The billable hour: some fairy tales

Some time ago, a law firm partner told me that while a small minority may have abused it, overall hourly billing is good because it is “accurate, transparent and ethical”.

This is not the first time I have heard, or read, similar comments as justification for maintaining the billable hour model, and indeed when I was a practising lawyer and managing partner I used similar terms myself.

There are several purported justifications for the billable hour, such as:

• it is easy to implement and understand;
• it records effort;
• all professionals sell time;
• it is the norm as most of our competitors charge by time too;
• it is acceptable to most clients, and some demand it;
• our practice management system is built around time;
• our firm’s measurement and rewards structure is built around time;
• it transfers all risk to our clients.

However I, like many, challenge the notions that charging by time is “accurate, transparent and ethical”.

“The billable hour is accurate”

Accurate = to be correct, exact, without any mistakes

Of course, to charge by time you must keep a record of your time. And if your contractual engagement with your client is to charge by the hour (broken down into six, 10 or 15 minute units or whatever iteration the management consultants, most of whom do not charge by time themselves, dream up), your time recording must be, at the very least, reasonably accurate.

Ever since time based billing was introduced, firms of all sizes have been drilling into their fee earners (an awful expression, only exceeded by the derogatory “non-fee earners”) the importance of accurately recording billable time. Manual recording has moved to automated, as practice management vendors extol the virtues of their systems which “capture time”.

Alas! Even with all the help from technology, you will still not get your time recording accurate. Why? Simply because time recording still requires human input to start/stop automated recording. It is physically and psychologically impossible for human beings, no matter how good their intentions, their intelligence or their software, to accurately record time spent on anything. Law is not practised in some kind of vacuum. We are constantly interrupted by emails, texts, colleagues, phone calls, family, not to mention that our minds often wander, so unavoidably, accurate time recording gets “overlooked”.

At best, we record the time we think we spent, or we think we should have spent, on something. At worst, we forget completely, sometimes for days or weeks, until the managing partner sends an “all firm” email on the second last day of the month reminding all that chargeables are down and fee earners must lodge their timesheets – then we guesstimate it, or simply make it up.

“The billable hour is transparent”

Transparent = easy to perceive or detect, open to public scrutiny

I confess to never being sure why this statement has any ring of truth to it. It seems to be one of those sayings that rolls easily off the tongue and if you say it often enough people will believe it.

I suspect the “transparency” part stems more from some notion that “you only pay for the time spent” rather than any real openness. Of course there are times when a client knows or observes when their lawyer is physically doing something, such as attending the same meeting, appearing in court, speaking to them on the phone. However, as we know, and many lawyers are only too quick to tell me, the real value of a good lawyer is their “intellectual and social competencies” (often called “thinking”). Until technology invents a chip that is inserted in our brain and somehow linked to a client matter number to track when we are actually thinking about the matter and that matter only, genuine transparency has a long, long way to go.

“The billable hour is ethical”

Ethical = morally good or correct, in accordance with the rules or standards for right conduct or practice

Here is where it gets really interesting. The ethical justification for the billable hour seems to be intrinsically tied to the rules or standards in the legal profession (originally set by the profession itself). It has been an accepted practice for so long to bill retrospectively for our services, either by an agreed hourly rate or some sort of scale of fees, that the profession has convinced itself that this practice must be ethical.

Both these retrospective bases meant that, essentially, clients and lawyer had no way of knowing what the fees were in advance because the task, activity based solely on time, had not yet been undertaken.

Regrettably, as in any industry or profession, there are a minority who choose to take advantage of these accepted retrospective billing practices. Time based billing tempts otherwise ethical professionals to do unethical things, and the legal profession well knows that behaviours such as block billing/rounding up, hoarding and multi-billing exist much more than we are prepared to admit.

Even though retrospective billing is arguably pretty much the perfect crime, the profession (and in many jurisdictions, the appropriate regulators) introduced codes of conduct or rules to try to ensure clients were protected as best they could be, with anyone aggrieved by the fees charged purportedly able to have those fees assessed, or “taxed” (a quaint legal term) to see that they were in essence fair and reasonable.

One of the inherent problems even with an independent third party assessment is that it too is an after-the-event determination, and often of little comfort to the client if they were not expecting the quantum of such fees in the first place.

Clients fear “bill shock” almost as much as lawyers fear their clients’ reaction to “sticker shock” – the shock of discovering the price of their services. For so long as the legal profession enjoyed a monopoly on provision of legal services, and so long as clients were prepared to accept these billing models, such practices were deemed ethical. (Note that billing models are not pricing models, as billing takes place after the work is done whereas pricing takes place before – and an hourly rate is never a price.)

But as we know, law world has changed. Lawyers no longer retained the same monopoly, the profession became more deregulated in many jurisdictions, and more and more clients wanted and insisted on greater certainty and predictability in their fees. Perceptions and acceptance of what constitutes ethical and unethical conduct change with the times, particularly as knowledge increases and community and business norms evolve. The medical profession is a prime example; ditto builders, architects, and engineers. And so it is and should be with the legal profession.

For years there have been any number of articles, posts, surveys and research studies undertaken by many participants, including members of the judiciary, bringing into question the ethics of the billable hour and what perverse behaviours it encourages and entrenches into firm cultures.

Shaky ground?

In 2017 Ivy B Grey, writing in the ABA Journal under the title “Not competent in basic tech? You could be overbilling your clients – and be on shaky ethical ground”, stated: “There are no business, practical, or ethical excuses to avoid learning about, understanding, and adopting technology. Yet, at the same time, we must recognize that there are perverse incentives that encourage lawyers to refuse to learn technology – the main one is the billable hour. Increased financial rewards for increased hours encourage lawyers to bill as much as possible for every matter.

“It’s an incentive structure where lawyers are working in opposition to their clients’ interests.

“The seemingly innocuous decision to skip technology training can lead to overbilling. And if you are deliberately avoiding technology because it means that you can bill more, then you are definitely overbilling. Do not confuse this with a clever billing scheme. This is not ‘just business’ – this behaviour is an ethical breach.”

The same logic can and should be applied to time based billing.

The late Dr Michael Hammer once said: “a professional is someone who is responsible for achieving a result rather than performing a task”.

Oldlaw’s business model (I define Oldlaw as a model that leverages people x time x hourly rate) reduces everything any lawyer does to a series of tasks, and I ask how much longer can the legal profession get away with claiming it is ethical to ask clients to pay for an activity or a task when many lawyers, let alone their clients, claim they do not even know what the task will be or how long it will take to perform?

I have said for years that every lawyer and law firm could agree their price(s) upfront with their clients – they simply choose not to.

If none of the above convinces you about the ethical challenges of the billable hour, perhaps have a go at applying the Golden Rule: If hourly billing were so ethical, would we want it to be universal?

Waiting till change is forced?

I have never hidden my distaste and my prejudices regarding the billable hour and the “we sell time” culture that has permeated most professional firms, but especially law firms, over the last few decades and the deleterious effects this has had, and continues to have, on the reputation and values of the legal profession and those that work within it. It is hard to believe that there are some out there still claiming its virtues, but they have their own vested interests in ensuring this model survives long after its “use by” date.

The tide has turned, I am pleased to say, but there is still a long way to go before we eradicate the billable hour, and its partner in crime the timesheet, from the legal profession. While an ever increasing minority have seen the light to a better way of practising their craft for the benefit of not just themselves but their clients, the majority of lawyers, instead of being proactive and changing their business and pricing model for the better, wait until market forces impose change on them.

In the meantime, however you care to justify the continuance of time based billing, if you use terms like “accurate, transparent and ethical” you must accept that increasingly your customers, and indeed your team members, see these justifications as self serving rhetoric that simply does not stand up to any objective and reasonable examination.

We were taught at an early stage that ignorance of the law is no excuse. Feigning ignorance of better business and pricing models is no longer an excuse for the legal profession either.