The Failure of Billable Hour

Jordan Furlong, the author of law21.ca, dispatches from a legal profession on the brink and has a great article about why ‘billing by the hour’ fails called, "The failure of billable-hour compensation." Not only does the billable hour technique wreak havoc on the lawyer-client relationship, but is also very destructive to the law firm and employee relationship especially during these tough economic times. 

Furlong states that "the problem, of course, is that every lawyer, from the rawest associate to the oldest partner, is scrutinized annually on the basis of the number of hours he or she has billed to clients. You never outgrow it and you never escape it – it’s a permanent, pernicious blot on the law firm landscape."

He continues to mention that "one of the oldest rules of economics is that people value that for which they are compensated. Compensate a lawyer on the basis of year-end client reviews, and that lawyer will move mountains to ensure satisfied clients. Compensate her on the basis of revenues actually brought in (rather than hours billed), and she’ll be a collections fiend, billing regularly and following up to make sure there’s no outstanding work lingering in the pipeline. But compensate a lawyer for the number of hours he invoices to clients, and that lawyer will lowball everything else — efficiency, timeliness, value, communication, even ethics — in order to maximize the amount of time he can take to address a client’s request. That’s the kind of lawyer our law firms have bred and unleashed on the marketplace for half a century."

It is true that with this type of billing practice, it does not take long for "smart, dedicated, hard-working young men and women who are passionate, even geeky about the law, introduced them into one of the world’s finest and noblest professions, and within just a few years, made them hate it."

I, too, was faced with exactly the same situation in my previous employment at other law firms.  Bill all the hours you can.  However, this would most certainly result in many of the clients being fearful in contacting me as their attorney about anything that wasn’t extremely critical in their case.  How can an attorney or law firm build a long-lasting trusting relationship with any client when the client is afraid to contact them because they do not want to receive an invoice for a few hundred dollars for a couple of discussions.  In starting my own firm, Traverse Legal, PLC, we use a flat fee billing method for many of our cases where we can defined the deliverables that will be accomplished for a flat rate.  This method allows our clients to know what exactly what they are getting for their money and also allows them to contact us as much as they want without the fear of receiving another invoice for conversations about basic questions or information for their current matters.  I believe that using the flat fee billing method instead of the hourly billing method has made a significant difference in our practice of law and we are able to continue to build strong, lasting relationships with our clients.  I also wake up each day excited to practice law for our clients.