LAWYERS & THE BILLABLE HOUR (PART 2) – 15 CRITICISMS OF THE BILLABLE HOUR
May 19, 2016
In my last post, I wrote about how billable hours can be leveraged by lawyers, some billing practices that can happen, and how lawyers started using the billable hour as a profit model.
For this post, I am going to set out my top 15 criticisms of the billable hour.
I wanted to keep the list to 10, but there is a lot of material to work with, so I compromised and cut my list to 15.
So in no particular order, here they are:
1. Unpredictability of costs
This is one of the biggest issues, in my mind. Who knows what their lawyer is going to bill them?
That’s partly rhetorical and partly because I honestly want to know. Most people have no idea what their bill will be each month or at the end of the file. In any other industry clients would want to know what they will be required to pay.
This negatively impacts individuals and businesses because they can’t budget for their legal advice. As a result, many people (even sophisticated, wealthy business people) decide not to get legal advice at all.
This has produced a gap in access to legal service.
Much is written about affordability and denying citizens access to justice when it comes to family law and criminal law, but the issue also exists in the business community.
Businesses will avoid retaining a lawyer for a number of reasons, one of them being they have no idea what it might cost them.
Most lawyers are extremely reluctant to give someone a quote range on what their advice might cost, let alone a fixed quote or a hard cap on their billing.
As a result, many people just don’t seek that advice, or they wait until the last minute when they cannot avoid it any longer (which can result in negative consequences).
2. Pits lawyers’ interests against their own clients
In December 2014, the Ontario Court of Appeal questioned the traditional practice of hourly billing. In Bank of Nova Scotia v. Diemer, 2014 ONCA 851 (CanLII), Justice Pepall held at paragraph 36:
“A person requiring legal advice does not set out to buy time. Rather, the object of the exercise is to buy services. Moreover, there is something inherently troubling about a billing system that pits a lawyer’s financial interest against that of its client and that has built-in incentives for inefficiency. The billable hour model has both of these undesirable features.”
I have always wanted to write this, but... I concur.
3. Focus is on time recorded – instead of the service provided
A focus on clumps of 6 minutes will naturally cause lawyers to gravitate, if not exclusively focus, on their work that can allow them to bill as many clumps of 6 minutes as possible.
How can it not?
Their focus is on the time they record, not the quality of their work or the ultimate service they provide their clients.
But don’t just take my word for it.
The Chief Justice of the Supreme Court of Canada, Beverley McLachlin, has said:
“Valuing work only on the basis of time spent shifts the focus from quality and results, to hours put in.”
[Remarks of the Right Honourable Beverley McLachlin, P.C., Chief Justice of Canada, 2015 Canadian Bar Association Plenary, Calgary, Alberta, August 14, 2015]
Especially for the traditional law firms that set billable hour targets for their lawyers, senior and junior, it has to negatively impact their behaviour in this fashion.
4. No incentive for efficiency
As noted in the Bank of Nova Scotia v. Diemer decision, the Justice Pepall noted the “built-in incentives for inefficiency.”
Using the billable hour, law firms make more money when they assign too many lawyers to the file; they make more money when they prepare too many documents for a file; and they make more money when they take too long to accomplish their work.
The billable hour allows lawyers to “leverage” their time, as noted in my last blog post, meaning that lawyers can bill for more time than they actually work. But that’s not being efficient in actually doing the work, that’s efficiency in the amount of money lawyers collect based on their time spent.
Quite literally, they make more money when they take a long time to get something done.
5. Rewards the wrong lawyers
I am going to stick my neck out on this one – but I would argue that an unbreakable reliance on the billable hour, combined with a large overhead at traditional law firms and the associated cost pressures, rewards the wrong lawyers.
Who are the lawyers that embrace the billable hour? They are the ones at the top, for the most part. And who are they? There are people who embrace leveraging their time and billing 1 to 6 minutes of their day.
Don’t get me wrong, many are exceptionally bright and very talented lawyers. But they all are not the best and the brightest.
Rising through the ranks of the legal professional at traditional firms requires grinding out your time, not providing the best quality legal work or providing the best service to your client.
By law firms embracing the billable hour, they are perpetuating the types of people and personalities that are most comfortable chaining themselves to their desks and billing as much as humanly possible each day, month and year.
Billable hour enthusiasts will argue that the best of the best rise to the top, and they earn their success through hard work and being exceptional lawyers. And that’s fine.
I, however, respectfully disagree.
If you have a business model that encourages and rewards bad | inefficient practices (as set out in these 15 criticisms), I don’t believe that the best rise to the top of an industry that uses such a system.
6. Undermines mentorship
Some lawyers are excellent mentors. I think.
I say that because I haven’t come across a senior lawyer who is a good mentor to an articling student or an associate lawyer yet. But I’m open to discovering that senior lawyer who mastered (or even puts in a good effort at) mentorship.
The reality is that most senior lawyers are absorbed with recording their own billable time. Time spent mentoring is not profitable.
And no matter what law firms say about being a team, each and every senior lawyer focuses on his or her billable hours before anything else.
The result is that most articling students and associate lawyers do not have real mentorship. Traditionally, students and junior lawyers were supposed to learn the law at the side of a senior lawyer, who would quite literally show them how it’s done.
Now the competition for law firms is such that traditional law firms hire more students than they need, they work them hard and see who stays at the firm. They don’t need to invest in each student or associate, because there is always more of them, and the senior lawyers need to bill their hours.
7. Discourages innovation
Not only does the billable hour provide incentives for inefficiency, it discourages innovation.
Why would lawyers look at other ways to deliver legal services, if they are comfortable continuing to work with the same business model that has been in place since the 1970’s and is the business model that allows them to leverage their time so significantly as to make an hour’s worth of money for as little as 10 minutes of their time?
8. Clients assume all risk
The billable hour requires clients to assume all of the risk of the timely completion of the work and how much the bill is going to be.
No matter how a lawyer performs, if a lawyer misreads how complex a case is going to be, if it takes a long time to research and write a legal brief, if the lawyer presents badly and loses his or her case in court, the client is required to pay the legal bill based on the time the lawyer billed.
Even for commercial lawyers, my colleagues, who are supposed to be invested as trusted counsel to their business clients, they get their fees even when it’s them that delays a transaction completing due to an inability to get along with the other party’s lawyer, an insistence on using his or her personal precedent or due to the lawyer over-documenting the deal.
This is a significantly one-sided relationship.
9. Lawyers rewarded when they make mistakes or learn a new area
Similar to the argument that the billable hour rewards inefficient behaviour, it also rewards lawyers who need to learn about a new area of the law.
Some lawyers will reduce their time or not record all of their time when they are reading up on an area of the law for the first time, but most will record their full time.
Did you pay your dentist to learn how to clean your teeth? Then don’t pay your lawyer to learn the law.
It’s perfectly acceptable for lawyers to charge for specific research, but if they are go over basics aspects of an area of the law and learning it from scratch, the client should not have to pay for each 6 minutes of this learning process.
THE BILLABLE HOUR & SMALL AND MEDIUM-SIZED BUSINESSES | OWNER-MANAGED ENTERPRISES | START-UPS
10. Junior lawyers running the show
As a result of high overhead, traditional law firms are forced to push their lawyers to record as much billable time as possible, which means they bill clients for every six minute increments of time each lawyer can record in relation to each file.
To maximize efficiency and the amount of profit the firm can get out of each billable hour, law firms assign resources according to what they think a file can bear.
This means that traditional law firms maximize their billings with senior lawyers on lucrative files and they assign juniors to smaller files. (To put it in context, a small file will still be a commercial transaction worth millions of dollars – which means a lot to a family farm or a small to medium-sized local business.)
The result of this is that many small and medium-sized businesses, owner-managed enterprises and start-ups get less experienced legal advice.
11. Clients paying for the training of junior lawyers
Ok, so small and medium-sized businesses, owner-managed enterprises and start-ups are getting legal advice from junior lawyers, so what’s the problem?
Many may not see a problem. If not, no harm no foul.
Others may take issue with the fact that by having an articling student or a junior lawyer doing all or most of their legal work, they are still paying a lot of money for their legal work, but they are also subsidizing the training of that student or junior lawyer.
The truth is, law school does not prepare you to practice law. I would argue it’s most helpful for litigators, as law school teaches you how to research and write term papers, which can be useful in drafting memos in the litigation process. But if you’re looking to get commercial legal advice, a lot of actual legal practice is a hybrid of law and business.
It takes years of working with lawyers to get experience that allows you to actually provide valuable advice to clients. So those SME’s are paying a premium to have students and junior lawyers find their niche and figure things out.
It would be one thing if firms recognized this and billed accordingly, and that clients are informed that the lawyers working on their file have never done that type of work before.
But that does not often happen.
12. Encourages limited attention
Due to the billable hour model, senior and junior lawyers at a traditional firm will be required to bill a certain number of hours each day.
Junior lawyers need to impress their firm’s partners with maximum billable time, even when working on smaller files, and senior lawyers need to maximize their billable time to pay for their big overhead.
What this means for clients is that, lawyers (junior and senior) will for the most part gravitate to the work that can earn them the most billed time each day.
So if your business’ file is not one that can justify a certain amount of billable time, this may impact your traditional law firm’s attention to your needs.
As an example, if a lawyer needs to bill 8 hours each day, a small business client needs 2 hours of time and the lawyer cannot bill for every minute of those 2 hours, that lawyer may conceivably:
a. commit 30 minutes and that’s all the business gets (even if the business could benefit from more attention or more detailed advice);
b. rush through the work to get onto more important, billable work;
c. choose to work on other files that will give him/her their 8 daily billable hours first, after which they will follow up with the client when they can afford to lose time.
THE SOCIAL IMPACT OF THE BILLABLE HOUR
13. Negative impact on lawyers
Practising law is, quite literally, bad for your health.
In her August 14, 2015 speech to the 2015 Canadian Bar Association Plenary, Chief Justice McLachlin quoted the following:
“This culture also takes its toll on mental health. Lawyers suffer from a disproportionately high rate of depression, alcoholism and substance abuse. Recent surveys report that six out of ten lawyers who have been practicing law for ten years or more would advise young men and women to avoid law school.”
[Steven J. Harper, The Lawyer Bubble, xi; The Pulse of the Profession”, ABA Journal (October 1, 2007), quoted in Steven J. Harper, The Lawyer Bubble, 57]
14. High turnover of law firms
There is a high turnover of associate lawyers at traditional law firms that is consistent across the legal profession.
Also in her speech to 2015 Canadian Bar Association Plenary, Chief Justice McLachlin noted:
“One study found that almost half of associates leave law firms within 3 years; three quarters leave within 5 years.”
[Kristin K. Start & Blane Prescott, Why Associates Leave, Legal Time (May 7, 2007)]
Turnover is especially endemic at large, traditional law firms, with associate lawyers leaving each year.
Everyone will leave for their own reason, but many reasons are similar. Many find that, simply put, practising law at traditional law firms is not enjoyable, rewarding and it can have a negative impact on your health and personal life.
15. Women in law
Last but by no means least, there is a problem in the legal industry when it comes to the retention of women lawyers.
There is no problem with the numbers of women that attend and graduate from law schools.
The problem presents itself when women start practicing at traditional law firms where women leave the practice of law in much higher proportion to men, and partnership at traditional law firms remains the bastion of men.
To put it in perspective, I offer the following quote. You may be surprised to read this, but I got the following quote from Chief Justice McLachlin’s speech to the 2015 Canadian Bar Association plenary:
“Women constitute more than a third of the profession but only about a fifth of law firm partners, general counsels of Fortune 500 corporations and law school deans. Women are less likely to make partner even controlling for other factors, including law school grades and time spent out of the workforce or on part-time schedules. Studies find that men are two to five times more likely than women to make partner. Even women who never take time out of the labor force and who work long hours have a lower chance of partnership than similarly situated men.”
[Deborah L. Rhode, The Trouble with Lawyers (2015), 61]
So that is my list.
So what to do?
Is there a future for alternatives to the billable hour?