By: Sarah Morrison, Staff Writer
Think about planning a monthly budget; rent, utilities, insurance, groceries, gas, and savings. Some of these expenses are fixed, others are variable. [1] However, many of the variable expenses can actually be translated into fixed expenses with budget plans available through most utility companies and fee for product models in most markets. In sum, for most expenses, consumers have an expectation of how much they are going to pay.
Most law firms produce revenue through billable hours. [2] This has long been criticized as benefiting the inefficient lawyer. [3] Some posit that this creates a model where attorneys are encouraged to “waste time” by overbilling clients to fulfill the hour requirements of the firm. Additionally, attorneys have reported dissatisfaction with this model due to the disparity between hours in the office and actual hours billed. Yale Law School reports that 50 hours in the office accounts to only 37.5 hours billed. 2
The billable hour model also creates contention for the client. Some clients report this to be so much of a deterrent that they will not seek legal services at all due to the uncertainty of what the client may be expected to pay.[4] As aforementioned, in most other markets consumers can tabulate how much they will pay for a good or a service. So why do so many law firms stick with the billable hour?
Perhaps there is a better approach. The American Bar Association has reported that some firms have taken a shift in billing.[5] Anyone who has seen a commercial for a personal injury attorney is probably familiar with the contingent billing approach. Contingent billing is where the attorney receives a percentage of the damages awarded to the plaintiff.[6] This approach is not commonly used due to the risk. Contrarily, sometimes defense attorneys will use the reverse contingent fee model. The cost to the client is calculated by observing the type of case in the jurisdiction and value of avoidance of liability to the client.[7] This approach however, is limited to more seasoned attorneys familiar with the case types and the market.
In addition to the contingent fee and billable hour approach, there is the flat fee model. The flat fee model is closest to the fixed expenses economy. Clients are billed a standardized fee regardless of hours expended by the attorney.[8] However, the flat fee model is not a “one size fits all” approach because some cases are more complex than others and require larger teams or more hours of work which could incentivize overworking younger associates. Further, this may be more suited to transactional or drafting work such as wills and estates.
In conclusion, the billable hour has long created tension for both attorneys and clients. With new billing approaches on the rise, it may be time for a movement to a new fee model across law firms.
Sources:
[1] What is the Difference Between Variable Cost and Fixed Cost in Economics? (January 12, 2018) https://www.investopedia.com/ask/answers/032515/what-difference-between-variable-cost-and-fixed-cost-economics.asp.
[2] The Truth About the Billable Hour (July 2017), https://law.yale.edu/truth-about-billable-hour-0.
[3] Douglas R. Richmond, In Defense of the Billable Hour, 14 No. 2 Prof. Law. 1 (2003).
[4] Susan Saab Fortney, The Billable Hours Derby: Empirical Data on the Problems and Pressure Points, 33 Fordham Urb. L.J. 171 (2005).
[5] Robert E. Hirshon, The Billable Hour is Dead. Long Live …? (June 29, 2017) https://www.americanbar.org/groups/gpsolo/publications/gp_solo/2013/january_february/billable_hour_dead_long_live/.
[6] Id.
[7] Id.
[8] Id.
