Billing by the Hour: We Didn’t Always Do It That Way

hourly billing 300x300 Billing by the Hour: We Didn’t Always Do It That Way

Billing by the hour is just one of many established customs within the legal profession.  Why do we do it that way? I’ve always been amused by the answer to that question.  Inevitably, the answer is, “because we’ve always done it that way.” End of discussion.

In the early 1980’s, when I first entered the legal profession, billing by the hour was well ingrained as the standard for all but a handful of practice areas. As a young associate in a large law firm, the thought never even occurred to me that attorneys could bill clients in any other form.

Now, of course, I know better. I am very familiar with the flaws of the hourly rate system. I suspect you are, too, since the legal blogosphere is full of posts on this topic. Instead, I’d like to talk a bit about how the profession got itself into this mess. Despite what people think, “we didn’t always do it that way.”

A Short History of Legal Billing

A century ago, lawyers rarely billed by the hour. Instead, they billed in a variety of different manners:  fixed fees, retainers, estimated “value” and contingency fees. Ironically, these are many of the same methods being touted today as “alternative.”

As corporate America’s demand for legal services grew in scope and complexity in the 1960s and 1970s, it became more difficult to determine a fixed fee, a retainer or “value.” At the same time, it became more difficult for clients to understand exactly what they were purchasing.

Enter the “bill by the hour” method. Initially, time records were only one component used to determine final bills. However, by the end of the 1970s, time records became the only way to determine final bills. This change was welcomed by all. Lawyers liked it because it was easy to predict revenue and profits. Clients liked it because it was easy to comprehend what they were buying.

The Times They Are A’Changing

Even lawyers without much business sense were soon able to figure out that the more hours they billed, the more money they made. This gave rise to law firm minimum-billable-hour requirements. You know the rest. This created an incentive to spend more time than necessary on matters and, at times, to engage in fraud by “padding” hours.

Here’s a bit more history. Before billing by the hour became the standard, guess what the ABA considered to be a full year’s-worth of billable hours for a full-time attorney? In 1958, it was 1,300 hours. Those “good old days” were, in fact, pretty good!

The next time you and your colleagues are commiserating at happy hour about the tyranny of the hourly rate, remember this. We didn’t always do it that way. There are a wide range of attractive alternatives. Fifty years from now, perhaps the billable hour will be the exception rather than the rule.

(photo: Sports Stopwatch on white background from Shutterstock)

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  • http://indyfranchiselaw.com/ josh brown

    Great post, Roy!! I truly believe the billable hour is on its way out. It may be a slow exit, but nonetheless saying goodbye. It is truly a ridiculous task to sit a desk and calculate the number of minutes you spend talking, breathing, thinking, pondering, or spending on a project. This, however, is not to suggest that the amount of time it takes to complete a task is not something to be considered when pricing services. Of course it is. But as lawyers, I believe our true value is more than the time it takes us to complete a task.

  • http://www.rokmanlaing.co.uk/?tmpl=unsupported Graham – Rokman Laing

    Excellent post – we are currently having the same discussions in the UK!

    A number of new firms have entered the market, pricing on a fixed fee basis!

  • http://www.jasonpaulhowie.com jason p howie

    Roy, I am trying to change my practice to flat rate. The way I see it, most lawyers only pretend to use hourly billing. I mean, do you really charge 15 hours the first time you produce a certain type of product, then 12 hours the second time (because you have the start of a precedent from the first time you did it), then 10 hours, etc. I think not. Most lawyers have an idea of the intrinsic value of their work, and use hours to justify the fee. I think that your article is absolutely correct.

  • Tommy Brush

    A great article right on point and for the past thirty years my clients have chosen set fees over billable hours. Consumers are demanding to know their expenses and not being surprised. Over the past few years our corporate clients have turned turned to fixed fees because they feel they have over paid for services.

  • http://vaelderlaw.com/ Robert W Haley

    I am implemented value pricing for my firm. If interested, see the texts by Ron Baker of the VeraSage Institute.