Will the end of the billable hour come?

Daan Pruijssers

8 August 2018

Reports from the past decade would have you believe that the hand of the doomsday clock is just seconds away from midnight for the billable hour. It has been labelled ‘unsustainable’ and ‘outdated’ and rebranded by the media as the billing method of legal dinosaurs. More than ten years have passed since reports began to herald the billable hour lawyer’s impending and inevitable end. In that time, the trickle of articles predicting a brighter future without the billable hour turned into a flood. Yet, tracking billable time remains the most popular method for calculating fees in the legal industry and the ‘unkillable’ billable hour lawyer is showing no sign of taking their dying breath.

The billable hour is the brainchild of Reginald Heber Smith, a Harvard graduate who decided to incorporate Taylorism into his legal work at the beginning of the 20th Century. Somewhat ironically, the billable hour – known for its ability to drive revenue within the legal sector – was initially adopted as a method for R. H. Smith to better serve his impecunious Legal Aid clients. By the mid-1900s, the billable hour had found its legs in the legal industry and the 80s saw enormous growth in the monetary value of the legal hour. In the early 2000s, tracking billable time had been the status quo for five decades and, in that time, had managed to keep the relative peace at the untenable crossroads between the client who wants more bang for their buck and the lawyer who wants to increase profits.

The financial crisis in 2008 caused a global tightening of the belt and clients began to pick at the faults of the billable hour lawyer. They wanted certainty in uncertain times and began to scrutinize the value of a system that rewards lawyers for spending additional time on a file. It was noted that tracking the billable hour provides no useful information about the quality of the work nor client satisfaction with regard to the outcome. The reality, however, is that it’s likely the client doesn’t particularly care whether the dollar figure on the invoice came from tracked hours, a fixed fee arrangement or a consultation with the local sharman if they feel that they got their money’s worth.

So, is the billable hour really on its last legs? In short, not at all. Whilst recent reports indicate that the popularity of alternative fee arrangements is growing within the legal sector, tracking billable time remains the dominant method used to bill clients. The billable hour promotes transparency in legal fees and requires the lawyer to justify the amount that they charge, as opposed to putting a dollar figure on a complete service. Anecdotes telling of clients choosing the billable hour over a fixed fee arrangement are a dime a dozen. It’s easy to image the difficulties that would arise for a sophisticated client attempting to negotiate an alternative billing arrangement whilst simultaneously seeking to guarantee that they would receive the same expertise and attention. Fixed-fee arrangements not only promote efficiency and dispute resolution, but also delegation. Moreover, alternative billing arrangements can reward inexperience.

The billable hour arrangement also allows for a different risk allocation profile than those of the fixed-fee and other alternative billing arrangements. The billable hour works to protect the billable hour lawyer against client error (for example: searching for the correct entities) and an abundance of other external influences. What’s more is that it’s convenient for firms who don’t want to bear the risk of unforeseen events or incorrect estimates.

The days of the billable hour lawyer are not yet nigh. Alternative billing arrangements have chiselled themselves a market within the legal industry, but in the absence of any foolproof and flawless billing method that allows for flexible allocation of risk, transparency and convenience, the billable hour will endure.

 

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