Is time up for the billable hour? What’s the future for legal services’ billing?
As a former practising solicitor, I became used to living my life ruled by the clock with every minute (or at least blocks of 6 minutes) of my working day categorised, recorded, described and charged (or not charged/ written off). From the moment we start our careers in law we are subject to targets based on the number of hours we work and can bill for; we are acutely aware how much billable work we must do each day, week, month, year to prosper in our firms, to get that promotion and earn that bonus.
Encouraging a machismo culture in law firms
This has led to something of a machismo culture in many law firms where the more billable hours you work, the more valued and rewarded you are. Vital but non-chargeable work such as training and mentoring has traditionally not been as highly valued.
This in turn creates a long-hours culture within firms as ambitious lawyers chase their targets. Women leave because they cannot realistically have a functioning family life in that environment and it’s not hard to see why there are so few women partners and how a gender pay gap grows.
We all want to see an end to the indirect sex discrimination and gender pay gap issues in law firms which have been known about for many years now. Ditching billable hours targets altogether might be a radical way to resolve the structural and cultural problems within law firms which seem to disadvantage many women. For this reason alone it’s worth asking if we should be ditching the billable hour sooner rather than later!
Is it possible to reward behaviours not billing?
Philip Larkin may have asked, “Why should I let the toad work, Squat on my life?” as he railed against the exterior obligations and financial pressures that forced him to devote so much of his time to work, but I expect many lawyers feel similarly about the clock! Indeed, the attractions for many of legal work outside of private practice, such as going “in-house”, usually include not having to record time.
It is clearly possible for businesses to function using different methods of assessment and reward, but it would be a massive shift for law firms to implement these. How might behaviours rather than billable hours work as the alternative unit of assessment in law firms? I don’t have all the answers but I know our sector is full of incredibly bright and creative people so I believe it could be done if the desire was there.
Clients don’t like being “on the clock”
It’s not just those doing legal work who dislike billable hours, this method of charging is deeply unpopular with clients too.
Firstly, it seems arbitrary and old fashioned – we stopped charging by the word a long time ago, why is time a better unit?
Secondly, it leaves clients feeling helpless and out of control. They have no idea how long a piece of work will take or how long it should take. While I don’t doubt that initial estimates are given in good faith, legal matters have a habit of taking unexpected turns, it’s just a fact of life that things take longer than hoped – which means they usually end up costing more too. Clients paying by the minute can only trust that their lawyer’s estimate is accurate, that they always work efficiently and don’t waste time.
There’s also a lack of transparency. A client can ask for a detailed break-down of work done but how can they judge if they are getting good value? While a senior lawyer may be able to do work far more quickly than a junior lawyer, their charge out rate will be much higher, so which is the better option?
Thirdly, many clients resent billing by time as unfair. It’s difficult to argue that it’s right to charge for 6 minutes of your time (because that’s the arbitrary unit we use) when in fact it only took you 2 minutes to read that email. Or, a real life example, should a client be charged for their lawyer making corrections to spelling mistakes in a first draft letter that they themselves had read and picked up?
What’s the alternative?
There are plenty of alternatives being used in the legal services market but none of them are yet as prevalent as the billable hour. Unsurprisingly, fixed/capped fees are very popular with clients because this provides certainty and, in effect, transfers the risk of a matter running out of control to the law firm. With this financial incentive in place, clients can at least have more faith in the efficiency of the service they are receiving.
Other popular charging methods include no win, no fee and damages-based agreements. Clients often like these because they do not involve any initial costs to them and this enables those who may not otherwise be able to access the legal system to bring their claims, but the ultimate price that is paid, in terms of the percentage of damages kept by the law firm for example, is high and may not be the best bargain.
One method that I would like to see used more is payment by results and/or the value added by the lawyer. In effect this is the “everyone’s a winner” method of charging! So, for example an employment lawyer advising on the termination of employment could be paid a percentage of any compensation they negotiate over and above a certain figure. A corporate lawyer advising on the purchase of a business could be paid a percentage of the reduction in the price they are able to negotiate.
The consultancy model is a test bed
As CEO of Nexa, a consultancy model law firm, I know that our consultant solicitors don’t have to be as wedded to charging by time as solicitors working in traditional law firms. Our solicitors can give a price for the job, if appropriate. Each of our consultants is effectively running their own micro-business and is their own boss. They usually work from home so have far fewer overheads and far more flexibility and freedom. As highly experienced lawyers, but without the overheads of partners running their own firm, they provide a quality, great value service to their clients.
Ultimately, law firms and solicitors have to come up with more creative ways to give their clients more certainty over price from the outset and to feel that they are getting a fairer deal when it comes to purchasing legal services. We also need to protect our current and future workforce better. In the 21st century marketplace the billable hour is on borrowed time.