Is billing time indeed ethical?
CL: Sometimes, I am just perplexed by the question. On the one hand, the answer seems quite apparent. From all that we have written before, it seems pretty clear that...
The rules of ethics do not explicitly label the billable hour and time billing as unethical practices. However, the billable hour has its inherent flaws, issues, and incentives. All of those make it pretty risky from a professional compliance standpoint.
In other words, the risk of compliance and professional conduct is ever-present with the billable hour.
How come, and why? You can read more here on the subject.
I still keep wondering…
Why would the profession that has been trained to plan for, mitigate, and avoid risks at all costs, opt for a billing model that is tailed by ethical and compliance risks at every single six-minute increment?
It seems as I haven't been the only one having the same thoughts. John Chisholm, my dear friend and mentor, has been musing and writing on the subject for quite a while. You can find John's views and conclusions below.
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How lawyers still justify time billing
JC: An Oldlaw partner said to me that, in general, hourly billing is "good" because it is "...accurate, transparent and ethical". Even though he admitted that a minority of lawyers have abused time-based billing.
This was not the first time I have heard similar comments as further justification for the billable hour model. Moreover, when I was still a practicing lawyer, I used similar terms myself.
While there are several purported justifications for the existence of the billable hour, for instance:
- it is easy to implement and understand;
- it records effort;
- professionals sell time;
- it is the norm as most of our competitors charge by time too;
- it is acceptable to most clients & some even demand it;
- our practice management system is built around time;
- our firm’s measurement and reward’s structure is built around time; and
- it transfers all risk to our client.
I, like many, challenge the notion that charging by time is "accurate, transparent, and ethical."
How accurate is the billable hour?
It goes without saying that if you charge by time, you must keep a record of your time.
Accurate = to be correct, exact, without any mistakes
And if your contractual engagement with your client is to charge by the hour or part thereof, it follows that your time recording must, at the very least, be reasonably accurate.
Ever since the introduction of time-based billing, Oldlaw firms of all shapes and sizes have been drilling into their "fee earners" the importance of accurately recording all billable time because that is what is primarily measured and rewarded.
(Fee earners is an awful expression, only exceeded by the derogatory term "non fee earners")
Manual time recording has moved to an automated time recording with a plethora of practice management vendors out there.
With mobile devices and time recording apps, I can even record time out of any place. I.e. the office, on the train, over dinner, in the shower, and…
(also in those little intimate moments with my loved one when my mind strays to thinking about a client matter)
Photo by Alex Perez on Unsplash
You just can’t record time accurately
Even with all the help from technology, we still cannot seem to get time recording accurate.
And why is that? Simply...
Time recording requires human input. You either need to record time manually, or to push a button to start/stop automated time recording.
It is physically and psychologically impossible for human beings to accurately record the time spent on anything. Regardless of how good their intentions, their intelligence, or their "time capture" software may be.
You do not practice law in some kind of vacuum. Like most of us, lawyers are continually interrupted. Interruptions come in the form of emails, colleagues (including those "non-fee earners"), phone calls, etc. Unavoidably, accurate time recording gets "overlooked."
At best, we record the time we THINK we (should have) spent on something.
And at worst?
We forget entirely the time we spent on something. It slips off our minds entirely, 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 simply just make it up)
Photo by Glen McCallum on Unsplash
Is the billable hour transparent?
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 roll easily off the tongue, and if you say it often enough, people will believe it.
Transparent = easy to perceive or detect, open to public scrutiny
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.
Of course, there are times when a client knows or observes when their lawyer is physically doing something. For example, attending the same meeting, speaking to them on the phone, etc.
(much like watching your lawnmower 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.
It is much more about their intellectual and social competencies (often called "thinking").
Until technology invents a chip that is inserted in our brain and somehow linked to a client matter number to track when you are thinking about a client's matter, genuine transparency has a long, long way to go.
Photo by Sean Pollock on Unsplash
The billable hour is ethical - or is it?
Now here is where it gets fascinating. The ethical justification for the billable hour seems to be intrinsically tied to the rules or standards in the legal profession (initially set by the profession itself).
Ethical = morally right or correct, per the rules or standards for proper conduct or practice
It has been an accepted practice for so long, to retrospectively bill for services (either by use of an agreed hourly rate or some sort of scale of fees) that the legal profession has convinced itself at least, that this billing model must be ethical.
Of course, these retrospective billing practices meant that, mostly, clients and their lawyers had no way of knowing what the 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 choose 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 the regulators introduced codes of conduct/rules/regulations to try to ensure clients were protected as best they could be.
This purportedly protected anyone aggrieved by the fees charged by their lawyer, an opportunity to have those fees assessed, determined, or "taxed" (a quaint legal term) to see that they were in essence "fair and reasonable."
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Can the billable hour be audited?
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. It is often of little comfort to a client if the client was not expecting the quantum of such fees in the first place ("Bill Shock").
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 deemed "ethical."
Note, however, that neither of these are pricing models. Pricing takes place before the work is done - upfront. Au contraire, billing takes place after the work is complete.
Will the billable hour party last forever?
The world has changed - even in the legal profession.
For starters, lawyers no longer had a monopoly on the provision of many of their traditional legal services. Our "Grand Bargain" (a term 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.
As we know, perceptions and acceptance of what constitutes ethical and unethical conduct, of course, change by 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 treatments today.
And so it is with the legal profession.
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You have no excuse to lag in legaltech
There have been many articles, posts, surveys, and research on the ethics of the billable hour.
Many commentators, observers, and participants in the legal profession, including members of the judiciary, pointed out how the billable hour encourages perverse incentives into firm cultures.
The American Bar Association (ABA) noted:
"there are no business, practical, or ethical excuses to avoid learning about, understanding, and adopting the 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."
My friends and colleagues, Ron Baker & Ed Kless, had a great discussion on the ethics of time-based billing on their Soul Of Enterprise VoiceAmerica weekly radio show, which is well worth listening to.
Billable hour reduces lawyers to a series of tasks
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.
I wonder 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, could determine 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 ethical, would we want it to be universal?
Photo by Ross Sokolovski on Unsplash
Tides are turning, but a long way to go
I have never hidden my distaste, my biases, and my prejudices of the billable hour and the "we sell time" culture.
Time billing culture has permeated most professional firms - and especially law firms, over the last few decades. It has had and continues to have deleterious effects on the reputation and values of the legal profession.
It is tough to believe that there are some out there still claiming its virtues. Although, they may have their vested interests in ensuring this model survives long after its "use by" date.
The tide has indeed turned. There is, however, still a long way to go. We yet have to eradicate the billable hour and its partner in crime, the timesheet, from the legal profession.
An ever-increasing minority has seen the light to a better way of practicing their craft for the benefit of not just themselves but their clients.
Conversely, the majority of lawyers, instead of being proactive and changing their business and pricing model for the better, wait until market forces impose change upon them.
Oldlaw, however you care to justify the continuance of time billing, if you use terms like "accuracy, transparency and ethical" you must accept that increasingly your customers, and indeed your "fee earners", see these justifications as self-serving rhetoric.
The rhetoric that simply does not stand up to any objective and reasonable examination.
Our parents taught us 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.
Ivan Rasic holds the Transnational Trade Law and Finance LLM, a program by Universidad de Deusto (Bilbao, ES), Universiteit van Tilburg (Tilburg, NL), and Goethe Universität (Frankfurt, DE). After his work in law firms and inhouse, he started a legal tech company.
Nowadays, Ivan leads STP Informationstechnologie GmbH's Sofia RnD center with project/development management, culture, strategy, and special project initiatives.
Ivan is an Ambassador at European Legal Tech Association (ELTA). He closely follows and writes on future of law, legal tech, ALSPs, and new ways of delivering legal services.
John Chisholm is a renowned consultant that helps law firms evolve beyond the traditional BigLaw model. With over 25 years in leading law firm roles, John has helped and witnessed proactive firms’ transformation into timeless professional service organizations.
As the Director of the Innovim Group, John helps professionals understand and better articulate their value, as well as to price their services accordingly.