More on the Future of the Billable Hour

 In a contemporaneous but unrelated development, researchers in management science and organizational behavior had begun to tout the value of monitoring the time spent by workers in  completing various routine tasks. This theory of "scientific management" was controversial, but its chief ambassador to the legal profession-Reginald Heber Smith-made a strong case for it in his 1940 book, Law Office Organization. The slim but influential volume provided the undergirding for the time sheet as a principal tool of lawyers, giving specific guidelines on how the sheet should be laid out and what abbreviations and measurement units were appropriate.

Owing in part to Smith's work, legal consultants in the 1950s and '60s began to suggest that lawyers who kept accurate time records made more money. Some have argued that this was meant to encourage lawyers to keep time so they have a more accurate sense of the cost of doing business, but that the conclusion was misinterpreted by lawyers to mean that hourly billing was more lucrative. Whatever the reason, most large law firms and their mid-size counterparts had adopted hourly billing by the late 1960s.  

In 1975, the Supreme Court put the final nail in the fixed-fee coffin. The Court in Goldfarb v.Virginia State Bar found that minimum fee schedules of the type set by state bar associations constituted price fixing under the Sherman Act and were therefore illegal.  Rather than a lesser-of-two-evils compromise, hourly billing was viewed by firms and clients as a welcome innovation. The practice was congruent with an accounting-based approach to managing expenses that clients valued. Courts used it as an objective, simple, and fair way to set and approve attorney fee awards. It also proved easier to monitor by both law firms and their clients.

The Word Gets Out

Another key Supreme Court decision came in 1977: Bates v. State Bar of Arizona invalidated the prohibition on lawyers' advertising to the public. This triggered several changes in  the profession. The American Lawyer and the National Law Journal launched, publishing information and rankings about rainmakers and the profitability of various firms, among other  things. Because of this new attention to individual and firm profitability, firms and lawyers became more focused on profits per partner, a primary metric of success and prestige in the magazines' rankings. High-ranking partners, who in previous generations might have remained at a single firm for their entire careers, enjoyed a higher profile and increased mobility, and the competition to retain them therefore became fierce.

Firms were now more strongly oriented towards profit maximization, and the billable hour had taken hold as the fundamental unit of labor. As Scott Turow put it, "when you are selling your time, there are only three ways to make more money-higher rates, longer hours, and more leverage."  

Higher Rates?

Many lawyers and firms attempted to increase their hourly rates during this period, but met with resistance from clients. Fluctuations in the economy made clients more price-sensitive, and competition in the field increased dramatically.

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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