Last month, I wrote a New York Times op-ed discussing the billable hour regime and its unfortunate consequences for the legal profession. The piece generated a lot of response, most of which supported my themes. Readers generally agreed that the system rewards unproductive behavior, invites abuse, and pits attorneys’ financial self-interest against their clients’ goals.
Defending the billable hour
Even so, the Times published a responsive letter to the editor from the general counsel of Veolia Transportation — “the largest private sector operator of multiple modes of transit in North America,” according to its website – who defended hourly billing. He noted that alternatives to the billable hour “have not caught on because they do not allow the client the same opportunity to see the work as it is being done, evaluate its worth, and challenge when appropriate the relationship of time, task and cost.”
Theoretically, he has a point. In fact, the billable hour system arose from a desire for greater transparency. Before it gained widespread use, clients typically received a bill that included a single line: “For services rendered.” When today’s senior partners entered the profession, firms kept track of their time but didn’t impose mandatory minimum billable hour requirements. In fact, a 1958 ABA pamphlet recommended that attorneys maintain better time records and strive to bill clients 1,300 hours a year.
Unfortunately, transparency gave way to short-term profit-maximizing behavior that distorted the billable hour into an internal law firm measure of “productivity.” Quantity of time billed became more important than the quality or effectiveness of effort expended. Today’s required annual minimum hours typically run close to 2,000 — and most associates understand that enhancing their prospects for advancement requires many more.
Transparency yields to abuse
In theory, Veolia’s general counsel is correct about the billable hour’s transparency. But in practice, few clients are well-positioned to challenge “the relationship of time, task and cost.” For a complex case, what motions should be filed and how much time should their preparation take? How many witness depositions are needed? And of what length? What’s the right level of staffing to maximize the chances for success?
Some in-house counsel possess the sophistication to provide meaningful answers to these and other questions that underlie any effort to assess the relationship of hourly fees to “time, task and cost.” But most don’t. They trust their lawyers to do the right thing under an incentive structure that pushes those lawyers in the opposite direction.
Bankruptcy as a poster child
Embarrassing reports of billing deceit are rare. But the real problem isn’t such well-publicized abuses. Rather, it’s the cultural impact of the incentive structure. In most large law firms, one practice area is particularly revealing: big bankruptcy cases.
Large numbers of bodies billed at enormous hourly rates get thrown into such matters. All of the activity shows up in detailed time records accompanying massive fee petitions that courts routinely approve. Like the U.S. Trustee’s office that also reviews such filings, courts lack the resources to provide meaningful scrutiny of “time, task and cost.”
Petitions seeking hourly rates of $700 for associates and $1,000 for partners routinely go unchallenged, as do the listed activities that consume these attorneys’ time. Last year, when the U.S. Trustee proposed that firms disclose whether they charge higher hourly rates for the same attorneys performing non-bankruptcy work, the profession united in opposition.
The billable hour regime endures because, like the general counsel of Veolia, clients think they have it under control. But that requires a leap of faith as outside lawyers resolve the ongoing dilemma of a system that pits fiduciary responsibility to a client against the attorneys’ financial self-interest. With law firms obsessing over current year profits and partners seeking to maximize personal books of business to preserve their own positions in an eat-what-you-kill world of frenetic lateral partner movement, that dilemma becomes profound.
As for the billable hour’s impact on other aspects of the profession’s culture, another Times letter to the editor offered this: “Appearing before St. Peter, a young law firm associate asked why he was being taken at age 29. Taken aback, St. Peter said the associate’s billable hours made the associate appear to be 95.”