Billable hour: Reward for inefficiency or just fair pay?

The “billable hour” — the device by which most lawyers are paid for their services — has again been in the news.

This has been caused in part by the decision of a few big-city law firms to try to sell the time of their superstar lawyers for $1,000 per hour. Meanwhile, Mark Chandler, general counsel for Cisco Systems, has been largely quoted to the effect that law firms “constitute the last vestige of the medieval guild system” and that the billable hour is responsible for both “unhappy lawyers and unhappy clients.”

So what’s wrong with the billable hour? Well, critics say it rewards inefficiency. The less efficient the lawyer, the greater the charge. And the lawyer has no incentive to make cost-benefit decisions. Instead, the billable hour encourages a leave-no-stone-unturned approach, no matter what the occasion.

Also, large law firms, which must now pay huge starting salaries ($160,000 a year in some markets) to attract the best and brightest law school graduates, have had to set unrealistically high billable hour requirements for their new hires.

Furthermore, to meet the compensation expectations of their partners, these firms inevitably establish a culture that encourages competition among young lawyers to bill more hours than anyone else. The unspoken (but not very subtle) message is: More billable hours means bonuses, pats on the back for superior achievement and, for those who survive, the Holy Grail of partnership. (Partnership is coupled with a mistaken belief that, as a partner, you can work less and make more money.)

All of this results in physical and mental burnout for talented young lawyers. And worse, it rewards padding. Once a lawyer starts down the path of lying about billable time spent on an assignment, there is no telling where that lawyer’s ethical decay will end.

Defenders of the billable hour system say it results in fair compensation for work performed. They point out that this system avoids lawyers having an economic interest in any particular outcome — whether it’s a litigation matter or a business transaction — and this, in turn, helps the lawyer to give objective, clearthinking advice.

Supporters of the system also argue that a lawyer should, in fact, have an incentive to leave no stone unturned, since that’s what leads to victory in the courtroom, lowered legal risk for a business, a better property settlement in a divorce, etc. (Client to self: “Let’s see here. Do I really want my lawyer cutting corners when he’s writing that brief for me?”)

I can add that, in my experience, good lawyers are too busy to revel in inefficiency. They want to get their work done, provide cost-effective services for their clients, and have enough time and energy left to go to their kids’ soccer game or read a book.

In the end, there are no simple answers. Every lawyer-client engagement is different. What’s most important is good communication about expectations and cost; mutual respect and trust; and, to the extent possible, the avoidance of surprises.

Jim Flynn is a local attorney. Contact him c/o The Gazette, P.O. Box 1779, Colorado Springs 80901; fax 578-8836 or e-mail jtflynn325@hotmail.com. Not all questions can be answered.