A Short History of the Billable Hour and the Consequences of Its Tyranny
Herewith a short but concise history of the twisted path that has led to billing by the legal hour, and the consequences of its tyranny.
During the 1800s, US legal fees were capped "per service" by state law, and litigation fees were usually paid by the losing party. Some lawyers were able to collect "bonuses" or charge retainers to circumvent the limitations of capped fees.
In 1908, the ABA declared contingency fees to be ethical, which opened a new source of revenue at least for litigation matters.
By the 1930s and 40s, however, the nature of legal fees was set on its head: what had been a capped system turned into a base system. State bars began publishing minimum fees, in most cases providing that those lawyers charging less than the minimums were to be punished. Similarly, the ABA Model Code, which stayed in effect until 1969, declared it unethical to "undervalue services."
Helping fuel this change in attitude was the expansion in 1938 of the Federal (and many states) Rules of Civil Procedure, which made litigation potentially more complicated and therefore also less amenable to flat fees.
Over time lawyers complained that dentists and doctors were out-earning them. A 1958 ABA pamphlet contended that lawyers were bad businessmen in comparison to other professionals, the remedy being to better track time and to keep more detailed records. That pamphlet also suggested that lawyers work 1300 hours a year-- or 5-6 hours @ day, five days @ week in a 48-week year.
In 1975, the Supreme Court, outlawing both the capped 1800s practice and the base system from the 40s, held that set fees for legal services constituted price-fixing, and was a violation of the antitrust laws. In response, by the late 1970s, most lawyers charged for their services based purely on hourly billing.
In 2001, the ABA asserted that too much emphasis was being placed by firms on billable hour requirements, which was leading to bill padding and general inefficiency, as well as damaging firm culture. This time, the ABA recommended billing expectations of 2300 hours annually, composed of 1900 hours billable to clients plus a total of 400 additional hours for: firm service (100 hours), pro bono (100 hours), client development (75 hours), training and professional development (75 hours) and professional service (50 hours).
Those expectations translate into a total 9-10 client and other hours @ day, five days @ week, 48 weeks @ year. The standard guideline for billable hours is that it takes approximately 10-12 hours to bill 8 hours. In which case, to achieve the ABA expectations, lawyers would be expected to work 12-15 hours daily.
In April of this year, a group of more than 100 law students from several of the nation's most prominent law schools--Yale, Stanford, NYU, Berkeley-- sent an open letter to law firms on the AmLaw 100 requesting that they improve working conditions at law firms. Students Building A Better Legal Profession called for law firms to reduce billable hour requirements and to make their billing expectations of attorneys clear. The group offered to exchange lower salaries for fewer hours.
The group also promised that prior to the fall recruiting season it would post a list of firms that have and have not agreed to these principles.
Touche.
