Hourly billing is accurate, transparent and ethical. Really?

With “Hourly billing is accurate, transparent and ethical” John Chisholm demonstrates why he is regarded by many of his colleagues as an important iconoclast.

John writes: Recently an Oldlaw* partner told me that while a small minority of lawyers may have abused time-based billing, overall hourly billing is “good” because it is “…accurate, transparent and ethical“.

This is not the first time I have heard (and read) similar comments as justification for maintaining the billable hour model. Indeed when I was still a practising  lawyer I used similar justifications myself.

While there are several purported excuses for the existence of the billable hour, including:

• it is easy to implement and understand,
• it records effort,
• all professionals sell time,
• it is the norm as most of our competitors charge by time too,
• it is acceptable to most clients and some demand it,
• our practice management system is built around time,
• our firm’s measurement and rewards structure is built around time,
• it transfers all risk to our client.

I, like many, challenge the notions that the charging by time is “accurate, transparent and ethical”.

*“Oldlaw” I define as any law firm – big or small – that leverages people x time x hourly rate.

 “The billable hour is accurate”

Accurate = To be correct, exact, without any mistakes

To charge by time, you must keep a record of your time. And if your contractual engagement with your client is to charge by the hour or part thereof (broken down into 6, 10 or 15 minute units or whatever other iteration the management consultants, most of whom do not charge by time themselves, dream up) it follows that your time recording must be, at the very least, reasonably accurate.

Ever since the introduction of time-based billing, Oldlaw firms of all shapes and sizes have been drilling into their “fee earners”(an awful expression, only exceeded by the derogatory term “non-fee earners”) the importance of accurately recording all billable time because that is what is primarily measured and rewarded.

Manual recording by time has moved to automated recording. A plethora of practice management vendors extol the virtues of their systems which “capture time”. Alas! Even with all the help from technology we still cannot seem to get time recording accurate.

Why? Simply because time recording requires human input to either manually record time or to push a button to start/stop automated time recording. It is physically and psychologically impossible for human beings, no matter how good their intentions, their intelligence or their “time capture” software to accurately record time spent. Law is not practiced in some kind of vacuum. Like most of us, lawyers are often interrupted on whatever they are working on by emails, by colleagues (including those “non-fee earners”), by phone calls, texts, etc-so unavoidably accurate time recording gets ‘overlooked’.

At best, any professional records the time they think they spent on something or what they think they should have spent on something.

At worst, we  forget completely the time we spent on something maybe for always and sometimes for days or even weeks (often until the managing partner sends an” all firm” email on the second last day of the month reminding all that “chargeables are down and all fee earners must lodge their timesheets”), then we “guesstimate” or we simply make it up.

 No the billable hour is not accurate and never will be.

“The billable hour is transparent”

Transparent = Easy to perceive or detect, open to public scrutiny

I confess to never being sure why this statement has any ring of truth to it. It just seems to be one of those sayings that rolls easily off the tongue and if you say it often enough people will believe it. I suspect the “transparency” part stems more so from some notion that “you only pay for the time spent” rather than any real “openness” context.

There are times when a client knows or observes when their lawyer is physically doing something (such as attending the same meeting, speaking to them on the phone, etc much like watching your lawn mower man mow or your window cleaner clean). Theoretically, it is even possible for someone – including a client – to personally watch their lawyer (or watch through technology) performing a task like drafting a document or dictating/typing an email etc.

However, as we know (and as many lawyers are only too quick to tell me) the real value of a good lawyer is not so much in their physical competencies but more by their intellectual and social competencies (often called “thinking”). Until technology invents a chip that is inserted in our brain that is somehow linked to a client matter number to track when you are actually thinking about a client’s matter, genuine transparency has a long, long way to go.

No the billable hour is not transparent.

“The billable hour is ethical”

Ethical = Morally good or correct, in accordance with the rules or standards for right conduct or practice

Now here is where it gets really interesting. The ethical justification for the billable hour seems to be intrinsically tied to the rules or standards in the legal profession (originally set by the profession itself). It has been an accepted practice for so long to retrospectively bill for legal services either by use of an agreed hourly rate or some sort of scale of fees that the profession has convinced itself (and to be fair, most clients) that this billing model must be ethical.

Both these retrospective billing practices meant that, essentially, clients and their lawyer had no way of knowing what their fees were in advance because the task, activity or time has not yet been undertaken.

Regrettably, as is the case in any industry or profession, there is a minority of providers of legal services who chose to take advantage of these accepted retrospective billing practices. Even though an argument could be mounted that retrospective billing is pretty much the perfect crime, the profession (and in many jurisdictions, the appropriate regulators where the profession failed to, or was slow to, respond) introduced codes of conduct /rules/regulations to try to ensure clients were protected as best they could be, whereby anyone aggrieved by the fees charged by their lawyer could purportedly have those fees assessed, determined or “taxed” (another quaint legal term) to check that they were in essence “fair and reasonable”.

One of the inherent problems with even an independent third party assessing a lawyer’s fee as “fair and reasonable” is that it too is an after the event determination and often is of little comfort to a client if the client was not expecting the quantum of such fees in the first place.

For so long as the legal profession enjoyed a monopoly on the provision of legal services and for so long as clients were prepared to accept these billing models, such practices were considered “ethical”(note however that neither of these are pricing models they are merely billing models as billing takes place after the work is done whereas pricing takes place before the work is done). 

But as we know perceptions and acceptance of what constitutes ethical and unethical behaviours of course change in accordance with the times, particularly as our knowledge increases and community and business norms evolve. The medical profession is a prime example where doctors who once undertook and prescribed cures and remedies in the past based on accepted medical and scientific knowledge at the time, would be judged professionally incompetent and negligent if they applied such remedies today.

And surprise surprise, even in the legal profession the world changed. For starters lawyers no longer had a monopoly on the provision of many of their traditional legal services (our “Grand Bargain” as coined by Richard and Daniel Susskind in The Future of the Professions – How Technology Will Transform the Work of Human Experts was coming to an end), the profession became more deregulated and more and more clients wanted and insisted upon greater certainty and predictability in legal fees.

For many years there have been any number of articles, posts, surveys, and research undertaken by many commentators, observers and participants in the legal profession, including members of the judiciary, bringing into question the ethics of the billable hour and what perverse behaviours it encourages and entrenches into firm cultures.

A recent article in the ABA Journal titled “Not competent in basic tech? You could be overbilling your clients—and be on shaky ethical ground” stated:

“There are no business, practical, or ethical excuses to avoid learning about, understanding, and adopting technology. Yet, at the same time, we must recognize that there are perverse incentives that encourage lawyers to refuse to learn technology—the main one is the billable hour. Increased financial rewards for increased hours encourage lawyers to bill as much as possible for every matter. It’s an incentive structure where lawyers are working in opposition to their clients’ interests.

The seemingly-innocuous decision to skip technology training can lead to overbilling. And if you are deliberately avoiding technology because it means that you can bill more, then you are definitely overbilling. Do not confuse this with a clever billing scheme. This is not “just business”—this behavior is an ethical breach.” 

The late Dr Michael Hammer once said: “A professional is someone who is responsible for achieving a result rather than performing a task”.

The Oldlaw business model reduces everything any lawyer does to a series of tasks and I ask how much longer can Oldlaw get away with claiming it is ethical to ask clients to pay for an activity or a task when clients do not even know what the task will be? After all every law firm – I repeat every law firm – agree its price(s) upfront-they simply choose not to.

If none of the above convinces you about the ethical challenges of the billable hour perhaps have a go at applying The Golden Rule:

If hourly billing were so ethical, would we want it to be universal?

No the billable hour is not ethical.

Summary

I have never hidden my distaste, my biases and my prejudices of the billable hour and the “we sell time” culture that has permeated most professional firms, but especially law firms, over the last few decades. The deleterious effects this has and continues to have, on the reputation and values of the legal profession, those that work within it and with it, is shameful. It is truly hard to believe that there are some out there still claiming the virtues of the billable hour but they have their own vested interests in ensuring this model survives long after its “use by” date.

The tide has turned I am pleased to say, but there is still a long way to go before we eradicate the billable hour and its partner in crime the timesheet, together with any form of retrospective billing, from the legal profession. We may never and I accept that buggy whip manufacturers will still exist and there are some people who still believe the earth is flat.

While an ever increasing number of lawyers are experiencing a better way of practicing their craft for the benefit of not just themselves but for their clients, the majority of lawyers, instead of being proactive and changing their business and pricing model for the better, will wait until market forces impose change upon them.

In the meantime Oldlaw, however you care to justify the continuation of time-based billing if you use terms like “accuracy”, “transparency” and “ethical” you must accept that increasingly your clients, and indeed your “fee-earners”, see these justifications as self-serving rhetoric.

And a rhetoric that simply does not stand up to any objective and reasonable examination.

We were taught (by our parents) at an early age that ignorance of the law is no excuse. Feigning ignorance of better business and pricing models is no longer an excuse for Oldlaw either.   

Author                

John is a recovering Australian lawyer and has been leading the charge for over a decade exhorting professionals to look at the value and outcomes they are providing to their clients, rather than their inputs and time.

John works with professionals all over the world assisting them with a mindset and business model change, as well as the practical implementation of moving towards a timeless practice.

Contact John on LinkedIn.