Ending the Tyranny of the Billable Hour: a Mandate for Change for the 21st Century Law Firm
| Citado como | Vol. 51 No. 1 Pg. 0066 |
| Páginas | 0066 |
| Año de Publicación | 2010 |
2010 Summer, Pg. 66. Ending the Tyranny of the Billable Hour: A Mandate for Change for the 21st Century Law Firm
Volume 51, No. 1
Summer 2010
I. INTRODUCTION
Remember when... a newspaper cost a dime? Trials went forward on time as originally scheduled? People viewed the practice of law as a "profession" and not a "business"?
To be sure, the practice of law has become more complex, just like the cases attorneys are called upon to litigate these days. The challenges do not end there. Economic times are tougher. Clients are scrutinizing every penny they spend on legal fees. Corporate clients have shut off their "payment faucets" to firms. They are demanding more predictability to their legal fees, increased efficiency from their attorneys and maximum value for their money.(fn1) And they will not hesitate to take their business elsewhere to firms that can deliver.
So what is a 21st century law firm to do in order to manage change and remain competitive in the marketplace? For starters, attorneys need to go back to the basics and remember that the legal profession is about providing quality service to clients and about nurturing client relationships. Given the number of business articles published over the past year about clients demanding changes in attorney billing practices, it may be safe to say that the biggest impediment to providing quality service and nurturing client relationships is the billable hour system upon which most law firms still rely. This article will demonstrate why continued reliance on the billable hour system is a detriment to the legal profession and how easily change is within reach.
II. CREATION Of THE "BILLABLE HOUR MONSTER": A BRIEF AND UGLY HISTORY
Many attorneys in practice for 20 or less years would be surprised to learn that the practice of billing by the hour has a relatively short history in the legal profession. During the 1800s, legal fees were capped "per service" by state law, and litigation fees were usually paid by the losing party.(fn2) However, as the industrial revolution waged on during the 19th century and stricter standards of economic regulation were loosened, such maximum-fee laws were eventually repealed.(fn3) By the early 20th century, lawyers used a combination of billing methods: fixed fees for particular tasks, annual retainers, a discretionary "eyeball" method, and contingency fees (which the American Bar Association (ABA) approved as ethical in 1908).(fn4) By the 1940s, however, an attempt at uniformity in billing practices re-emerged as state bars began publishing the minimum fees to be charged to clients for various services performed by attorneys.(fn5)
This new billing system seemed to have less to do with protecting clients' interests and more to do with assuring that attorneys made what the majority considered a respectable living from their profession. In her article "The Hours: the short, unhappy history of how lawyers bill their clients," Attorney Niki Kuckes noted:
While nominally voluntary, schedules were enforced by the threat of disciplinary action against a lawyer whose fees were regarded as too low. The Virginia State Bar; for example, warned that attorneys who "habitually" charged less than the suggested fees would be presumed guilty of misconduct. The ABA's model ethical code, which was in effect until 1969, said that it was unethical for an attorney to "undervalue" his legal services.(fn6)
In fact, in its second fee schedule report issued in 1969 when it raised minimum fees, the Virginia State Bar stated that attorneys should feel free to charge more than the recommended fees and went even so far as to warn members of the bar that "to publicly criticize lawyers who charge more than the suggested fees herein might in itself be evidence of [improper ethical conduct]."(fn7)
It was therefore perhaps inevitable (and entirely justifiable under the circumstances) that the U.S. Supreme Court held in 1975, in the case of Goldfarb v. Virginia State Bar, that minimum fee schedules as published by the state and local county bar associations and enforced by the state bars violated §1 of the Sherman Act, thereby rendering minimum fee systems illegal.(fn8) At that same time, law firm consultants were urging attorneys to keep more accurate time records, suggesting that attorneys who billed by the hour would make more money.(fn9) The idea of tracking time was first widely promoted in a 1958 ABA pamphlet contending that attorneys were bad businessmen in comparison to other professionals who were out-earning them, and advancing the remedy of more closely tracking time and keeping more detailed records.(fn10)" By the late 1970s, billing by the hour became the standard method of billing clients. At the time it seemed to be the best way to meet the competing demands of providing clients with more certainty as to legal fees while providing attorneys with a more "businesslike" system for providing services at an acceptable rate of...
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