The Tyranny of the Billable Hour - Lawyers' Nightmares

Newly minted attorneys in large firms quickly learn one thing: the only thing that really matters to the firm head honcho's is how many billable hours one racks up.  While you hear platitudes about firm's respecting attorneys' home lives and valuing families, etc., it is all really a lie.  I experienced it myself fresh out of law school and associates at big firms are still living the nightmare of horrific hours at work and little or no social life.  Indeed, many of the very successful attorneys that I have known - success being defined by the amount of money earned - typically have been through one or more divorces and have been absentee parents.  Despite what the law firms claim, you do not get to have it all and you must often choose between family and "success."  A piece in the New York Times looks at the continued dysfunction in the world of law firms.  Here are excerpts:

“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. 

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.

There’s a way out of the mess. But it requires clients to press harder for alternative fee arrangements, courts to back away from policies that embed the billable hour, law firm leaders to stop rewarding excessive associate hours and senior partners to consider the deleterious consequences of their myopic focus on short-term profit-maximizing behavior. 

In fact, a cottage industry has now developed in auditing outside law firm invoices to clients. Even so, as the deceit associated with the billable hour continues undetected, equally insidious consequences of the entire system endure. The episodes of public embarrassment will remain infrequent, and the triggers producing them will be idiosyncratic. DLA Piper’s current notoriety began when a former client refused to pay his roughly $675,000 bill. The firm sued him last year, and its internal e-mails about the matter became subject to discovery. Before long, they landed on the front page of The New York Times. 

DLA Piper said that the comments of its lawyers were “an inexcusable effort at humor.” What’s really not funny is the toll that the flawed system is taking on a vital profession. 

Candidly, life in a big firm is a nightmare and I'd only wish it on my worse enemy.   Most of my clients now want flat fees if the work involved allows it.  I may use an hourly rate and estimated number of hours required to set the flat fee, but once set the temptation to pad hours so prevalent in big firms vanishes.  The result is that clients do not continually get ripped off.