International lawyers DLA Piper have been caught in the middle of the billable hour grinder in a publicity nightmare that has seen the firm blame a client for over-billing before having to confront the demon of over-charging itself – a deer in the headlights that is now embarrassed over an unseemingly site and one that goes to the heart of how many firms bill their work.
The New York Times Steven Harper looks at the PR nightmare.
“THAT bill shall know no limits,” wrote one DLA Piper lawyer to another in 2010 in what the firm is now calling “unfortunate banter” between associates about work for a client. But what is truly unfortunate is the underlying billable-hour regime and the law-firm culture it has spawned.
Lost in the furor surrounding one large firm’s current public relations headache are deeper problems that go to the heart of the prevailing big law-firm business model itself. Regrettably, as with previous episodes that have produced high-profile scandals, the present outcry will probably pass and the billable hour will endure.
It shouldn’t. The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell.
In a typical large firm, associates earn far less than the client revenues they generate. For example, a client receives an invoice totaling the number of hours each lawyer spends on the client’s matters, multiplied by the lawyer’s hourly rate, say $400 for a junior associate. Most big firms require associates to bill at least 1,900 hours a year, according to a survey last year by NALP, the Association for Legal Career Professionals.
In 2009, DLA Piper announced that it had eliminated associates’ billable-hour requirements in favor of a performance-based reward system. However, the firm’s submission for the association’s current NALP Directory of Legal Employers reports that it has a “minimum billable hour expectation.” In 2011, DLA Piper’s “average annual associate hours worked” (both billable and nonbillable) was 2,462; the billable average was 1,831.
At $400 an hour, a hypothetical 2,000-hour-a-year associate generates $800,000 a year for the firm. But the firm typically pays the salaried lawyer one-fourth of that amount or less.
For associates, the goal is simple: meet the required (or expected) minimum number of billable hours to qualify for annual bonuses and salary increases. Billing 2,000 hours a year isn’t easy. It typically takes at least 50 hours a week to bill an honest 40 hours to a client. Add commuting time, bathroom breaks, lunch, holidays, an annual vacation and a little socializing, and most associates find themselves working evenings and weekends to “make their hours.” Most firms increase financial rewards as an associate’s billables move beyond the stated threshold.
For partners, billable hours are a key measure of associate and partner productivity. More is better. The resulting culture pushes everyone harder. Meanwhile, each partner strives to maximize individual client billings that he or she controls. Those billings in most cases determine a partner’s annual share of the firm’s profits. Their clients also become tickets to other firms. That makes partners reluctant to share too many important client responsibilities with their associates and fellow partners.
For clients, the consequences of the billable-hour system can be absurd. Fatigue through overwork can produce negative returns — the critical document missed during a late-night marathon review; the error in the draft of a corporate filing that goes unnoticed.