Law Firms’ Fading Love Affair With the Billable Hour
The billable hour has been the brunt of criticism – mounting criticism – for many years. Blamed for its lack of flexibility, its alleged inefficiency and even for creating high burnout rates in the legal profession.
But the billable hour remains.
With lawyers required to bill from 1700 to 2500 hours years, the pressure to ‘hit budget’ has never been greater.
And, perhaps, the call to end the regime of the billable hour has never been greater either.
The Financial Times’ reported that the love affair may be fading, particularly following decisions by some major corporates – used to being billed £350 or £400 for a 25-year-old trainee while his or her leader hits £1000 an hour or more – have refused to pay the trainee rates.
Billable Hour Resentment
The trend began with the shock from Deutsche Bank who began the movement in 2017. Along with other corporations they are requesting capped or time-fixed fees and rejecting the ‘trainee’ bills.
Last year UK High Court said a £1.47m legal bill submitted for a lawsuit involving Dana Gas was “unsustainable” with six fee-earners having their time charged at hourly rates of more than £700, with a top rate of £946. Trainees were charged out at £282 an hour.
The situation with US firms regarding the billable hour is somewhat different, with a distinct reluctance to move from the model.
However things are changing with legal tech developments.
LawTech to Rescue
The FT reports that some legal start-ups are crunching data based on previous cases, predicting how long a legal job will take and working on a way to price future work also.
San Francisco tech start-up Ping, founded by Ryan Alshak who trained as a corporate litigator, has gone even further by analyzing how lawyers work and tracking their activities minute by minute to create highly granulated time sheets, rather than leaving the lawyer to complete the time sheet him or herself.
“In order to get off the billable hour, you have to first understand it,” Alshak says.
He says the use of data to crunch the timekeeping is a key shift, particularly as lawyers tend to submit their own timekeeping in an unstructured way that is difficult to analyse. Towards fixed fees
Other legal start-ups are using new technology in various ways to connect lawyers with businesses and offer more price transparency.
New York-based start-up Priori Legal, founded by lawyers Basha Rubin and Mirra Levitt who met at Yale Law School, helps clients select boutique law firms that are best suited to a task at lower prices than they have paid before. Priori connects work with external lawyers or boutique law firms who submit bids.
There are others too, but the billable hour will doubtless continue its role for the forseeable future until legaltech alternatives arrive in full force.