An Investigation of the Billable Hour

An Investigation of the Billable Hour

In 2002, Justice Steven Breyer agreed with one practitioner that "the profession's obsession with billable hours is like drinking water from a fire hose, the result is that many lawyers are starting to drown."[1]  The billable hour structure, prevalent at nearly every law firm, discourages efficiency and innovation, destroys attempts at work-life balance, and drives women out. 

•I.      The Billable Hour is Destructive 

Law firms began adopting hourly billing in the 1960's, in response to client demands for more transparency, and to provide lawyers with a seemingly more precise measure of their productivity and value.  Today, nearly all law firms bill by the hour.  The more hours billed, the more profitable the firm is.  Under this model, the only way for an Associate to be profitable (and therefore a valuable expenditure of the firm) is to bill enough hours to not only cover their salary, but to bill above and beyond that amount, generating revenue for the firm.[2]  The obvious result of this model is an emphasis, at every level, on billing as much time as possible - and the profession is paying the price.  Lawyers are increasingly disaffected, mentoring and pro bono programs are de-prioritized, the lawyer/client relationship remains strained, personal relationships are stressed, and lawyers continue to flee from the profession.[3]  While there are certainly additional factors responsible for these consequences, the billing structure is not least among them.  

Targets Are Unreasonable

Critiquing the billable hour requirements at most prestigious firms, as well as the model itself, requires an understanding of what hour-level requirements mean for Associates.  A targeted annual rate of 1800 hours requires about 2400 actual hours on the job.  That is to say, most Associates will work about 10 hours for every 7.5 hours billed to a client.  Taking time to eat lunch, use the restroom, drink a cup of coffee, perhaps have a discussion with another lawyer in the office, attend a meeting, not to mention some "background" work that may not even be billable to the client - will only expand the ratio of hours worked to hours billed.[4]

The Yale survey next assumes that the firm's billable requirement is not a paltry 1800, but is a more aggressive 2200.  Holding the ratios steady, an attorney will need to work more than 3000 hours to hit that target, which requires working about 12 or 13 hours a day, 5 days a week, and additionally working every Saturday for 6 or 7 hours.  Again, as the report suggests, this does not account for personal phone calls, conversations with co-workers, any pro bono work not otherwise treated as billable, serving on internal or external committees or engaging in other firm-related activities.

The hourly breakdowns outlined above represent the typical billable ranges provided to NALP,[5] though it is noteworthy that in some markets, much higher numbers are often informally reported.[6]   Because firm profits are driven by hours, it is easy to see that the hourly billing structure itself actually builds in a profitability ceiling for firms.  There are only so many hours in a day, a week and a year.  In the meantime, as hourly requirements creep up (rising more than 25% in the last 20 years)[7] - the industry continues to create a depressing and unsustainable lifestyle for its lawyers. 

Hourly Billing Contributes to Depression, Anxiety and Attrition

One would imagine that high Associate salaries, social prestige, and the promise of intellectually stimulating work would sufficiently offset the incredible demands on a lawyer's time.  Unfortunately, that is not the case.  Lawyers are among the most unhappy, depressed, substance-abusing and divorce-ridden professionals in the country.[8]  Working long hours reduces the time available for, among other things, sleep, family, healthy exercise and eating habits, and extracurricular professional and personal engagements.  Moreover, long hours have been shown to adversely affect critical thinking and cognitive ability.[9]  Prestigious professional service industries, however, are no stranger to long hours.  Bankers, doctors, consultants and any number of other high-profile professionals put in long hours - and yet they do not seem to suffer from the same destructive lifestyles and dismal job satisfaction. 

What makes working long hours even more unpalatable for lawyers, is the practice of recording every moment of a day, often in six or ten minute increments.  The minute-by-minute account of time spent on work is demoralizing, mechanical, and ultimately so frustrating that it, among other drivers, pushes people out of big firms.  In addition, the billable hour has a corrosive impact on collegiality among lawyers at a firm, making the work environment increasingly competitive, devoid of mentorship, and prone to extremely high turnover.[10] 

Hourly Billing is a Poor Proxy for Quality

The billable hour model, and exceptionally high annual targets, are decidedly corrosive and unsustainable for most lawyers.  Notably, however, these corrosive effects are not merely necessary evils of more effective, efficient and trustworthy client services.  Though originally conceived so that both attorneys and clients would have accurate and transparent records of the time spent on every engagement - the benefits to both firms and clients have long since disappeared.[11]  "With no gauge for intangibles such as productivity, creativity, knowledge or technological advancements, the billable hours model is a counterintuitive measure of value."[12] Billing by the hour rewards inefficiency at every level, from individual Associates struggling to meet annual targets, to the firm at large, seeking to effectively bill clients at the marginal rate at which they can maintain their relationship, yet maximize profits.  In addition, hourly billing penalizes otherwise effective and efficient lawyers, and encourages potentially wasteful, premature and unrelated work.[13]  Likewise, it serves as a poor proxy for legal work's true value to clients.  Extremely valuable work may be easily accomplished in less time and likewise, time-intensive work is not always subjectively valued at its hourly rate by clients.[14]   

•II.   The Billable Hour is Particularly Harsh on Women 

Men and women alike lament working endless hours, recording and billing every moment of the day, and being treated as cogs in a profit-making machine that poorly reflects the true value of its output.  In law firms, however, the billable hour structure is not gender-neutral - and it is more likely to drive women away than men.[15]  Women have been entering the legal profession at record numbers over the last two decades, yet they are leaving law firms at rates unparalleled by their male counterparts.[16]  The billable structure sets them up for departure. 

Society's Demands on Women

Current societal expectations dictate that women will be the primary homemakers and caregivers to children.  Given that the demands of "home" are disproportionately placed on women, in an environment where hours are the only metric for achievement and advancement, it seems obvious that those with fewer hours to give will necessarily achieve at lower rates.  In recent years, in response to an increase in demand for accommodation of familial obligations, firms have begun offering flex-time, part-time or other alternative working arrangements.   Regrettably, studies show that individuals who take advantage of these arrangements (and those individuals are most likely to be women) are inherently handicapped from professional progress within the firm.[17]  "Even temporary suspensions of normal working hours can create permanent professional risks."[18]  Societal expectations that are placed upon women permeate the legal profession, and are reflected in contextual standards for success in the profession.  The hourly model privileges the lawyer who is available to work 24/7 and on a moment's notice, without regard for personal commitments.  "This model of career success is a consequence of research that measured the success of subjects who were men with stay-at-home wives."[19]  Without "stay-at-home husbands," the demands on women's time frustrates their ability to succeed in an industry where success is measure by time alone.  

Gender Bias in Firms

In addition to societal norms regarding the role of women in the home and in raising children, gender differences limit women in a context of implicit bias.  Despite men and women now entering law schools and the legal profession at nearly comparable rates, women are disproportionally more likely than their male counterparts to leave private practice.[20]  This process of swift female departure, however, is not harmful to a firm's bottom line, and has therefore actually represented a convenient "maximization" for firms.[21]  Where high turnover is expected, the departure of women allows firms to attract even more educated and motivated women, for short periods of time, to meet client demand and then to allow for their amicable departure, because women are far less likely to take clients with them when they leave.[22]  What women leave behind, however, is "a decision-making structure insulated from their concerns."[23]

Finally, when judged only by the nature and quantity of work performed, success demands high-profile and time-intensive engagements.  That is to say, even for lawyers who are available to work 24/7, do not take advantage of flexible working arrangements, and are privileged by an ability to prioritize the workplace over external demands - meeting annual billable requirements also demands working with Partners and in practice areas that have prominent and plentiful work.  Women, however, are habitually given less lucrative, lower-profile assignments, fewer resources and fewer opportunities for mentorship and sponsorship.[24]   John Hagan and Fiona Kay's research revealed a statistically significant interaction between the tendency of men to use their hierarchical positions to enhance their hourly billing, and therefore increase their earnings and their promotions to more senior positions.[25]  The implicit gender bias in large firms, therefore, restrains women's ability to meet the demands of the one accepted performance indicator: hours billed.

Working schedules and implicit workplace bias, both driven by a preoccupation with the billable hour and the attendant profit model, are a major cause of the continued glass ceiling faced by women in the law.[26] 

•III.                       Some Suggested Alternatives 

The move away from the billable hour has been proposed for a number of years, but the transition away has been anything but swift.  Fundamental and sweeping change will depend upon the ability of clients, incoming lawyers, and progressive firm leaders to use their market power and internal political capital to push for restructuring.  Other professional service industries, namely accounting, consulting and marketing, have made the move - demonstrating that it is not impossible.  These industries have succeeded in part because they have been able to package their services as projects, capable of valuation.[27]  In a legal context, setting this value and implementing a project scheme with clients will not be easy - but one can hope that its complexity is not beyond the abilities of Managing Partners and corporate clients who are long-term consumers of legal services.  According to the ABA's 2002 Report, "alternatives that encourage efficiency and improve processes not only increase profits and provide early resolution of legal matters, but are less likely to garner ethical concerns."[28]  In addition, fixing fees up front and requiring flat or staged fees has the ability to alleviate the incredible pressure that accounts receivable place on firms in years when they find themselves highly leveraged at the end of the year.[29]

Evan Chesler of Cravath, Swaine & Moore LLP has suggested doing what most service-driven industries do: identify the client's objectives, measure, calculate, build in a contingency and come back with a price.[30]  Even for litigation, where the course of work can be unpredictable, a calculated plan with an effective contingency option for re-negotiation can efficiently align incentives.  Other alternative fee arrangement suggestions are listed below. 

•1.      Results-Based / Contingency Fees

In addition to a settled base fee - firms and clients might agree upon incentive structures, based upon ideal or possible outcomes.  For example, if the firm wins a summary judgment motion, they will be paid the base fee, as well as a "bonus" award.  Likewise, if outcomes are less than ideal, agreed-upon bonus awards can be tiered at lower rates for various outcomes. [31] 

•2.      Flat Fees

Understandably, flat fees are more appropriate for routinized, volume work - but as firms grow, consolidate and provide "one stop shopping" for large corporations, there is no reason that volume-based work should not be subject to a flat fee.  These arrangements are ideal for building certainty for clients, encourage efficiency for firms, are easy to negotiate and can produce predictable marginal profits for the firm.[32]

•3.      Staged Fees

Like Chesler's suggestion, this arrangement would allow the firm and client to agree upon values for the various stages of an engagement - regardless of whether it was transactional or litigation focused, the work could be split into known and potential stages, and fees could be set accordingly or, they could be re-negotiated at critical inflection points in the work.  For example, fee structures could be set for discreet activities - namely depositions, interrogatories, pre-trial motions, and other work done at regular and identifiable phases.

•4.      Blended Rates

Some have suggested billing time equally on an agreed-upon rate, without regard for who performs the work on a given assignment.  For example, if a Partner typically bills at $750 per hour and Associates at $400 per hour, the billing arrangement may reflect a blend somewhere in the middle.  This structure encourages delegation by Partners to lower-level Associates and greatly simplifies billing, although it may indirectly "hide" personal contributions.[33] 

Last year, the percentage of in-house legal departments that reported using some non-hourly billing arrangement with their outside counsel went up yet again, an indication that the trend may still be moving, albeit slowly, in the right direction.[34] Law firms that can make use of these schemes potentially stand to benefit the most over competitors in the long-term.  Firms are made up of people - and the ability to foster and retain high-value people can be a differentiating factor for firms who are able to see ahead.  Project-based billing has been difficult for both firms and clients to embrace, stemming from a history of distrust between attorneys and clients (and hourly billing has the illusion of providing transparency), and also from firms' reluctance to "commercialize" their services and embrace a more business-like model.[35]  Adopting these fee structures at a broader level, however, "is the right answer to so much that is wrong with our current system,"[36] and would ideally retain more women in the prof


 [1] Lisa Lere, The Scourge of the Billable Hour: Could law-firm clients finally kill it off? Slate (Jan. 2008). Available at: http://www.slate.com/articles/news_and_politics/jurisprudence/2008/01

[2] Yale Law School Career Development Office, The Truth About the Billable Hour, April 2011. Available at: www.law.yale.edu/documents/pdf/CDO.../cdo-billable_hour.pdf

[3] ABA Commission on Billable Hours, Report August 2002. Available at: http://www.judicialaccountability.org/articles/ABABillableHours2002.pdf

[4] Yale Law School Career Development Office, supra note 2.

[5] NALP Bulletin, February 2012: The largest firms report annual average hours worked increasing to about 2,208.  Overall averages for hours billed increased to about 1,859.  The average requirement at large firms is just over 1,900 hours.

[6] Yale Law School Career Development Office, supra note 2.

[7] Robertson, L., Billing Targets: Are they driving women lawyers out of the profession? Oct. 28, 2010 Available at: http://www.lusc.on.ca/media/convmay08_retention_of_women_consultation_findings

[8] Seligman, Martin E.P., Why Are Lawyers So Unhappy?, Lawyers With Depression, Nov. 16, 2011. Available at: http://www.lawyerswithdepression.com/articles/why-are-lawyers-so-unhappy/

[9] Susan Saab Fortney, The Billable Hours Derby: Empirical Data on the Problems and Pressure Points, 22 Fordham Urb. L.J. 101, 112 (2005).

[10] ABA Comm'n on Billable Hours Report, supra note 3 at 5.

[11] Scott Turow, The Billable Hour Must Die, ABA Journal, Aug. 1, 2007.

[12] ABA Comm'n on Billable Hours Report, supra note 3 at ix.

[13] Id.

[14] Id.

[15] Lisa van der Pool, Rigid annual billable hour requirements cited by female attorneys who choose to walk away from traditional law firms, Boston Business Journal, Jan. 16, 2012.

[16] Durrani & Singh, Women, Private Practice and Billable Hours: Time for a Total Rewards Strategy? Compensation & Benefits Review (August 2011). Available at: http://cbr.sagepub.com/content/43/5/300

[17] Harvard Law Review. (1996). Note: Why law firms cannot afford to maintain the mommy track. Harvard Law Review, 109(6), p. 1379.

[18] Hagan & Kay, Gender In Practice: A Study of Lawyers' Lives. Oxford University Press. New York, NY. 1995 at 77.

[19] Susan Letterman White, Power and Influence for Lawyers, West 2011. Thompson Reuters.

[20] Catalyst, Women in Law: Making the Case, 2001.

[21] Hagan & Kay, supra note 18, at 33.

[22] Id.

[23] Deborah Rhode, Ethics In Practice: Lawyers' Roles, Responsibilities, and Regulation. Oxford University Press. New York, NY. 2000. p. 6.

[24] Hagan & Kay, supra note 18, at 130.

[25] Id. at 148.

[26] Rhode, supra note 23, at 6.

[27] Mercer Island Group, Professional Service Industry Billing Practices, July 2005.

[28] ABA Comm'n on Billable Hours Report, supra note 3 at 5.

[29] Ann Macaulay, The Billable Hour - Here to Stay?, The Canadian Bar Association. Available at: http://www.cba.org/practicelink/mf

[30] Chesler, Evan R., Kill the Billable Hour, Forbes.com (2009). Available at: http://www.forbes.com/forbes/2009/0112/026_print.html

[31] Macaulay, supra note 29.

[32] Id.

[33] Id.

[34] van der Pool, Lisa, Alternative fee arrangements on the rise at law firms, Boston Business Journal. (March 2012). Available at: http:://www.bizjournals.com/boston/print-edition/2012/03/23/alternative-fee-arrangements-on-the.html

[35] Patricia Gillette, Partner at Orrick, Herrington & Sutcliffe LLP, Apr. 27, 2012.

[36] Id.

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.

For more information about LexisNexis products and solutions connect with us through our corporate site.