The More Things Change, the More Hourly Billing Will Stay the Same

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Tuning in to the live tweets last week from the opening of the Association of Continuing Legal Education conference in New York City (it may sound dull, but they are a hard partying group!), there was much talk at the plenary session about  the allegedly irrevocable changes occurring in the legal profession because of the fallout from the Great Recession. Familiar themes: hourly billing is evil, the leveraged-associate model is on its way out, law firms will never be the same, etc. This has been the drumbeat of blawggers, consultants, and plenary speakers for at least two years now. I think they get a kick out of seeing the color drain from lawyers’ faces.

Fortunately, the old French saying remains true: The more things change, the more they stay the same. Seemingly huge upheavals often have less long-term impact than we expect.  After 9/11, many people thought we would all be singing Kumbayah for at least a generation. Ten years later, the music has faded.


According to statistics published by the ABA, there are about 1.2 million lawyers in the country, about 74% of whom are in private practice. Of those 900,000 or so lawyers, 76% practice in firms of fewer than 20 lawyers, and the vast majority of those lawyers are in firms of five or fewer lawyers.

In what areas do most solo and small firm lawyers practice? By my own estimates: Family, criminal, personal injury, workers compensation, insurance defense, estate planning and probate, plaintiffs’ employment law, consumer, bankruptcy, and small business litigation and consulting. In other words, predominately individuals and small businesses.

The issues that large firms are facing—large corporate clients wising up to the abuses of the billable hour, competition from international mega-firms—are not likely to affect the vast majority of solo and small firm practitioners. For lawyers representing individuals, the law is local. Family and criminal law attorneys, for example, face little competition from lawyers outside their geographical area. Individuals in need of legal services tend to seek out lawyers in small firms that are close to their homes or businesses, where the cost structure is lower and where they get personal attention. That is not likely to change.

Regarding legal billing structures, personal injury and plaintiffs’ employment lawyers have had an “alternative” fee structure for decades: contingent fees. That is not likely to change. Criminal, bankruptcy, and many estate planning lawyers have been using flat fee billing for years. The concept is nothing new to them.  It seems unlikely that their practices are headed for a revolution.

As for the solo and small firm attorneys charging on an hourly fee basis, particularly the litigators, their practices are unlikely to change either. Moving from an hourly fee to a flat fee billing structure requires a lawyer to take on risk. Family law clients  often make their own problems and are unpredictable once a custody battle or other dispute gets underway. Even when the client is an angel, the opposing party or their counsel can unexpectedly drive up the costs of the matter. Why would lawyers want to assume the risk for their clients’ issues? My guess is most lawyers take on enough risk already when they agree to represent a client and will not offer to take a financial stake in the client’s problems.

The clients of solo and small firms also tend to be less subject to the abuses of the billable hour and therefore less likely to seek alternative fee arrangements. Many solo and small lawyers routinely write off the time for short phone calls and e-mails, discount travel time, and reduce bills for unproductive or administrative work. Smart lawyers include all that written-off time on their bills; the clients can see that they are paying for value (a common refrain by flat fee advocates), not to line the lawyer’s pockets. Associates in small firms are more often employed to help get the work done, often at a lower hourly rate, rather than to pad the bill.

There are other entrenched practices in the legal profession that will weigh against changes in the fee model for litigators. There is a substantial body of case law that requires attorney fee awards pursuant to statutes or fee shifting agreements in contracts to be calculated based on an hourly fee. Attorneys liens are typically determined on a quantum meruit (read: hourly) basis. The Rules of Professional Conduct identify the time spent on a matter as an important factor in assessing the reasonableness of a fee. Insurance companies often hire and reimburse lawyers for representing insureds based on hourly fees, except perhaps for the most routine matters. Some areas of practice have clearly changed—many corporations that hire outside lawyers for immigration and intellectual property matters have shifted to small firms and are requiring flat fees. But these tend to be project-based assignments with predictable time requirements and outcomes.

It is healthy to have a debate about the best practices for any industry. Some change in the legal industry will occur over time. But if you are sitting at a CLE plenary session about the practice of law and feel your head spinning, excuse yourself and go splash some water on your face. You need not worry that you will be out of a job by the time you get back to the session.

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  • Nice post. While the industry does view it as worthwhile to explore creative alternatives, adoption is clearly lagging. You are right that hourly billing is entrenched in caselaw: court determined fees will almost always refer to the attorney’s Lodestar or hours x rate.

    Best,
    Charles

  • Eric,

    I have been reading your blog for a couple of months now. This was the best post I have seen – subjectively and objectively! Thanks.

    “But if you are sitting at a CLE plenary session about the practice of law and feel your head spinning, excuse yourself and go splash some water on your face. You need not worry that you will be out of a job by the time you get back to the session.”

    HILARIOUS!! :-)

    To add to that theme: John Naisbitt, in his last book MINDSET!, explains that much of the change that people become excited about happens much slower than expected.

    I see huge opportunities, not danger, in the recent evolution in our profession. But I have publicly commented against the popular expectations of Big Law in demise. Big Law will get bigger, even if it has to adapt its form.

    Jorge
    Founder of The Online Bar
    http://follr.me/Jorge