Below The Beltway

I don’t write about the business or practice of law very much, but the Boston Globe has an interesting article about a small firm in Boston that has banned the billable hour:

It has been called the cockroach of the legal world. It has been labeled a “villain” by a justice of the US Supreme Court. Its impact has been described as “corrosive” by the American Bar Association.

The target of this vitriol: the billable hour, which is used by most law firms to calculate how much they charge clients, and which detractors say encourages bill-padding, promotes quantity over quality, and forces lawyers – who are typically required to bill 2,000 hours a year in six-minute intervals – onto a speeding treadmill that drives many of them out of the profession.

Now a small Boston law firm has banned the billable hour, refusing to take clients who insist on paying on an hourly basis. And both the firm and its clients say the alternative works in their favor.

Several major law firms have been pressured by large international clients, such as Cisco Systems Inc. and Pitney Bowes Inc., to accept fixed-fee arrangements for certain types of legal work. But the Shepherd Law Group is one of the few firms to voluntarily abandon the billable hour system entirely.

Shepherd, a five-lawyer firm that specializes in employment law, charges its clients a flat annual fee or flat price per task. Clients can call the firm as often as they want to discuss legal issues, although some services, such as training and litigation, cost extra. The new approach helps clients determine legal costs in advance and often prevents legal problems from escalating because clients are no longer reluctant to seek advice out of fear of incurring a hefty bill, said Jay Shepherd, the firm’s founder.

“Hourly billing is wrong and it’s anti-client,” Shepherd said. “There’s a disincentive to be efficient since you get paid more if you take longer to finish a matter – even though the client wants it to be finished as fast and efficiently as possible.”

And it’s not just client’s who are harmed, the tyranny of the billable hour is something that has had a negative impact on the practice of law, especially in large firms:

The American Bar Association concluded in a 2002 report that hourly billing is at the root of much that is wrong with legal practice: brutal hours, lack of collegiality (since time spent chatting with colleagues is time not spent billing), fraudulent billing, lawyers who intentionally stretch the time it should take to finish a matter, unpredictable costs for clients, little time for friends and family, little time for community service, and a system that rewards lawyers for quantity over quality.

In the law firm world, so despised is the billable hour that it has spawned a line of gag gifts, including clocks and watches that measure time in 10ths of an hour. It was maligned as “the legal world’s cockroach” in an article in the New York Lawyer. Surveys consistently show that lawyer dissatisfaction is most often caused by pressure to bill hours. And Yale Law School estimates that for every two hours billed, lawyers must spend about three hours in the office, since they usually can’t charge clients for food breaks, coffee runs, bathroom trips, personal phone calls, and professional development.

That means billing 2,000 hours a year – not uncommon at many large firms – requires about 3,000 hours a year in the office, or the equivalent of 60 hours every week.

“Nobody is happy with it,” said Robert E. Hirshon, the former ABA president who commissioned the 2002 report. “The attorneys who are practicing law don’t like it. The clients don’t like it. And yet everybody seems to believe that they’re stuck with it.”

The ironic thing is that the billable hour, at least in it’s present form is really a recent development in the business of the practice of law:

Law firms did not always bill hourly. For most of their history, lawyers considered the difficulty of a matter and the results obtained when charging clients, and often sent bills for an unitemized dollar amount marked “for services rendered.” In the 1950s and 1960s, timekeeping became routine as consultants promoted hourly billing as a way to increase profits; to make more money, firms could increase hourly rates or increase hours worked.

So, are firm’s like the Shephard Group the vanguard of a return to the way things used to be ? It’s hard to say. Law is by nature a conservative profession. Change, especially changes in the way business operates, do not come easily or quickly. But, times are changing. Lawyers, especially the one’s forced to adhere to 2,000 per hour (or more) per month billing requirements in order to keep making the big bucks, are wondering if there’s a better way to do things that actually allows them to live a life. And, clients are growing frustrated over a billing system that seems designed to make the idea of hiring a lawyer more expensive than it needs to be.

“Can it be done? Yes,” Shepherd said. “Will it be done? I think other firms will be dragged along kicking and screaming.”

That about sums it up. Change will come, but it will come slowly.

H/T: Ann Althouse