Is the Billable Hour Past?
Should lawyers still get paid by the hour? The economy, as well as the chance for law firms to vary their expertise and prove their worth, are among reasons that firms are reconsidering the way they charge clients, lawyers said yesterday at a meeting of the American Bar Association in Atlanta.
“I remember when lawyers billed for legal services rendered,” said ABA President Stephen N. Zack, introducing the presidential showcase CLE program sponsored free-of-charge by the Tort Trial and Insurance Practice Section. “Lawyers had relationships with clients: If there was an issue with the bill, we’d sit down and talk about it.” Relationships are at the core of the way lawyer-client transactions are trending as the billable hour has become a plague for both lawyer and client. As Joseph K. West, associate general counsel, Walmart, noted, “Both in-house and outside counsel hate the billable hour. It hurts relationships.”
Lawyers and their clients are considering new structures such as fixed fees, flat fees and success fees, among others. So-called value billing, which can mean a flat rate for work for the year, frees lawyers and firms from recording billable hours — though keeping track of overall hours and work conducted may still be ongoing in order to determine overall efficiencies and work done by a lawyer within the firm.
“We became lawyers because we’re passionate about justice, we want to be liked and respected, and we enjoy winning,” said David Boies, managing partner with Boies, Schiller & Flexner LLP. “Value billing feeds all of those reasons.”
Clients have more security in knowing how much the fee over a certain period will be, and lawyers are also more satisfied because they don’t want to spend their time figuring out quarterly or even 10-minute time allotments of their day. That will draw the brightest of young lawyers, Boies said. “If we don’t get the best lawyers, ultimately we aren’t going to keep the best clients,” he said.
Value billing also provides an opportunity for firms to gain expertise in areas in which they may not be known as specialists. As Boies explained, “If a corporation has a flat fee for a year, a firm can go the company and say, ‘You’re already paying us, you might as well use us.’” Rather than hiring another firm, a corporation may want to give their flat-fee firm a chance to prove what they can offer.
A flat-fee structure can allow relationships to spread across different corporate departments and to different specialty areas within a firm, explained panelist Amy Schulman, executive vice president and general counsel with Pfizer.
Panelists, who also talked about the need for law firms and legal departments to become more efficient through the use of project management, encompassed both in-house counsel of large companies and partners at independent law firms.
For more on the future of the billable hour listen to ABA President Steve Zack’s interview on American Public Media.