Hourly billing: Presumed Unethical

Lawyer Scott Turow, acclaimed author of Presumed Innocent and other legal thrillers, has fired a warning shot at hourly billing. His provocative article "The Billable Hour Must Die" is the cover story of this month's ABA Journal. It's a well-written, well-argued piece that catalogs the problems that hourly billing creates for lawyers and the legal-services industry.

But the key passage in the piece is this one, where Turow argues that hourly billing is actually unethical:

But at the end of the day, my greatest concern is not merely that dollars times hours is bad for the lives of lawyers—even though it demonstrably is—but that it’s worse for clients, bad for the attorney-client relationship, and bad for the image of our profession. Simply put, I have never been at ease with the ethical dilemmas that the dollars-times-hours regime poses, especially for litigators....

But from the time I entered private practice to today, I have been unable to figure out how our accepted concepts of conflict of interest can possibly accommodate a system in which the lawyer’s economic interests and the client’s are so diametrically opposed.

Looking again to the Model Rules [of Professional Conduct], Rule 1.7 provides in part that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest,” which the rule defines as occurring when “there is a significant risk that the representation of one or more clients will be materially limited by ... a personal interest of the lawyer.”

I ask you to ponder for just a few minutes whether that rule can really be fulfilled by hourly based fees.

As Gruntled readers know well, I agree with this argument. If I bill by the hour, and a task takes me longer to complete, that's good for me (more money) and bad for my client (more time before satisfaction). That's why my firm has completely abandoned hourly billing — we've billed exactly 0.0 hours in 2007. Once a law firm has done the analysis and has learned how hourly billing is bad for its clients, how can it not be unethical to continue the practice?

Here are some other voices on the topic:

• Luke Gilman, Blawgraphy: "More on the Billable Hour, Charting Your Own Course." Key quote: "The overriding incentive of the billable hour regime is to bill as many hours as you can get away with. When you have a fiduciary duty to your client and a minimum billable hour requirement from your firm, the conflict is inevitable."
• Daniel J. Solove, Concurring Opinions: "Bye Bye to the Billable Hour?" Key quote: "The billable hour does little to measure and reward quality of work. It simply measures how long it took an attorney to complete a particular task."
• David Giacalone, f/k/a: "Broadening the hourly-billing debate — consider yourself, your clients and your ethics." This is a thorough and comprehensive post on the different sides of the argument from an ardent defender of hourly billing. (David's a Harvard Law guy, which I guess explains the poetry at the end of his posts. Hope he's following the Harvard Law blog policy — see here.)

Please lend your own voice to the debate.

Comments

[Frank Roche]

Jay, that hourly fee issue is prevalent in big consulting firms, too. When we started our firm 4 years ago, we committed to working by the project. That way we didn't end up with "consulting prostitution." I think it's good for clients and good for us.

I used to hate big consulting, where billing rates for partners were running north of $700/hr and even the kids were being charged out at $250/hr, and the whole trick was to pump up billable hours. Know how to do that in consulting? Just write down an hour everytime a client calls. Yeah, I know it's unethical, but that's what people were doing. LOTS of people. Need to get 1,500 billable hours? Easy. And the clients paid, for some stupid reason.

If I were a client, and a consultant (or lawyer) told me it was all about hourly rates and it was open ended, then I would have to walk. There is a better system: Project-based fees.

Really good article...thanks for that.

[david giacalone]

Thank you for pointing to my posting on ethical billing, Jay. I am an "ardent defender" of the client's right to be charged reasonable and fair fees, and believe that lawyer fees are in general too high. Sometimes called Prof. Yabut or skepticalEsq, I am a born contrarian. I began defending hourly billing (when done in accordance with ethical and fiduciary duties) because its greatest and loudest detractors were selling alternative billing methods by telling lawyers that they could count on charging significantly higher fees to clients than when they billed by the hour. In addition, it is scandalously high hourly fee QUOTAS that are at the root of the problem, far more than the method of calculating the fees.

For me, the ethical and moral lapses or lawyers and law firms that cause virtually all billable hour problems will still exist under any billing formula -- with greed being the biggest problem. That is why my focus has been on assuring ethically-appropriate fees. To be honest, I think you are being far too glib and misleading (and self-serving?) by suggesting that hourly billing is inherently unethical.

As for my haiku, please be assured that I have received permission from each of the poets whose work is presented at f/k/a. Read "Yes, Lawyers and Haiku" to see why I think we are a good match -- http://blogs.law.harvard.edu/ethicalesq/2003/12/07/yes-lawyers-and-haiku/ .

[Jay Shepherd]

Frank: Thanks for the good words. It's helpful to hear that other professionals face the same issues that lawyers do. It doesn't matter what service you provide: if you bill hourly, the client gets screwed. I'll bet your clients really appreciate your firm's shifting the risk away from them and onto you, and I'm sure it's led to success for you. Keep up the good work. Thanks for the comment!

David: Wow. Glib, misleading, & self-serving. Sounds like the name of a law firm. And a Harvard Law guy calling me "glib"? I guess that makes me the kettle. As for the blog policy, I was poking fun at your esteemed institution's overlawyered policy language. I wasn't questioning whether you were stealing haikus (who would bother?). Anyway, keep up your blogging on the topic. Someone needs to defend the status quo. David, it's not about ethical and moral lapses or greed; it's about a system that places the client's interest directly opposite the law firm's. Thanks for the comment.

— Jay