The Billable Hour: Putting it Out to Pasture to Improve Access to Justice
March 23, 2016
By Bob Glaves | CBF Executive Director
While it’s been years in the making, with some notable exceptions our profession has managed over time to price the proverbial regular guy out of the market for legal services. It has reached the point that many lawyers will tell you only half-jokingly that even they could not afford their own services if they were to encounter a serious legal problem.
In part, this sad state of affairs is a reflection that in too many cases, our services as lawyers really have become too expensive for low and moderate income people who need them. It also is a reflection though that the market for legal services is largely opaque when it comes to pricing: 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.
These are problems largely of our own making, and the billable hour is a common denominator. As the primary means of pricing for legal services in the consumer and small business markets, it lacks certainty and misaligns incentives for efficiency, innovation, and value. One of the most important steps we can take to improve access to justice in our community is to simply get rid of the billable hour and replace it with more transparent and value-based pricing arrangements.
Before going further into this post, I should note that I am talking about the pricing issue only in the context of the consumer and small business market. Whether the billable hour should continue to have a place in the corporate legal services market, where there are more sophisticated buyers of services who have more options and can make more informed decisions, is for others to decide. There is no question many who serve this market already have moved away from the billable hour very successfully though.
Scott Turow’s provocative 2007 ABA Journal cover story, “The Billable Hour Must Die”, Cravath Partner Evan Chesler’s “Kill the Billable Hour” column in Forbes in 2008, and Seyfarth Shaw Chairman Steve Poor’s more recent observations on the firm’s Rethink the Practice blog are just three examples of the many high profile law firm leaders convincingly making this case. This also has been a frequent topic on the ABA’s New Normal Blog and is one of the key tenets of the ACC Value Challenge, just a few of many places where that conversation increasingly is taking place.
Access to Justice: It’s not just a problem facing the poor
When we think and talk about access to justice, it’s most often in the context of low-income and disadvantaged people. And rightly so, given that legal help plays such a critical role in leveling the playing field for the most vulnerable in our community yet continues to be out of reach for most people who need it. Yet moderate income people do not fare much better when it comes to finding affordable legal help, with very real consequences for them, the justice system, and the entire community.
To address this growing gap, a lot of attention currently is being paid to expanding services and resources for people without lawyers, including self-help services and technologies, online dispute resolution, and other accredited professionals. While all of these approaches have a place on the continuum of access to justice, they can never come close to fully substituting for the legal services good lawyers provide.
Our profession needs to pay a lot more attention to how we can make our services more affordable, and moving away from the billable hour is a necessary first step towards achieving that goal. That is why one of the core principles of the CBF’s Justice Entrepreneurs Project (JEP), which helps newer lawyers develop innovative practices to make their services more affordable and accessible for low and moderate income people, is to offer fixed fee and flexible representation options.
It wasn’t always this way, and there is no reason it needs to continue
When you bring up pricing through means other than the billable hour to most lawyers practicing today, you’d think the billable hour had been with us since the Big Bang. It actually is a much more recent phenomenon though, and only became the primary mode of pricing in our profession a few decades ago.
If you have time to watch a roughly 25-minute video, I highly recommend this YouTube video. It actually is from a Canadian design professional, not a lawyer, and he lays out the twisted history behind how we got to the billable hour system as our predominant means of pricing. And more importantly, he lays out the prescription for getting out of it: just say no!
Many parts of our profession already function pretty well without ever using the billable hour, with practices focused on personal injury, real estate closings, traffic matters, and immigration services as just a few examples. Companies like Avvo increasingly are offering fixed fee services to the larger consumer market in other areas of law as well.
Shifting the conversation and charting a new and better path
Any discussion of pricing should focus on the value being delivered for the client. I shared some thoughts on the value we provide as lawyers in my previous post on Access to Justice and the Future of our Legal Profession, and there are clearly some better ways to reflect that value than pricing by the hour.
There are three fundamental problems with the billable hour being the method of pricing when you look at it through the client value lens. The first, noted at the outset, is that the client has no idea how much the services are going to cost, and as a result, generally is not in a position to make a cost/benefit judgment about the value of the services.
The second fundamental problem is that the billable hour focuses only on the lawyer’s “inputs” rather than the value the client is getting from the services. Clients are not seeking to buy your time; what they want is to buy your services to help them achieve a particular end goal (e.g., a business deal, recovery or protection of funds, peace of mind, etc.). When the lawyer earns money based only on the amount of time spent, and not on the results achieved, those goals are not aligned well. And all of the risk effectively sits with the client if things do not go as planned.
The third fundamental problem with the billable hour, closely related to the first two, is that it creates perverse disincentives to efficiency and innovation. This is not to say that lawyers consciously or intentionally put more time into something just to make more money, though I think virtually all of us who have practiced unfortunately have seen that occur. The real problem is that when the lawyer uses technology and other steps to be able to resolve things faster and more efficiently—which is usually exactly what the client is looking for—the lawyer makes less money despite delivering greater value.
We can see this when we look at contingency fee practices like personal injury and other law practices that do not bill by the hour. What we tend to see in those instances is a much different ratio of lawyers to other professionals on their staff (i.e., more paralegals and other assistants, less lawyers), and many more regular and innovative uses of the latest technologies. The reason for that is they have no incentive to spend any more lawyer time on something than is justified to reach the best outcome, and every incentive to reach that outcome as efficiently and expeditiously as possible.
This is not to say that transparent and high-efficiency services can never happen when lawyers are using the billable hour. There certainly are examples of good lawyers who are doing all the right things while still using the billable hour, but when that happens, it is a lot more difficult and a lot less transparent than it needs to be.
The way forward
Because the billable hour is so ingrained in our profession today, and the current market is so opaque, there won’t be much specific guidance yet about the right form of alternative pricing for every potential client you are going to see. While it will require some experimentation for you to understand what works best for particular types of cases, lawyers willing to take that plunge already are proving it can be done in a way that is a win-win for the lawyer and the client.
There are a variety of value-based pricing approaches that can work well, and reviewing them all here is beyond the scope of this post. There are some good resources to help you in the journey, including the CBF and JEP’s newly released Pricing Toolkit. There is a great CBA program on April 15th, The Future Is Now – Client Centric Strategies, where the Canadian Bar Association’s “Do Law Differently” initiative will be featured, and pricing will be a big part of the program as well. You can also be part of the ongoing discussion on these issues with the CBA Young Lawyers Section Future of the Profession Task Force and the CBA’s many great Law Practice Management programs and resources.
The way forward starts by simply committing to a better, value-focused pricing approach. While I know that is easier said than done, if it was easy, everyone else already would be doing it. We can make some big strides for access to justice and our profession’s future if we are just willing to try.