"The fact that corporate law firms overwhelmingly determine the charge for their services based largely on an hourly rate multiplied by the number of hours expended is itself a puzzle which we are trying to understand in our current research."
Corporate Law Firm and How Partners Split Profits, 37 STAN. L. REV. 313, 372 n.101 (1985).
"The billable hour makes no sense, not even for lawyers."
Evan R. Chesler, Kill the Billable Hour, FORBES, Jan. 12, 2009. (Mr. Chesler is a Presiding Partner at Cravath, Swaine & Moore LLP, a prestigious New York law firm).
The practice of charging by the hour for legal work has been used by lawyers for decades, but not centuries. Since its proliferation in the mid-twentieth century, observers inside and outside of the profession have complained about the "billable hour" but, until recent years, not much has been done to check its dominance. Bruck and Canter argued for reform in 2008, urging students and corporate counsel to exert pressure on law firms to reduce their reliance on the billable hour. Rather than echoing their (worthy) appeals to the community at large, I argue that the legal profession has reached a tipping point. While my predictions are not as apocalyptic as those of Ribstein and Susskind (authors, respectively, of "The Death of Big Law" and The End of Lawyers?), I argue that the effects of the current recession and recent large-scale advances in technology will precipitate a significant and long-awaited shift away from the billable hour toward alternative fee arrangements.
I. WHERE IT CAME FROM
The American Bar Association's (ABA) Model Rules of Professional Conduct, promulgated in 1908, list several factors that may ethically be used in determining a reasonable fee. Both the amount at stake and the result obtained are fair considerations, as are the nature and length of the professional relationship with the client. Attorneys may charge more for urgent service if the client requests it, or if work for a particular client will prevent the lawyer from accepting other work. The novelty of the matter and the difficulty of the questions may also be used. Of course, as we see today, a lawyer's experience, reputation, and ability may come into play, and the time he or she spends on the matter may be considered.
State Bars Set Prices
But in the nineteenth and early twentieth centuries, lawyers seldom billed clients by the hour. They relied instead on a provision of Rule 1.5 that allows attorneys to base their fees on what is customarily charged in the region for similar services. Lawyers and firms through the 1930s routinely (and voluntarily) based their fees on schedules set by state bar associations. For instance, a house closing might cost $100; a simple will, $50; a divorce, $200 (if uncontested). The schedules proposed minimum fees: lawyers were always free to charge more (within ethical guidelines, of course) but bar associations considered it unethical for an attorney to undervalue his or her services. The fee-schedule system prevailed for decades, with clients accepting high and opaque prices for legal services because few alternatives existed. But near the middle of the century, billing practices began to shift as the complexity of legal duties outpaced fee schedules. Specifically, a few things happened to drive gradual change. For one, changes in the regulatory frameworks of many areas of law and business activities led to transactional work that was significantly more complicated than it had been before. Furthermore, the Federal Rules of Civil Procedure were reformed in 1938 to contain, among other things, far more extensive pretrial work for litigators, who would now spend more time preparing cases and exchanging motions with opposing counsel than appearing in court. Mass tort cases also proliferated, most too complex to allow the use of fixed-fee schedules to be at all feasible. Both the increase in regulation and the new Federal Rules of Civil Procedure (which were later adopted in large part by states) introduced new levels of unpredictability in to the practice of law, frustrating both lawyers, who found it difficult to set fees in advance, and clients, who sought transparency. The practice of keeping time became more widespread, if only as an informal way of keeping track.
By Ben Jackson, Esq.
Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School. BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.
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