Top Ten Reasons the Billable Hour Needs to Go
By Bob Glaves | CBF Executive Director
The billable hour continues to be a significant and self-inflicted barrier to access to justice. Whatever its merits may be in the corporate market, for low and moderate-income individuals and small businesses the billable hour makes legal services less affordable and accessible because it lacks transparency and certainty and misaligns incentives for efficiency, innovation, and value.
Albert Einstein said If I had one hour to save the world, I would spend the first 55 minutes defining the problem and 5 minutes finding the solution. Here are my top 10 reasons the billable hour is a problem for access to justice.
10. It’s Opaque
People who might be able to afford the legal help they need often don’t even try to get a lawyer because they have no idea what it might cost or whether it is a good value for the money. Transparency matters!
9. It Lacks Certainty
Closely related to #10, the billable hour is unpredictable for the client as to what they may be on the hook to pay from month to month and leaves the client with little sense of control. Legal matters of course often are unpredictable too, and quoting a fixed price for an entire matter often may not always be realistic. But the billable hour adds far more unpredictability for clients than necessary, effectively putting all of the risk on the side of the client if things are more complicated or take longer than expected through no fault of their own.
8. It Hinders Competition
Because the billable hour is opaque and lacks certainty, it is very difficult for consumers to compare one lawyer or firm to another based on price, and little incentive for price competition as a result. While price usually is not the most important determinant in the decision to choose a lawyer (assuming the price can be discerned see #10 above), it is certainly a relevant consideration for people on a budget. In the UK, that is the primary reason that regulators are pushing for price transparency in their legal market.
For areas of legal practice where fixed fee pricing is the norm like consumer bankruptcy, real estate closings, or DUI cases we see price competition is much more common. If a lawyer or firm really can handle a case sustainably at a lower price, they have every incentive to do so and will differentiate themselves in the market.
7. It Rewards Inefficiency
For most consumer markets, when something is done inefficiently and/or takes longer than necessary or expected, the one holding the bag is the seller of the goods or services. Not so for legal services where the billable hour is the norm. Taking longer than necessary to do something or doing it inefficiently leads to more revenue for the lawyer.
6. It Can Unnecessarily Turn the Client Against the Lawyer
Clients who are paying by the hour (or tiny increment thereof) often become afraid of calling their lawyer when they have questions because they know the clock will be running. And many become skeptical of whether the lawyer had to take that deposition or file that motion, putting unnecessary strain on a relationship that should be one of true partnership between lawyer and client.
5. It Focuses on the Wrong Things
The billable hour focuses on the inputs for a particular legal matter (i.e, the lawyer’s time) rather than the outputs (i.e., how well the client’s goals are achieved). Tracking and evaluation thus tends to focus on the inputs of how much time went in to the case rather than evaluating progress towards the client’s goals from the representation. The medical profession is grappling with this same problem right now.
4. Value to the Client Is Not Rewarded
Unless a client seeking to nuke the other side or drag out litigation, in which case you should think about whether that is a client you want, a typical client values getting something done as quickly as possible. But the billable hour rewards delay and additional work.
To take just one example, a lawyer representing a client in a consumer debt matter may be able to get a case dismissed or settled on very favorable terms by simply writing a letter or filing an appearance in court. The lawyer immediately changes the power dynamics at play and gives the client new leverage. But in the billable hour construct, the lawyer gets less money in that instance (potentially significantly less) then he or she would if the case drags out even though the client got high value from the lawyer’s services.
3. It Acts as a Perverse Disincentive to Efficiency and Innovation
While I believe the great majority of lawyers operate ethically within the billable hour structure and strive to achieve the best results for their clients as efficiently as possible, there is a not so subtle disincentive to spending time and money on technology or other practice management tools to make their legal services more efficient. Doing that just leads to more costs and less revenue for the lawyer, and it is hard to imagine there is not a subconscious effect on lawyers (or anyone charging for their services) in the billable hour scenario.
2. Robots Don’t Bill by the Hour
As Geoff Colvin of Fortune Magazine and Tom Friedman in the New York Times have illustrated well (along with many others), technology keeps getting better and better at providing resources and services to us humans that not long ago seemed unimaginable. It also is creating better tools all the time to make us more efficient and accessible in virtually all parts of our lives.
Whether or not they are actually a good thing for clients for their particular issues, self-help technology tools increasingly are available to people for free or relatively low fixed prices. And for the services where lawyers will continue to be critical for clients (which I’ll be talking about more in my next few posts), technology increasingly will make it possible to provide those services faster and more efficiently.
1. The Excuses Suck
Most lawyers at least recognize that the billable hour has its faults, but the most common response is that so-called alternative fee arrangements aren’t feasible unless there is almost complete certainty in how much time a matter is going to take (e.g., drafting a will) or the client has a viable matter with money at stake where a contingent fee model can work well.
The concept of factoring risk and uncertainty into pricing is a part of just about every other business, but has proven a difficult proposition for much of our profession. Many lawyers and other business entities are in fact figuring out how to offer fixed pricing options (whether a fixed fee for a whole case, fixed fees for phases of a case, subscription fees that are fixed per month or quarter, and/or limited scope representation), including a number of lawyers building successful practices through the CBF’s Justice Entrepreneurs Project (JEP). It definitely can be done, but not without accepting some risk and being willing to do things differently.
Most lawyers act as though the billable hour always has been the dominant model. The truth is the billable hour is of very recent vintage in our profession. This video lays out the twisted history behind how we got to the billable hour system as our predominant means of pricing, and it really only became prevalent in the 1970’s. Somehow the profession survived and thrived for centuries using other pricing models, and aside from the awkward matter of antitrust issues that developed near the end of that era, fixed pricing options seemed to work just fine for everyone.
The Way Forward
Having better defined the problems with the billable hour, the way forward starts by simply committing to a better, value-focused pricing approach. In my next few posts, I’m going to focus more on what value is going to look like for legal services in an era where technology increasingly is able to do things we once took for granted had to be done by lawyers. A clear understanding and focus on that value will be the key to developing better pricing approaches that improve access to justice and are a win-win for lawyers and the clients who need our help.