The Billable Hour Must Die

Cover Story

It rewards inefficiency. It makes clients suspicious. And it may be unethical.

August 2007 Issue
By Scott Turow

Illustration by Jeff Dionise

SIDEBAR: New Routes into the Corporate Door

Three summers ago, my wife and I were driving my two older kids to the airport. The academic year was about to resume. The younger child, my son, was returning to college; the older, my daughter, to law school.

“Say,” I heard my son ask his sister in the backseat, “what do you think you’ll do when you get done with law school?” My daughter expressed some uncertainty but ended up answering, “I think I’ll become a litigator.”

I nearly hit the brakes.

“Oh,” I heard myself moan, “don’t be a litigator.”

My advice to my daughter had the usual effect—another demonstration of Newton’s third law, the one about equal and opposite reactions, a rule that also applies to parental advice. Before the academic year was over, my daughter had enrolled in a legal clinic and tried her first and second lawsuits. It was those experiences, rather than anything she heard from me, that led her away from the courtroom.

But, candidly, I was shocked by my own reaction. Because for the last 20 years I have chosen to continue my occasional role as a litigator, despite having the option not to do so thanks to my literary career. I have always believed that I’ve had a charmed life as a courtroom lawyer. When I left law school, I could not imagine becoming anything other than a litigator. The courtroom was where the law was made, where the fundamental struggle to fit the law to facts took place.

The people writing contracts were, in my youthful view, not much different from consultants. Although I have learned to love and appreciate hundreds of transactional lawyers in the years since, I notice, in looking over my novels, that I have not yet had a hero who is any other kind of a lawyer but a litigator. My protagonists have been prosecutors, criminal defense lawyers, a judge, a tort lawyer, a commercial litigator—even journalists. But no deal guys or gals. In the restricted zone of my imagination, it’s the litigators who are the real thing.

So why is it—given the satisfaction I’ve taken from being a litigator—that some piece of my heart shrieked out in opposition to the idea of my child doing the same?

CONTEMPORARY WOES

I believe what motivated my outcry, in a few words, is that I think it would be hard for someone starting today to have it as good as I have had it. The ratio of pain to pride has grown too high. And the contemporary environment has become much less congenial to aspects of the lawyering craft that deeply pleased me. We all hear the complaints from our colleagues, especially those in my age range who’ve been doing this now for decades. For too many litigators, our life increasingly is a highly paid serfdom—a cage of relentless hours, ruthless opponents, constant deadlines and merciless inefficiencies.

By now it’s obvious that the U.S. Supreme Court’s 1977 decision in Bates v. Arizona, which invalidated on First Amendment grounds the longtime bar on lawyer advertising, was the opening cannon shot that essentially set off the competitive war in our profession. In doing so, it did no favor to lawyers’ lifestyles. The free flow of information about who is making what that soon followed—courtesy of The American Lawyer—ushered in the big-firm star system, in which rainmakers rule. Because they are the lawyers who can most easily set up shop elsewhere, the threat posed by that mobility in turn has cued the struggle in every firm to ensure that incomes remain high, especially at the top of the pyramid.

Not that we, in the bar, have any right to complain. The fierce competition that now characterizes the business of being a lawyer is exactly what the market requires. No matter how much we’d like it to be otherwise, lawyers can’t claim any privilege to live by different rules from everybody else in our economy.

But I still believe that lawyers in general, and litigators in particular, are yet to confront the realistic limits of that competitive environment. And in this regard there is no more vicious culprit than the practice of basing our fees solely on the time spent on a matter.

Dollars times hours sounds like a formula for fairness. What could be more equitable than basing a fee on how long and hard a litigator worked to resolve a matter? But as a system, it’s a prison. When you are selling your time, there are only three ways to make more money—higher rates, longer hours and more leverage. As the years have gone on, the push has continued on all three fronts.

HOURS AMOK

Let me be clear: i don’t think there is anything wrong with lawyers making money. There is a unique satisfaction in representing somebody well and being rewarded for it in a manner commensurate with the effort and skill required. I am not engaged here in a jeremiad aimed at getting litigators to join in vows of poverty, or even to agree to make less. I believe enough in the free market to know that if what we ask our clients to pay us wasn’t worth it to them, they wouldn’t continue to do it. My concern is with the external effects of the system we are now following.

Consider, for example, the consequences of dollars times hours for those entering the profession. When I left the government for private practice in 1986, the hours expectation for young lawyers was 1,750-1,800 hours a year in the large Chicago firms. Today it’s 2,000-2,100—even 2,200 hours. And the only real outer boundary is that there are 24 hours in a day—and 168 in a week. Increasingly, if we allow time for trivialities like eating, sleeping and loving other people, it is clear, as a simple matter of arithmetic, that we are getting close to the absolute limit of how far this system can take us economically.

DIMINISHING RETURNS

More tellingly, the prospects for success for lawyers have markedly diminished over the years. Virtually all firms today make fewer partners and take a longer time to do it. And the smaller you make the eye of the needle, the more young lawyers arrive on the job as uncommitted nomads: at best, acquiring skills they’ll take elsewhere; at worst, cynically trying to pile up money before the ax falls. But both states of mind alienate them somewhat from the workplace, the colleagues they work with and the clients they serve.

Worst of all, however, is that when somebody is working 2,200 hours a year, he or she has less chance to pursue the professional experiences that nourish a lawyer’s soul. Lawyers of all stripes can and should offer their services for free to the needy, but I find it hard to imagine more satisfying work than pro bono litigation. That is because when you give the poor and powerless access to a just forum, there is a triumph—no matter what the outcome in a case. And the lawyer who is involved in doing that learns an invaluable lesson about the power and goodness that is inherent in being a lawyer.

I don’t know many young lawyers who leave law school without dreams of becoming pro bono princes and princesses; nor is there a dream of youth that seems to die faster. In my own firm, we give young lawyers some billable credit for pro bono time and also have a full-time pro bono partner who works hard to engage the firm’s lawyers in these projects.

And we are hardly alone in the profession; many other firms make similar efforts. These are noble gestures—and ones fully worth undertaking. But it’s still a little like King Canute ordering the sea to roll backward. As long as it’s dollars times hours times partners, we know that the tide will always rise.

Let me again make it clear that I am not calling for lawyers to band together to abandon hourly billing. The antitrust division of the Justice Department would be likely to have something to say about that, and well it should. But I am hoping that lawyers, especially litigators, will more often be bold enough to consider offering clients alternative billing arrangements. And I hope clients will be bold enough to accept them.

Many years ago now, I went shopping for a lawyer in Hollywood to represent me in the dealings I have been fortunate to have with movie and television producers in connection with my books. Naturally, I asked each of the lawyers I spoke to about his or her hourly rate. One attorney answered, “We don’t bill hourly. We use the fair fee method.”

Then I asked, “Pray tell, what is that?”

“Well,” he said, “we do the work, and at the end we get together and agree about what’s a fair fee.” This sounded to me like an invitation to jump without knowing whether there was water in the pool. “Trust me” is not a persuasive motto. A solid economic relationship ought to start out with both sides understanding the scope of the engagement.

One reason that dollars times hours continues to prevail is because it’s hard to devise a fair alternative. Columbus setting out from Spain, destined, in some minds, to sail off the end of the Earth, probably had a better idea what he was headed for than either a lawyer or a client at the inception of a piece of litigation.

Whatever alternative arrangements are made have to be flexible enough to adapt to changing knowledge and the unexpected. It will take some education and experimentation on both sides. But I think we have reached the point where that is virtually required.

The widespread practice of billing by the hours exists almost in defiance of the principles that are supposed to guide our profession. Of the eight guidelines mentioned in Rule 1.5 (Fees) of the ABA Model Rules of Professional Conduct, only one speaks directly to the time spent on the legal task. Yet, despite the fact that our profession’s guiding ethical rule encourages lawyers to look to other factors, dollars times hours remains the near universal standard of commercial litigation.

A SORRY SYSTEM

But at the end of the day, my greatest concern is not merely that dollars times hours is bad for the lives of lawyers—even though it demonstrably is—but that it’s worse for clients, bad for the attorney-client relationship, and bad for the image of our profession. Simply put, I have never been at ease with the ethical dilemmas that the dollars-times-hours regime poses, especially for litigators. And in this regard, I think my views depart from what is commonly acknowledged (including, I hasten to add, by disciplinary authorities, who of course have not disallowed the current system).

But from the time I entered private practice to today, I have been unable to figure out how our accepted concepts of conflict of interest can possibly accommodate a system in which the lawyer’s economic interests and the client’s are so diametrically opposed.

Looking again to the Model Rules, Rule 1.7 provides in part that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest,” which the rule defines as occurring when “there is a significant risk that the representation of one or more clients will be materially limited by ... a personal interest of the lawyer.”

I ask you to ponder for just a few minutes whether that rule can really be fulfilled by hourly based fees.

It is fair to assume, of course, that sophisticated clients are fully aware of the hazards of being billed by the hour. But we all know that conflict waivers require more than fair assumptions.

When was the last time any of us actually and explicitly set forth the problems of this system for a client, the way we do with other conflicts? Who ever says to a client that my billing system on its face rewards me at your expense for slow problem-solving, duplication of effort, featherbedding the workforce and compulsiveness—not to mention fuzzy math. Does anybody ever tell a client what the rule seemingly requires?

“I want you to understand that I’m going to bill you on a basis in which the frank economic incentives favor prolonging rather than shortening the litigation for which you’ve hired me.” The truth is that even to imagine that conversation would almost necessarily require the lawyer to be prepared to offer the client an alternative.

I understand some of the counterweights to what I’ve just said. There is more than a little merit to the idea that the market will reward efficient lawyers who labor to hold down their fees in the recognition that this will lead to further engagements. And of course, just like the vast, vast majority of self-respecting practitioners, I can say with conviction that I have never consciously ordered work or labored longer for the sake of increasing my bills. I think that litigators who send out bills are generally as stunned as their clients by the way time piles up.

But let’s not assume this is proof the lawyer reasonably believes the representation will not be materially affected. How many times have you heard a lawyer speak mournfully of the case that settled rather than going to trial, with the resulting detrimental impact on that lawyer’s economic fortunes?

More tellingly, who among us can say he or she has never accused the lawyer on the other side of “running the meter”—of doing unnecessary discovery, filing frivolous motions or foot-dragging before engaging in meaningful settlement talks—all to pad the fee. And that’s not just to make excuses to the client. When we say it, we mean it.

Looking at the lawyer on the other side of the v., we can see clearly how the temptation to earn more might impact a representation. If we can see the effects of the dollars-times-hours system so clearly when we look across the courtroom, how can we be so fully confident about ourselves?

Personally, I doubt that greed is the principal motivation for the overwhelming majority in our profession, including my opponents. First and foremost, lawyers want to believe they have done their utmost for their clients—and it would be a rare attorney indeed who took much satisfaction out of thinking of himself as well-paid but incompetent or undedicated.

Like every other conflict issue, the problem is one of appearances and temptations. But how can anyone ever know exactly why certain marginal tasks were undertaken? Anybody who has ever investigated a case or prepared to try one knows there is no limit to the potential issues, avenues for investigations, questions to be researched, or variable scenarios that the courtroom might offer. Dollars times hours subtly influences lawyers not to ask themselves what’s most probable. It offers scant rewards for discipline.

The more often lawyers find themselves engaged in wheel-spinning, in running out ground balls rather than focusing on the strike zone, the more isolated they feel from the principal goals of the profession, which will always be doing justice. But again, it’s the effect on the lawyer-client relationship that is the principal problem.

FEE FIASCO

As a result of hourly billing, the fee collecting process has grown far more fractious. There are now law firms that specialize in disputing other firms’ bills—and in-house nudniks who demand copious details and then flyspeck them.

Other clients search for means, whether it’s strict litigation budgeting or task-value billing, to put a finger in the dike.

But what does it do to the environment of our profession, to our perception of ourselves and our clients’ perceptions of us, that we are locked into a system in which clients are saying from the start of the relationship: I can’t really trust you to be fair to me. If there is even a grain of truth to that characterization, how reasonable is it to believe that our representations have not been materially affected?

America is ambivalent about lawyers. People are impressed with our knowledge and the power that knowledge gives us, and jealous of it as well. They see us as too often self-seeking, manipulative and greedy. We all know that this is not a balanced picture. Every time I hear about a DNA exoneration on radio or TV, I wait vainly to hear what I know is the rest of the story—about the lawyers, usually an army of them, who worked for years, generally for free, to give that prisoner back his liberty. The story of the lawyer doing good because he or she is committed to doing good is not one of the narrative themes American media are fond of presenting because it’s not something the public wants to hear.

But recognizing how far behind the eight ball we remain in the eyes of the public, should we really continue to engage in billing practices that even our clients, who know us best, have been telling us inspire distrust?

If I had only one wish for our profession from the proverbial genie, I would want us to move toward something better than dollars times hours. We have created a zero-sum game in which we are selling our lives, not just our time. We are fostering an environment that doesn’t provide the right incentives for young lawyers to live out the ideals of the profession. And we are feeding misperceptions of our intentions as lawyers that disrupt our relationships with our clients. Somehow, people as smart and dedicated as we are can do better.

Scott Turow, the author of Presumed Innocent and seven other novels, is a partner in the Chicago office of the law firm Sonnenschein Nath & Rosenthal. This article is excerpted from Raising the Bar, a collection of essays by a variety of authors about the modern practice of law, which will be published this month by First Chair Press. For more information, go to the ABA Web store.

Sidebar

Read a related story this month, New Routes into the Corporate Door.

Comments

Report Abuse

Posted by Adam - Jul 24, 2007 08:26 pm CST

Scott Turow’s point is refreshing. I even went to check out the book that’s referenced at the end. It looks like a similarly refreshing call to re-examine our professional priorities. Of course, it’s also priced at FIFTY BUCKS (well, thirty-five bucks for ABA members). So much for “money isn’t everything,” I suppose.
Posted by David Giacalone - Jul 26, 2007 05:15 pm CST

Scott Turow has chosen the wrong target, by joining the crowd and blaming the billable hour, rather than the greed of law firms and lawyers. Unless lawyers are willing to make less income/profit, a switch to alternative billing methods will benefit neither clients nor the lawyers who feel crushed by billable-hour quotas. See my post “chronomentrophobia” and the linked materials, at http://blogs.law.harvard.edu/ethicalesq/chronomentrophobia/

As explained in that posting, there is nothing unethical about hourly billing, as long as the lawyer sets the hourly rate by using the factors that Turow wrongly complains are irrelevant to hourly billing (such as experience, complexity, skill required, etc.), works efficiently and competently, and keeps the client well-informed. (Of course, the ethical lawyer knows that “actual hours X rate” is the maximum that will be charged the client—with hours reduced for time used inefficiently or getting up to speed in a new field.)

Clients expect â€œalternative fee arrangementsâ€ and â€œvalue billingâ€ to result in lower overall fees. It’s the Alternative Billing gurus, who tell lawyers they can switch from hourly billing and make higher â€œpremiumâ€ fees while working less, whose ethics need to be scrutinized.

Life will not get more balanced for associates, if the regime of billable hour quotas is discarded, unless it becomes perfectly acceptable for the young lawyer to generate less income without it affecting future partner status. Indeed, if not, and the firm management still expects each lawyer to produce the same amount of billed income, it might get even more stressful â€” the associate wonâ€™t know how to keep score; wonâ€™t know if he or she is keeping pace for the year. That might be especially true if fee contracts with clients are based on some post-completion assessment of the â€œvalueâ€ or the performance to the client.

Complaining about â€œthe billable-hours regimeâ€ is like a condemned man complaining about the executioner using a rope. If they get rid of the rope, they will substitute another means to secure his death. Itâ€™s the death penalty that is the problem not the rope. Similarly, it is the insistence that enormous amounts of fees by generated by each lawyer that is the problem for clients and lawyers, not the formula used to calculate the fee.
Posted by Joseph R. Martan - Jul 27, 2007 06:09 pm CST

I won’t question Mr. turow’s sincerety in what he wrote - but one of the recent effects of the billable hour bane has been the rapid growth in silk-stocking big firms to de-equitize or even fire equity partners because they aren’t billing enough (at least in the eyes of the handful of hard-charger - and usually younger - “rainmakers.” The reason I say I find the author’s comments ironic is because the firm he works at was one of the first to engage in a large-scale “purge” of partners back in 1999 and it is currently one of the big firms engaged in the race to see who can pay more to snot-nosed newly minted grads from Harvard and Michigan who whatever their academic bona fides remain unproven quantities in the nitty-gritty, down-in-the trenches practice of law. Is this a backdoor way of saying maybe our profession - particular the Brahmins on the top levels - have become simply too greedy? I guess it is - and the growing number of derogatory comments in the press or from the man-directed against the profession are the prima facie proof.
Posted by Darryl Cunningham - Jul 30, 2007 01:52 pm CST

In many respects, I agree with Mr. Turowâ€™s view of billable hours for many, if not most, legal transactions. Billable hours often encourage exaggerations and fishing expeditions into actions or legal positions that are not reasonably expected to produce a good result for the client. In most instances, a flat fee, a value added fee, or a contingent fee would be best for the client, who can better budget for the expense, and for the attorney who has an incentive to stay focused to the task, to work efficiently and effectively, and who should be able to forego the wasted administrative time and resources of time keeping.

More importantly, I agree with his position that billable time as a measure of success is a disincentive to pro bono work. Few lawyers, irrespective of their principles, will regularly give away the few hours that may be given them after twelve hour days (or often more) to help someone who cannot pay them and for which the effort will not be seen as productive by those judging them on the partnership track. Client loyalty and dollars actually paid provide better long term results than the use of billable hours

As a profession, we need to evaluate our work ethic with a fresh set of eyes and thought processes to rebalance professional time and success with personal time and success. In most circumstances, I believe our families would gladly exchange a few dollars in the bank for a few hours at home while the sun still shines. Those hours will form the fabric of memory and enjoyment for years while the billable hours will be forgotten the day after the bill is paid and the money chase begins anew.

Perhaps, Mr. Turowâ€™s firm will set the trend and put its money where his pen has been.
Posted by David Giacalone - Jul 30, 2007 04:19 pm CST

If you do not trust lawyers to be honest and efficient, when they are billing by the hour, why would you trust them to be consistently diligent when working for a flat fee, or trustworthy when setting a fee based on value created for the client?

The long history of the use of the contingency fee, for example, shows that most p/i lawyers ignore their ethical obligations (e.g., to fully-inform clients of the likelihood of success and how much work and expense the lawyer is likely to put into the case, and to set the percentage based on the degree of risk undertaken, the complexity of the case, and the likelihood of a quick or easy resolution. See ABA Formal Ethics Opinion 94-389). They instead unfairly charge virtually all clients the same “standard” fee, and turn away clients whose cases appear to be too risky or difficult.

Clearly, it will take more than a change in how fees are calculated to improve fees from the client’s perspective. It will take lawyers and firms more interested in professional duty than in profits.
Posted by Daniel Solove - Aug 5, 2007 11:33 am CST

I have blogged about this terrific article and the problems of the billable hour iin a post entitled Bye Bye Billable Hour.
Posted by Stephanie Kimbro - Aug 5, 2007 01:45 pm CST

“I am hoping that lawyers, especially litigators, will more often be bold enough to consider offering clients alternative billing arrangements.”

I agree with this statement made by Turow in his article. It was taking an initial risk professionally, but I have been practicing law online from a virtual law office where I can offer clients price quotes and fixed fees for my services. It’s similar to the “fair fee” system Turow mentions in the article. It lets my clients know upfront what they can expect to pay so that they may budget for it. The system has a learning period for the attorney to figure out the balance of how many hours it will take to do a project and then equate that with a fee based on the initial consultation with a client. However, the client response to this system of paying for legal services has been great. I’m hoping more attorneys will consider this or at least integrate it along with their current billing methods. Virtual law practice is also a great way to provide cost-effective services to clients. Without the overhead of a physical law office it also makes sense for the attorney.

If anyone is interested in how it works, Virtual Law Office Technology (VLO Tech) provides software that sets up virtual law offices for attorneys (patent pending). Again, I’ve been practicing law completely online for over a year now and the public response has been very positive. It provides a good alternative to the traditional billing system.
www.kimbrolaw.com
Posted by Jason Vunderbest - Aug 7, 2007 11:09 am CST

as a 1L about to enter law school this article was extremely eye opening for me. I personally was TOTALLY unaware of the whole lawyers x partners x fees structure and the more and more I think about it, the more and more I wish a better oppourtunity for young lawyers was avaible than becomming beholden to the ‘old white men’ who keep an iron grip on the largest firms in the industry….

This line is really the kicker: ““I want you to understand that I’m going to bill you on a basis in which the frank economic incentives favor prolonging rather than shortening the litigation for which you’ve hired me.” The truth is that even to imagine that conversation would almost necessarily require the lawyer to be prepared to offer the client an alternative.”

excellent article scott.
Posted by J. Alick Henderson - Aug 8, 2007 07:29 pm CST

Great article. I was only in private practice for a year before going the gov’t route, but that one year certainly opened my eyes to the problems you highlighted in your article.

As a young lawyer, training and mentoring are more important to me than money. Unrealized by me at the time, when measured in billable hours, I was just as valuable reviewing endless discovery documents as I was doing something substantive or learning valuable advocacy skills, and the latter required less work of the senior attorney and ensured that i would not be taking work from them anytime soon.

I think as salaries and billable hour requirements go up, more young attorneys are going to say, as Mr. Turow succinctly put it, “I’m willing to sell my time, not my life.” Maybe those same lawyers can tell their clients the same thing when they are asked if they can be trusted despite the economic incentives of the billable hour system.
Posted by J. Alick Henderson - Aug 8, 2007 07:36 pm CST

Scrap latter, and insert former.
Posted by Ron Baker - Aug 9, 2007 02:56 pm CST

As one of the “Alternative Billing Gurus” that David Giacalone so disdainfully labels, I must weigh in on this topic.

First, Scott is absoutely right about how the billable hour misaligns the incentives and the client right at the start of the relationship. This is simply not professional, and would not be tolerated in any other industry.

Lawyers don’t sell time because that’s not what clients buy. How can you sell something the client doesn’t think they’re buying? Lawyers sell intellectual capital, the value of which is not at all predicated on time.

The idea that it is,however, dates back to Karl Marx’s labor theory of value, which has been repudiated by economists since the Marginalist Revolution of 1871.

The billable hour is also sucking the life out of associates, placing them on a treadmill they can’t keep up with. Who entered the legal profession in order to bill the most hours?

The alternative is fixed prices, provided up-front to all clients, for a pre-determined scope of work. When the scope changes, you use a Change Order, just like a mechanic or contractor.

Many firms, in accounting, technology, advertising and law, are already doing this and the clients love it. It gives them certainty in price.

As for David’s comments (#2 and #5), I continue to be amazed by his economic ignorance on this topic. If the billable hour is such a fair and ethical pricing method, David, why don’t other businesses use it?

Would you fly on an airline that charged you $4 a minute. You say the problem is greed and profits, but this is kindergarten thinking, as if profits and serving the public were in conflict.

If men were angels, we wouldn’t need government, but they’re not. Nor are lawyers when confronted with the perverse incentive of the billable hour. Incentives matter, as any economist will tell you.

Your argument against fixed prices up-front don’t hold up to empirical reality. It is how every other business prices, and the quality of cars, homes, electronics has risen, not decreased.

You say it’s the gurus of Value Pricing whose ethics need to be scrutinized, and I wonder if you are familiar with Kant’s Categorical Imperative? Would you want hourly billing to be universal? If not, why not? Because it leads to unethical behavior.

Condemning fixed prices is charging all businesses with being unethical. That is simply nonsense on stilts.

But the real problem is there is no relationship between time and value, period. I defy you to show me an economic theory that proves otherwise.

The billable hour is an idea from the day before yesterday, perpetuated by old men, in old firms with old ideas.

If the professions can’t do any better for their clients, they deserve the same fate as the scribes.

I hope, given Scott’s influence, he can change the way the legal profession prices, and once and for all scrap the antiquated system known as the billable hour.

My think tank, VeraSage Institute is dedicated to doing just that, as are all my books.

And much to the chagrin of David, I’m sure, we are making progress.
Posted by Another David - Aug 13, 2007 02:02 pm CST

Physicians generally use task-based billing. I haven’t heard much cheering from them about it.