Billables dominate the labour and compensation dynamics within the legal profession. This article dives into the nuances, advantages and disadvantages of the billable hours, and a peek into alternatives to this long standing practise.

What is the billable hour, and how does it work

The billable hour is at the core of the labour and service structure in law.[1] It is the arrangement wherein lawyers bill their clients by the time attorneys have spent working, in contrast to invoicing a preset fee like other services. In contemporary corporate law, the practise is to measure the time spent in six-minute intervals – using applications.[2] A fixed value of money is predetermined for each hour of a lawyer's time spent on a client’s matter – a partner's time more valuable than an associate's – and more hours worked means more money earned.

What does the billable hour cover?

The billable hours only include the time spent directly serving the client. Hence, it excludes education programs, bar work, administrative activities, and general firm management. Professional development, firm meetings, e-mail management and networking events are also excluded. It covers tasks directly related to a client's case – performing legal research, developing the claim, attending hearings and communications and outreach with the client.[3]

The Billable Hour: A Critique

Advantages

The billable hour is the dominant form of legal fee arrangement worldwide and in India.[4] The apparent advantage to practitioners is convenience and ease of use – track the hours spent working on different tasks, break each hour into six-minute intervals and multiply it by a standard time rate. It does not require diligent pricing strategies or advanced market research. The billable hour arrangement facilitates simple and efficient administration, accounting and is inherently convenient.

The second advantage of billable hour arrangement relates to the unpredictability of time and effort in law. Success in a transaction often depends on variables other than the lawyer's skill. For example, one criminal trial may be resolved in a few months with the focused effort of two litigators, while another might take years and the combined might of a five-man team, even if both trials pertain to similar crimes. The billable hour arrangement allows lawyers to have consistent, predictable pay. The legal professional can be sure of his payment, even when outcome of his work is not assured. Unlike fixed fee arrangments, billable hour structures account for the inherent unpredictability of legal transactions.[5] The game becomes one of volume, and employers favour billable hours so each hour may be accounted for and charged.

Disadvantages

Despite its domination, the billable hour structure has been widely criticised, some even going so far as to claim it the "root of all evil" plaguing lawyers' work-life balance in the legal profession.[6] The significant disadvantages surface when one looks at situations where the billable structure can be misused. It has been even called “infeasible – too expensive and unpredictable, and does not reflect value.”[7]

The goal of a law firm working in a billable hour arrangement is to maximise the hours spent. When there are no principles to limit as to how these hours are attained, the system does not reward efficiency, unlike other businesses where giving the necessary result within the shortest possible timeframe is the marker of success. Critically, there is gains to be made in taking more time to do a task when the system is abused. Instead of teaching lawyers to finish their work quicker, this practice rewards them for tracking the most time doing it.

Client relations are hit hard by billable hour arrangements – most clients are used to the efficient and result oriented practises in their own businesses, and are baffled why cost of tasks performed by lawyers are difficult to predict.[8] Fears that lawyers may conduct excessive conferences, overcharge, overemploy or intentionally delay proceedings are rampant and are in cases, justified.[9]

Alternative Arrangements

As a result of pitfalls and disapproval from clients and lawyers, law firms started trying out alternative arrangements for the billable hour as early as the 1990s.[10] Today, alternative payment arrangements slowly compete against the billable hour.

Lighter alternatives to billables are volume discounts, blended rates wherein one single median hourly rate applies to every lawyer in the firm irrespective of seniority, discounted hourly rates, and a cap on the total billable hours for specific matters. While these "lightweight" alternatives may reduce the burden on clients, they do little to counter the significant disadvantage of the lack of reward to efficiency and productivity in law firms.

The fair fee method is one in which lawyers and clients get together after the matter's resolution and negotiate an appropriate fee. It rewards maximum efficiency and strife for a favourable outcome at the cost of administrative and logistical inconvenience[11].

Flat fee arrangements are wherein lawyers charge specific, predetermined fees for a particular legal service, e.g. filing a writ petition costs a client Rs. 50,000, irrespective of the petition's outcome or nature of the claim. Law firms in India have already started operating on this model, deciding fixed fees for conducting specific transactions for specific results.[12] These changes have accelerated after the COVID-19 Pandemic.[13] Flat fees bring transparency to attorney-client relations and contribute to better working environments within firms, prioritising efficiency and results over maximising the hours expended on a task. However, they come at the cost of complexity and the need to outline specific and transparent pricing structures for services rendered.

Conclusion

Billables have reigned far, wide and long as a measure of a law firm’s success, revenue and the means of charging for legal services. The system is simple, convenient, tractable and accounts for the inherent unpredictability of legal work. But the disadvantages are punishing efficiency and results, leading to work-life imbalance for lawyers if they wish to ensure maximum pay, and strained client relations.

Alternatives to the billable, such as flat fees, fair fees and contingency or retainer arrangements, are gaining traction in the legal flora of India and elsewhere. There might come a time when embracing alternative billing methods grows out of a strategic choice to promote efficiency in firms to a necessity for staying competitive and improving client relations. Soon, the billable may meet its demise, and attorneys armed with alternative arrangements shall lead the charge into the new era of legal practice.

[1] M. Mortazavi, Lawyers, Not Widgets: Why Private Sector Attorneys Must Unionize to Save the Legal Profession, 96 Minnesota Law Review 1482, 1490 (2012), available at https://ssrn.com/abstract=2836259, last seen on 25/11/2023.

[2] Time is money, but how do lawyers measure it, the Legists, available at https://www.thelegists.co.uk/time-is-money-but-how-do-lawyers-measure-it, last seen on 25/11/2023.

[3] Billable Hours: A Small Law Firm’s Guide to Maximizing Time and Profits, LexisNexis, available at https://www.lexisnexis.com/community/insights/legal/b/thought-leadership/posts/billable-hours-a-small-law-firm-guide-to-maximizing-time-and-profits, last seen on 25/11/2023.

[4] N. Dixit, Fee Arrangement: Rethinking the billable hour, Asian Legal Business, available at https://www.legalbusinessonline.com/features/fee-arrangements-rethinking-billable-hour, last seen on 25/11/2023.

[5]S. Turow, The Billable Hour Must Die, ABA Journal, https://www.abajournal.com/magazine/article/the_billable_hour_must_die/, last seen on 25/11/2023.

[6] Supra 1.

[7] E. Couric, Firms Offer Alternatives to the Billable Hour, Alternatives to the High Cost of Litigation (07/07/1992), available at https://doi.org/10.1002/alt.3810100704, last seen on 25/11/2023.

[8] Committee on Lawyer Business Ethics, Business and Ethics Implications of Alternative Billing Practices: Report on Alternative Billing Arrangements, 54 The Business Lawyer 175, 189 (1998), available at https://www.jstor.org/stable/40687848, last seen on 25/11/2023.

[9] J. Greene, Stressed, lonely, overworked: What new study tells us about lawyer suicide risk, Reuters (16/02/2023), available at https://www.reuters.com/legal/litigation/stressed-lonely-overworked-what-new-study-tells-us-about-lawyer-suicide-risk-2023-02-15/, last seen on 25/11/2023.

[10] Ibid.

[11] Supra 5.

[12] V. Chatlani, Getting the price right, India Business Law Journal, available at https://law.asia/annual-billing-rates-survey-legal-fees/, last seen on 25/11/2023.

[13] Ibid.