Boston Law Firm Bans Billable Hour

Law Practice

Posted Oct 8, 2007, 02:57 pm CDT
By Martha Neil

Updated: A small law firm in Boston has boldly done what many competitors probably wish they could but think they can't. Shepherd Law Group, a five-lawyer employment boutique, has banned the billable hour. If clients insist on having attorneys who bill their time, they have to retain another law firm.

Clients of Shepherd are charged either a flat annual fee or a fixed price for a specific task, reports the Boston Globe in a lengthy article about the firm and the history of the billable hour.

"Hourly billing is wrong, and it's anti-client," says Jay Shepherd, the firm's founding partner, who also authors the blawg Gruntled Employees. "There's a disincentive to be efficient since you get paid more if you take longer to finish a matter—even though the client wants it to be finished as fast and efficiently as possible."

The American Bar Association has estimated that about 90 percent of law firms use hourly billing, but recommends that lawyers look for alternative ways to charge clients, the newspaper says.

"Nobody is happy with it," says former ABA President Robert E. Hirshon of the billable-hours approach. "The attorneys who are practicing law don't like it. The clients don't like it. And yet everybody seems to believe that they're stuck with it."

Scott Turow has recently written an ABA Journal feature on the topic ("The Billable Hour Must Die"), as discussed in an earlier ABAJournal.com post.

(Updated at 5:18 p.m., CDT.)

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Posted by John - 8 months, 3 weeks, 4 days, 20 hours, 45 minutes ago

I was sent this song parody about billable hours by a friend in the consulting business. It’s pretty funny, and their is actually a very sensible article about how lawyers and clients can work toward reducing costs on M&A deals.
http://www.maverickllc.com/new_pages/MA_process.html
Posted by john - 8 months, 3 weeks, 4 days, 20 hours, 38 minutes ago

in comment #1, I clicked the send button before checking it--it should read “...and there” instead of “...and their.”
Posted by JSB - 8 months, 3 weeks, 4 days, 2 minutes ago

When Kirkland & Ellis or DLA Piper bans the billable hour, “then” print the column ....
Posted by PN - 8 months, 3 weeks, 3 days, 23 hours, 7 minutes ago

The billable hour debate really is relatively unimportant compared with the practice of larger law firms who basically bill the client to train their own lawyers. I took over a case from a large law firm and found the following billing in the file.

The client was a client of a senior partner. The client had been sued and wanted the firm to defend it. The senior partner assigned the case to a junior partner who assigned an associate to write a memo setting out the legal issues in the lawsuit. The associate wrote a fifteen page memo for which the client was billed at the associate’s rate for all the time it took to research and write the memo. The associate then met with the junior partner to discuss the memo. The client was charged 2 hours for that one hour meeting; one hour at the associate’s rate and one hour at the junior partner’s rate.

Then they met with the senior partner. The client was only billed at the senior partner’s rate for that one hour meeting.

“The rest of the story:” The complaint was subject to a motion to dismiss for failure to state a claim for relief based upon an opinion by the federal court of appeals in that circuit. The senior partner knew the controlling case and even its citation without having to do any research and could have dictated a motion to dismiss based upon that court decision in probably less than an hour. The associate didn’t find that the dispositive case in his research and arrived at the wrong conclusions in his memo. I’m sure in the two subsequent meetings, the associate was informed of the correct approach to the case.

The client, a public entity no less, on the other hand, was billed for all that wasted time.

How would the client have reacted if it knew most of the bill was solely to develop the associate and give him some research and writing experience?

So the question really should be: who should pay for the law firm’s “farm system,” the firm or the client?
Posted by BR - 8 months, 3 weeks, 3 days, 22 hours, 39 minutes ago

A comment like “There’s a disincentive to be efficient since you get paid more if you take longer to finish a matter—even though the client wants it to be finished as fast and efficiently as possible” is an insult to attorneys who do bill hourly and do not overbill or extend the amount of time to complete a task simply because we bill by the hour. Attorneys attacking attorneys is why non-attorneys look down on our profession.
Posted by Andres Chaves Sanz - 8 months, 3 weeks, 3 days, 22 hours, 22 minutes ago

Hourly billing IS a disincentive to be efficient—that is a factual point, basic economics. BR shouldn’t take offense. Just because there is a disincentive for inefficiency doesn’t mean every attorney necessarily will be inefficient, it simply means there is an incentive to be so, but each attorney retains the discretion of whether to yield to the incentive or not. A would *speculate*, however that most (again, not all) attorneys do yield to the disincentive.
Posted by tomo - 8 months, 3 weeks, 3 days, 22 hours, 9 minutes ago

Yes, billable hour needs to die. But I dare you to do litigation on any other basis. A flat fee? At the beginning of the case?

You don’t know if it will settle in 10 hours or go through trial and appeal and take 2,500 hours. Who knows? Also, if you take a flat fee the client now has an incentive for you to fight on EVERYTHING.
Posted by JMD - 8 months, 3 weeks, 3 days, 22 hours, 6 minutes ago

I have two quick points. First, some firms write off some of the time younger associates spend while learning the ropes, the clients aren’t billed. Second, billing on a per matter or yearly retainer basis it seems to me would be just as inefficient as hourly billing for the following reason. The basic economic incentive to earn more money will still exist, in which case once a flat fee is paid, the motivation will be to do the work as quickly as possible so you can do more work for more clients (each paying a yearly or per matter fee). The question then becomes do you want to pay for an attorney to work methodically and bill hourly, or rush because that piece of work has a set dollar amount and the only way to make more money is by doing more work? It seems like half a dozen of one and 6 of the other.
Posted by Patrick J. Ballard - 8 months, 3 weeks, 3 days, 22 hours, 1 minute ago

I think that hourly billing is sometimes unavoidable, Scott Turow’s article notwithstanding. I am a solo and I do 90% contingent fee work, facing, as my opposition, law firms who bill hourly, so I’m very sensitive and sympathetic to the inefficiency issue. However, there are some cases where there is simply no way to effectively estimate how long it will take to push a case to resolution and, unless you’ve got deep enough pockets to risk going broke b/c of that case, you better bill hourly for it.
Posted by LT - 8 months, 3 weeks, 3 days, 22 hours ago

I don’t think I would hire a lawyer who simply told me that it would take between 10 and 2500 hours without explaining all the steps involved and why certain steps would be longer than others. You can identify the component tasks and bill those on on ongoing basis - you don’t need to bill by the hour for every hour, even if you can’t foresee how many hours you will spend.

Further - law firms are businesses and the cost of training new attorneys will be passed on to the client no matter how you slice it. If a law firm does not pay to train new attorneys, who will? Law schools, new attorneys themselves? Parents and in laws of new attorneys?
Posted by sw - 8 months, 3 weeks, 3 days, 21 hours, 20 minutes ago

The other side of the hourly billing issue is age discrimination and it starts within two or three years of your leaving law school. If you are truly experienced and can make the case disappear in a couple of hours or manage to get a project done in short order your services are only required at a firm if you have a big book of business, otherwise firms cannot afford you. Employment agencies continuously emphasize what school you went to. They want to find bright, but inexperienced lawyers, the school (in theory) gives some indication of how smart you are. If you can’t establish a book in a couple of years, out you go, and more inexperienced inefficient talent is hired.

The one course that is not taught in law school is project management. We have a lot to learn from the aerospace and other industries with multi-year contracts. Part of project management is being able to project costs (statement of work) and the time and materials involved. Project management is also about being able to effectively utilize your resources. Saying “oh it’s litigation, we can’t tell,” is no excuse. A good statement of work would take into account many of the contingencies that are likely to occur over the course of litigation. The current billable system is unlikely to change until firms are willing to hire skilled lawyers without a book which will not happen until individual attorneys admit they do not know how to bid or manage a project or how to keep an attorney without a book busy enough to justify hiring and paying them.
Posted by Charlie - 8 months, 3 weeks, 3 days, 21 hours, 8 minutes ago

I don’t like the billable hour, but suggesting it creates a disincentive to be efficient is simplistic. That may be true on one-off projects (which, at least in my practice, are rare), but if an attorney wants repeat business from a client working inefficiently isn’t a smart strategy. I represent many emerging growth companies in Seattle. Members of the local startup community , whether in person, on the phone or online. They have a good idea about what many projects cost and they read the bills carefully.
Posted by Steve - 8 months, 3 weeks, 3 days, 20 hours, 30 minutes ago

What standard to use when assessing the value of services to a client for any given task is a complex matter. In some cases, I believe the billable hour is the MOST efficient way to determine how much a client should pay. However, when a firm can determine another way to assess a client for services rendered that is more client and, dare I say, attorney friendly, then I believe the alternative billing method should be used. That being said, I’ve already spent a .4 reading the article, thinking about my response, and drafting it, so I now must go. Be well.
Posted by CTV - 8 months, 3 weeks, 3 days, 19 hours, 33 minutes ago

The five years I spent practicing insurance defense at a small mid-West firm must have been contrary to most hourly lawyers experience. So many articles and comments talk about how hourly billing is a disincentive that makes the attorney want to drag on the litigation for his own personal gain. What I recall is that I was so busy handling so many cases, that the sooner I could get a case resolved, the better. I had enough work to keep me busy that there was no need for me to prolong a case—because as soon as one case was over, there would be another one to take its place. Perhaps I lived in a world of plenty that is uncommon to most—but based on the number of hours people bill and the comments they make about their workload, I doubt it. I think the ‘disincentive’ argument is largely theoretical, and that the practicality of it is that lawyers don’t have the need to drag out cases because there is a surplus of work to be done—especially in a world of increasingly frivolous litigation.

Don’t get me wrong. I hated tracking every minute of my day; of living by the billable hour; of wondering whether I was working enough to make the partners happy; of dreading vacations because it meant ‘making up’ the hours; and of never feeling like I could actually just take a break!

But NEVER ONCE did I feel disincentivized by the hourly billing to get a case done, or feel the need to drag out a case to maintain my billables—not a single time!
Posted by theNFL - 8 months, 3 weeks, 3 days, 18 hours, 26 minutes ago

To JMD’s point, the attorney doing the billing should “write down” inefficient associate time. How many of you have seen a partner write down the associate’s time only to write UP their own time. Any client who pays a bill for a project where the “supervising” attorney bills more hours than the worker bee who actually did the research and wrote the memo deserves their fate. To tie in CTV’s point, work does cure much of the ills of law firm culture. Attorneys who are actually, and truly, very busy, do not have time for the malicious politicking and fraudulent billing (a regrettably harsh term for a dishonorable practice). But I hasten to add, even the biggest firms are constantly on the prowl for lateral rainmakers - which I have learned means that there is not enough work to go around at present. Let the games continue . . .
Posted by Gena - 8 months, 3 weeks, 3 days, 17 hours, 54 minutes ago

I know this point was made earlier, but I would like to stress it: the billable hour provides a huge incentive to CLIENTS to settle. A flat fee arrangement takes all of the bite out of litigation. I took on a pro-bono case that should have settled but MY client had no reason to - it wasn’t costing her anything. I think a flat fee arrangement will work the same way.

I know there are many lawyers who just “churn” but most of us do not. Most of us want to resolve cases quickly and efficiently and serve our clients well.
Posted by Monroe H. Freedman, Hofstra Law School - 8 months, 3 weeks, 3 days, 13 hours, 47 minutes ago

The premise of giving up hourly billing is that lawyers can’t be trusted not to put in longer hours than necessary.
Under that premise, lawyers who bill by the job can’t be trusted, because they will cut corners and do slip-shod work to save time, since they get the same pay for that kind of work.
Or, if the premise is that lawyers will cheat in providing their hours (which is, in fact, easier to check up on), then presumably they will cheat in pricing the job.
Historically, the billable hour was the answer for clients who resented getting a bill “For professional services,” with no explanation of what went into the job.
Posted by Amy Fortenberry - 8 months, 3 weeks, 1 day, 6 hours, 27 minutes ago

Why are so many of us afraid of the statement that hourly billing is a “disincentive” for efficient work? If you’ve ever been an associate in big firm law within the past 2 decades, you know it is true. It is the great secret horror that awaits all ambitious law graduates: not that their law firm serves the Mafia, but that “slow and steady wins the race.” Instead of debating whether the term casts aspersions on our profession or whether the billable hour is a viable means of identifying time and materials expended on a client matter, which it is, why don’t we work towards a series of options from which we may choose based upon the matter and the client? Retainers, flat fee arrangements, these are all good ideas. We need more parameters and more ideas. I left “big firm life” and entered consultng, but I still find myself imposing upon MYSELF and my staff the billable hour—to a level of detail that is administratively costly in terms of both time and motivation. Please, let’s think of better ways to serve our clients—and to have quality of life; I’d really like to work on that last one.
Posted by Roger Haughey - 8 months, 3 weeks, 20 hours, 22 minutes ago

Scott Turow says the billable hour must go but when he needed legal assistance, he refused to deal with a lawyer who used alternative billing.
Posted by Robert B. Briggs - 8 months, 3 weeks, 15 hours, 54 minutes ago

I am unconvinced that “everyone” is unhappy with the billable hour. Maybe salaried associates on whose backs the profits of the private law firm are balanced are unhappy, because there are so many competitors for their job that they are compelled to submit to the system (or perhaps so they think). Partners in firms able to charge more than their overhead expenses (including associate salary) profit by the billable hour, and presumably they and their families are very, very happy with the profits generated by this economic structure. It is capitalism in its purest form, no?
Posted by Response to Comment 10 - 8 months, 3 weeks, 13 hours, 52 minutes ago

LT Posted:
Further - law firms are businesses and the cost of training new attorneys will be passed on to the client no matter how you slice it. If a law firm does not pay to train new attorneys, who will? Law schools, new attorneys themselves? Parents and in laws of new attorneys?

My Response:

YES! Law schools SHOULD start to train attorneys before they enter the job market. This would save law firms AND clients a great deal of money. In addition, young associates would be able to contribute to the firm immediately instead of having to be trained on the job. It is my opinion and the opinion of many progressive thinkers in the legal community that the third year of law school should be almost entirely clinical. This is something that drastically needs to be changed in legal education. In the alternative, 3Ls should be given the option of making their third year partially of entirely clinical. Thoughts?
Posted by JAG - 8 months, 3 weeks, 7 hours, 47 minutes ago

I make near $80k a a year, big chunk of that tax free, free medical/dental, work 7 to 8 hour days, 30 days vacation a year (I currently have 60 on the books), & off by 3:30pm each day. I live in TX, low cost of living. I see my wife and newborn son all the time.

800 hour weeks for $200k in NYC or Boston? You can have it! Joy & happiness beat money & prestige every time. Good luck!
Posted by NAN - 8 months, 2 weeks, 6 days, 10 hours, 12 minutes ago

Specific as to comments no 21 and 22 - I fully agree that the third year of law school should be all clinic and/or an apprenticeship with a law firm with the law firm to pay a stipend to the apprentice. With respect to JAG’s comment, more and more people are choosing to have a life and practice law. Good for JAG for having an appreciation of a professional AND personal life.

The billable hour? Although many valid points have been made as to the disincentive that can attach to flat fees, I support the dialogue and willlingness to try alternatives to the billable hour. I have yet to hear a client say, “Wow, I am so pleased that my legal bill itemizing every minute my attorney spent on my case.” Do we really think clients welcome being billed for reading an e-mail or spending two minutes with the client on the phone?

The ultimate winners, in my opinion, will be those such as this small Boston firm who have the progressive, open mind and courage to try alternatives to the client-hated billable hours.
Remember, what worked a hundred years ago is NOT necessarily what works today. If you think so, then maybe you should hand write your bills with a feathered quill and deliver them by horse and buggy.

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