lawyers on Demand said: “More and more lawyers have come to us to say, ‘I don’t want to work five days a week but want to work in a way I have control over what I do’.”

That generation’s willingness to take mental health seriously has not only had an effect on older generations, but it has also led, if indirectly, to mental health being dealt with in the school classroom. It’s something I find myself discussing at the dinner table with my children.

In reference to the climate emergency too, there is a case to be made that billable hours, which encourage work for work’s sake, could be incompatible with keeping this planet inhabitable for future generations.

One CEO argued that “no environmental problem will adequately be solved when there are still billable hours to be earned”.

It is also worth noting that the industry itself is changing. There are huge numbers of legal start-ups that have been sniffing out opportunities for the last 10 years or more, and charging schemes are right up the agenda.

Whatever aspect of law they are targeting, almost to a start-up they are breaking up discrete chunks of work into something quantifiable. They are “turning a service into a product”.

So is the billable-hour system the least worst and are we stuck with it? My answer is no and no. The patient has some life in them yet, but they are on their way out as the legal industry is shaken by its client base, its employee base and by new market entrants.