In March the New York Times ran a story on how the use of the billable hour has persisted at law firms, especially large law firms. The evils of the billable hour system are well-documented. First, and most obviously, it provides an incentive for lawyers to spend as much time as possible on a matter. A lawyer’s ethics and adherence to the rules of professional conduct should prevent him or her from engaging in such abusive behavior, but there are unethical lawyers. A second and overlapping problem is that partners may assign more associates to a project than are needed. A partner may do this because he or she gets credit for all the revenue attributable to the billing done by the associates, thereby improving his or her standing relative to other partners.
As the Times article discusses, a case in the news recently illustrates this problem of “overstaffing.” The huge law firm DLA Piper is embroiled in litigation with Adam Victor, a businessmen in the energy industry. Victor, a former client of DLA Piper, objected to $675,000 in legal fees that he believed was the result of lawyers performing unnecessary work. The discovery process in litigation revealed some damning emails from DLA Piper attorneys working on the matter. One lawyer stated, ““I hear we are already 200k over our estimate [provided to Victor] — that’s Team DLA Piper!” Another lawyer emailed back, ““Now [the firm] has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode. . . . That bill shall know no limits.”
While the drawbacks to the billable hour system are obvious, its advantages are too. Firms like to use it because it is often very difficult to determine at the outset how long it will take to solve a complex legal problem a client presents. Without an idea of how many hours a project will take, a firm cannot charge a flat-fee rate without taking on the risk that the project will take much longer than anticipated and the firm will grossly under-bill the client. In addition, firms prefer to use the billable hour because it gives them a measure of a lawyer’s productivity at a glance (even if that measure is flawed). Clients may prefer the billable hour system because they avoid a scenario in which they are quoted a flat fee and the firm then completes the project with less labor than anticipated.
Discontent over the billable hour system has been around for years. It appears that its demise, if it ever occurs, will be the result of clients protesting its use. Clients sometimes insist on alternative fee arrangements, such as flat fees for projects or contingency arrangements. But the pace of the change in the profession has been glacial thus far; one 2011 study found that only 16 percent of revenue at large law firms was attributable to alternative fee arrangements.