The Tyranny of the Billable Hour
From Washington Lawyer, January 2005
By Robert Pack
For the past 50 years the billable hour has been the industry standard for accounting purposes within the legal profession. Prior to the 1950s the profession managed to function by relying on other arrangements such as fee schedules set by bar associations, fixed fees, contingencies, services rendered, and value of a lawyer’s work to the client. Then the emphasis shifted to the billable hour, prodded in large part by fears that fee schedules that covered large geographic regions violated antitrust laws. Moreover, lawyers wanted a level of certainty at the beginning of an engagement as to how the final bill would be determined.
The result is that most lawyers today have never worked under any other prevailing standard than the billable hour. Numerous observers, including an American Bar Association (ABA) commission that has studied this subject for the past three years, have found that, as a general rule, the larger a firm is, the more likely it is to rely on billable hours as the measure for charging clients and assessing lawyers’ productivity.
In many ways, using the number of hours to bill clients and assess productivity reduces attorneys’ work to something on a par with a quota system. Such practices have been in the news of late—and not favorably. A few examples:
• In the wake of negative publicity during the past few months over arrests by Metro transit police officers of one woman for eating a candy bar as she entered a station and another who had been talking too loudly on her cell phone, the Washington Post reported that Metro police are evaluated, at least in part, on their volume of tickets issued and arrests made.
• The Post also revealed that police in the city of Falls Church must meet stringent arrest and traffic citation quotas or else face various forms of discipline up to and including termination.
• Several years ago more than 9,000 Justice Department lawyers filed a still ongoing class action suit against the department, alleging that the attorneys have routinely been required to work many extra hours per week over and above the 40 they are paid for, and that the department actually keeps two sets of books, one using the imaginary 40-hour-a-week gauge and the other reflecting each lawyer’s actual number of hours worked. The latter, the plaintiffs’ allege, has been used to evaluate department attorneys.
Lawyers are not the only ones whose supposed usefulness is based upon the amount of time they spend on the job. Within the past year the Wall Street firm Bear Stearns bragged about how hard its frontline employees work by advertising “At the end of the day, there is no end of the day.” And after RE/MAX International ran TV spots boasting “Our agents spend all their time selling homes. And not much time doing anything else,” complaints from both agents and prospective customers forced the company to admit that the ad campaign was somewhat ill advised.
Janet Shih Hajek, an associate with Greenberg Traurig LLP, thinks the pressure to work long hours has as much to do with location as it does with profession. “I think it’s Washington, D.C., in general, or New York City in general. I have friends in New York who work incredible hours. But it’s a different city. It’s a different quality of life. There’s a different emphasis on lifestyle.”
That the billable hour standard has been especially bad for the legal profession has led not only to the creation of a commission to study the matter—the ABA Commission on Billable Hours (chaired by two lawyers now based in the Washington area)—but to acknowledgment by a sitting U.S. Supreme Court justice, Stephen Breyer, that the billable hour system has in “many ways . . . diminished” the practice of law. Breyer hosted the commission’s first meeting in 2001.
“I can’t think of a more important problem facing the profession,” Justice Breyer told Washington Lawyer, “than how to maintain a life for a young lawyer that will lead to satisfaction in his or her career, that will produce time for a family, and will produce time for some form of community and public service, whether it’s the school board, whether it’s the trustee of a museum, whether it’s going to work in Washington, or whether it’s any one of 10,000 different kinds of community activities.
“The reason I got into this [issue] is, it seems to me, that older people in the legal profession [have] a strong obligation . . . to create a decent life for younger lawyers going into the firms. More and more I hear from friends of mine who are in firms that the pressures are such [that] there is no time.” Lawyers tell him, “We don’t have time for anything.”
“It’s like drinking from a fire hose” is the way Breyer describes what he hears about pressures to bill ever more hours. “There is tremendous pressure on younger lawyers to produce 2,000, 2,200, 2,400 billable hours. Well, that produces an unlivable kind of life. People who are in [some] firms do not have time to perform community service. They don’t have time for their families.”
Breyer applauds a program he encountered at a firm in Britain, where he met a young woman lawyer who had the responsibility of being a “facilitator” for even younger attorneys, particularly on family-related matters such as child care. “I try to run interference for them at the firm, to make sure that they are not penalized [for attending to family responsibilities],” Breyer recalled her as saying.
“If we can figure out other ways of charging so that we’re not tied to billable hours,” says Breyer, “it would be easier to create the kind of life that lawyers think that they should be developing.”
“The unending drive for billable hours,” said the ABA Commission on Billable Hours, “has had a negative effect . . . on family and personal relationships.” The result is that “many young attorneys are leaving the profession due to a lack of balance in their lives.”
In fact, a study cited in a 2000 speech by Justice Breyer found that two-thirds of associates leave large firms within five years. This “financial loss” for the firm, according to Breyer, also impacts “disproportionately” on women. To a great extent, says Ellen Jakovic, counsel at White & Case LLP, that is because women are still expected to bear the bulk of the responsibility for running the household, caring for the children, and maintaining the family.
As published in the commission’s August 2002 report, one lawyer told the commission of moving to a public interest firm because “I didn’t want to have to check my watch every 6 minutes.” One married law student, musing unhappily over what might lie ahead, declared, “I would prefer quality of life over an initial six-figure salary. What good am I to my family, my clients, and myself if I work 20 extra hours a week for an extra $20,000-$30,000 annually? I will not have time to spend the money, or see my children benefit from it. The esteem of working in a sweatshop requiring 2,100+ billable hours is not worth the detriment to my family, friends, or my sanity.”
To be sure, the desire to work less and enjoy life more is hardly lawyer specific. Members of Generation X (those aged 23 to 37) and Generation Y (18- to 22-year-olds) say they have “become much more conscious of personal trade-offs as they advance in their careers,” making them less likely to seek the highest positions, according to a study cited recently by the Washington Post. “That does not mean they are not advancing. They simply aren’t willing to cut back on family time to get there.”
Even partners are becoming dissatisfied for various reasons and moving on. One, using the name “A Burned-Out Case,” wrote Fortune magazine that even after recently making partner, “I want out.” This phenomenon is hardly uncommon. Of the estimated one million lawyers in the United States, up to 40 percent have told pollsters they wish they were doing something else. The result has been a thriving business for groups like Lawyers in Transition that help disgruntled members of the profession move into other occupations.
The Expectations Game
Associates at some firms are referred to privately by partners as PBUs, or “portable billing units,” according to Anastasia Kelly, executive vice president and general counsel of MCI. So it is hardly surprising that many young lawyers at big firms do not enjoy their work and have little time left over for their personal lives and other activities both inside and outside the profession.
“All the time I see lawyers who, [well], it’s a shock to them how hard you’ve got to work,” says Jeffrey Liss, a partner at Piper Rudnick, LLP and Kelly’s cochair on the ABA Commission on Billable Hours. “They’ve got loans to pay off. They feel like they’ve got the shackles on. Once they get to the point where they’ve got those loans paid off or just about paid off, they say, ‘See you later.’
“Other lawyers do thrive on it. Let’s be fair. There are some lawyers who just love working hard. That’s okay, too. But we ought not to be creating a system that requires you to work crazy hours in order to succeed. If somebody wants to work crazy hours and get combat pay, or if the work demands it, that’s fine. But it ought not to be that that’s the highest value.”
Adds Liss, “Both the expectations game and the psychological burden of knowing there’s a big number [for billable hours] out there, a big bogey to hit, can take their toll.”
At some firms “associate management becomes an oxymoron because of billable hours,” says Kelly. “In a firm where billable hours are emphasized over everything else, associate management is not a strong suit. When law firms pay fat bonuses based on billable hours, they are asking for bad behavior. They’re asking for people to do make-work, not necessarily padding the hours, but finding things to do, doing things in four hours that could normally take them two. If you’re telling associates that they’re not going to get their bonus unless they bill a certain number of hours, what do you expect them to do? You’re sticking your head in the sand if you think that bad behavior isn’t going to be encouraged.”
To some extent the problem is that lawyers come out of law school with unrealistic expectations, says Hajek, who graduated in 1999 from George Washington University Law School. “When you go to law school, they don’t teach you about the real-world practice of law.”
Several of Hajek’s classmates have already left the profession or moved from law firms to jobs in government or public interest practice, in large part because of the pressure at private firms to bill hours. “We all chose the legal profession, we all work hard, and we all are driven in our own ways,” she acknowledges, but too many hours can be just too much for some young lawyers. What is most important, from her perspective, is “the correct fit.” Before joining a firm, a young attorney must “research the firm, research the people that you’re going to work with, and also research the practice area.”
Partners as well as associates are often pressured to bill more hours, says Cory Amron, a partner at Vorys, Sater, Seymour and Pease LLP. “There’s no doubt that partners are working harder than many of them were 25 years ago.” Of course, partners who are rainmakers, bringing in business for the firm, are not expected to bill as many hours as those who do not produce business, she adds.
Referring to lawyers who work for her at MCI, and who reported to her when she partnered at Wilmer, Cutler & Pickering, Kelly says emphatically, “The quality of your life is your responsibility! It is not my responsibility to give you a quality of life. If you don’t have a quality of life, it’s your responsibility to come to me and say, ‘I don’t have a quality of life, and it’s because you’re making me work 80 hours a week.’ So many people say it’s the responsibility of a law firm or a company to make sure that their people have a quality of life. It is a two-way street!”
Moreover, says Kelly, any lawyer who feels an employer’s demands on his or her time are too burdensome always has the option “to walk out the door and go find a place that gives you quality of life. That’s your responsibility: to go.”
Justice Breyer, who sympathizes with the predicament of newcomers to the profession who find themselves overworked, expressed a similar view in 2000: “More young lawyers may have to speak up, tactfully of course, in an effort to help the firms create the workplace environment that they will need. [They must] decide consciously what kind of career they want and what they want the story of their lives to say.”
When Amron chaired the ABA Commission on Women in the Profession during the early 1990s, she encountered a young lawyer who lamented that she had been working so many hours she had not had time to have her telephone hooked up in her new residence. “Well, why are you doing this?” was Amron’s response.
“I think a lot of people get sucked into positions where they feel that they have no choice,” she says. “It becomes ‘Well, I need to get out of the profession,’ when in fact there are lots of different choices to be made along the way.”
Amron points out that all lawyers—old and young, partners and associates, at firms large and small—must bear in mind that profitability at a law firm “is not a dirty word. It’s an economic reality that if the firm couldn’t make a profit off the efforts of its lawyers, it wouldn’t be there. In the economic model that firms operate under, we’re not doctors and we don’t charge by the office visit, we don’t charge by the procedure, we don’t [usually] have stated fixed fees. If you don’t have stated fixed fees, you have to bill another way. If you bill for time spent, the economics of the practice dictate that you have to have some sort of billing hour recapture.”
Amron also makes it clear that lawyers who feel they work too hard might want to be careful what they wish for, if their dream is substantially reduced hours. For attorneys who “don’t have enough work to be able to meet their billable hour requirement, that’s an extremely frustrating, very stressful position to be in. It’s almost as stressful, I would say, as being at the other end, having too much work to do.” She advises, “Think of the alternative.”
One solution is to work part-time. Among the lawyers who have elected to do that is Ellen Jakovic, who works the equivalent of 60 percent of full-time in order to spend time with her two young children. Unfortunately for her, her firm has a policy that those who do not work full-time cannot become partners. Jakovic accepts that, but wishes it were otherwise. Part-time, she remarks, can be “a workable solution for both parties. The key is both parties have to be flexible, the firm as well as the attorney who is seeking to work a reduced-hours schedule. But it can benefit a firm.”
For part-timers not to be partners, says Jakovic, “I’ve never heard a convincing reason why. I think all the convincing reasons are for it. Certainly [working part-time] has no bearing on the quality of work one does. And the fact that one may be available 60 percent of the time as opposed to 100 percent should not be determinative to any individual client. You are no less available than if you were in a deposition or working on matters for another client or in a trial. . . . I think one of the keys is flexibility. If I’m working on a case and I have to be here five days a week, or I have to be here at night, I make that adjustment.”
Of course, the definition of part-time is open to interpretation. “The sad fact,” says Amron, “is that a 60 percent lawyer is working what at other jobs is a full-time job.”
Quantity Versus Quality
One of the major problems with the billable hour system, as the ABA commission pointed out, is that it is “fundamentally about quantity over quality, repetition over creativity. With no gauge for intangibles such as productivity, creativity, knowledge or technological advancements, the billable hours model is a counter-intuitive measure of value.”
“It’s certainly much easier,” says Jakovic, “to look at what the attorney has done, whether you’re looking from the client perspective or otherwise, and say, ‘Oh, they’ve worked this many hours,’ as opposed to ‘That was a great brief’ or ‘That was a great result.’” Jakovic strongly believes that the outcome of the case and the quality of the lawyer’s work should be taken into consideration.
Lawyers working on a case must be “engaged in a productive way,” according to Amron. She notes that there is “a big difference” between approaching an associate on a Friday afternoon and saying, “‘Here, go do this, and I need it Monday morning,’ versus engaging that associate early on and saying, ‘Here’s a research memo that has to be produced,’ and it’s their responsibility to produce it. The first scenario seems to encourage people to just churn hours: ‘I’m just a cog in this wheel and I have this one little aspect of it.’ The other scenario is ‘I’m part of this project, I’m working alongside [a partner], I’ve got the big picture here, and I’m not expected to just put in hours, I’m expected to get a job done.’” So proper management is the key.
Speaking from the perspective of a relatively young associate, Hajek notes that by definition less experienced lawyers may have to put in more hours on any given subject because they lack the expertise that comes with time. “You’re going to be putting in more hours because you’re not as experienced as a more senior [attorney], so you won’t have the efficiency to accomplish the project [in the same number of hours someone more senior would be able to]. The more junior associates do tend to work a little bit harder because they’re learning.”
One solution Anastasia Kelly has experienced as both a law firm partner and corporate counsel is for lawyers in private practice to go over a bill “very judiciously” and “scrub” the fees; that is, reduce them when the dollar figure is very high, even if justifiably high. “I think [scrubbing is] an obligation of the partner in charge of the case. But so many firms will not scrub their bills. So you’ve got a billable hour machine that lends itself to confusion and abuse. Doing a compensation system based only on billable hours is something that shouldn’t happen.”
Attorneys often spend too many hours on a case or an issue because they are unable to make the decision that enough is enough, much like overpreparing for a final exam. Not that that dilemma is unique to the legal profession. An example that has received much attention in the Washington area is the return of Joe Gibbs as coach of the Redskins. Famous for virtually living in his office in-season during his first tour with the team, Gibbs vowed that the second time around he would work fewer hours and sleep at home as a concession to being older and in worse health than he was the first time. But one of his earliest moves upon rejoining the team was to have a bed and a shower installed in his offices.
No matter how many times he has viewed game films and gone over plans for the next contest, if a famously successful football coach can never be satisfied, how can a lawyer know the difference between being prepared and going over the edge?
“You really have to work to find the line,” the “key point,” says Liss. “There comes a point where you study to distraction. Literally. You go over it too much [especially during trial preparation.] You’re going to get into trouble doing that. If you spiral yourself down into a problem to the point where you’re buried underground, you’re not going to be a real good advocate for your client.”
A lot of knowing when to say when depends both on experience and on the client’s demands, according to Jakovic. “Maybe your client is willing to have you spend a significant amount of time on an issue, and if you need to, then you spend a hundred hours in a month until you get some kind of strategy that works. But then some of it is just common sense. Does it make sense to send someone out researching an issue for 200 hours that’s not going to have a major effect on your case? I think that’s part of what we’re paid for, that judgment call as to when you’re prepared enough.”
Requiring attorneys to bill a minimum number of hours per year is widely seen as a necessary evil for law firms. “Certainly the pressures and priorities that flow from a strict adherence to billable hours in our profession can have results that are not good for our profession,” says Jakovic, citing a corresponding lack of time for family life, mentoring within the firm, pro bono work, professional and community activities, and the like.
Nevertheless, Hajek questions how a firm can ensure that lawyers are billing enough without set minimums. It’s a matter of “quality control,” she says, “the same as at companies: How would you control the quality of each of your employees’ production? So I think there has to be some kind of a standard set. I’m not sure exactly where that standard should be. I think that’s really case by case or firm specific.”
Some firms proudly proclaim that they do not have minimum standards for the number of hours billed. But lawyers familiar with how the system works scoff at those assertions. A firm may not have “stated” minimums, but “there are clearly expectations,” says Liss. Firms may use expressions like “quality rating” in lieu of “minimum hours billed,” but at year’s end the size of the bonus will have more than a passing relation to the number of hours billed.
Amron agrees that not having minimum billed-hour requirements means nothing more and nothing less than “no stated minimum hours.” Even when there is an established number for minimum hours, that number is often sheer fiction, she says. “People in the know know that it’s not really 1,900; it’s really 2,400, but they’re not allowed to say that because for purposes of recruiting they want it to appear to be 1,900 hours.”
Some who feel that too much emphasis is placed upon billed hours call for firms to impose a limit on the number of hours attorneys can work. Many lawyers feel such a ceiling would be impractical. “You do what you have to to get your job done,” says Kelly.
Jakovic points out that “when you’re litigating, it can be very intense for a year or more,” so an attorney involved in a long trial must simply work the number of hours necessary, regardless of any lid on annual hours billed. “It can’t be an absolute [limit].”
Hajek says she has been told her firm wants to make sure no one burns out, and if managers at the firm feel a lawyer is working too many hours, the lawyer will be encouraged to take a vacation.
From the perspective of one who helps manage his firm as its chief operating officer, Jeffrey Liss declares that for “someone who is regularly putting in astronomical hours, first of all, you need to make sure those hours are real. Second, assuming that they are, you need to counsel with that lawyer, because he or she is going to burn out. That’s not going to do you any good. They need a little life, and you need to keep an eye on people who are regularly and habitually at levels that raise eyebrows.”
The Art of Billing
Liss feels certain that the billable hour standard is here to stay, because “lawyers have a good thing going. If you can get somebody to pay you by the hour no matter what the quality of those hours is, subject to client review of the bill and all that, that’s a good thing. It’s certain, you can budget, you can create expectations.”
Moreover, lawyers and law firms are “averse to taking risks. They want the certainty of knowing ‘Whatever I put into this I’m going to get back.’ My view is there are many instances where it ought to be us, not the client, taking the risk. We ought to learn how to manage a risk portfolio.”
Specifically, Liss advocates blending the billable hour model with a combination of approaches such as fixed fees, contingent fee arrangements, and value derived by the client.
“I’m not looking to banish the billable hour from existence. What I think has happened over the course of a couple of generations is that hourly billing has gone from one technique that one can use, which is clearly appropriate in certain cases, to the technique.”
By Liss’s estimate, more than 90 percent of charges at most firms, particularly the larger ones, is based on billable hours. He believes that reducing that number to about 70 percent “would make a world of difference, because then the billable hour isn’t the bible. It’s just the most commonly used measure.”
Jakovic also speaks of larger firms’ aversion to taking risks and points out that “one of the risks with quoting [a fixed fee] is you misquote, and it turns out to take a lot more time, and you end up losing money on the transaction.” Which no lawyer wants to be held responsible for.
Kelly considers billing “an art” that often frustrates her now that she has become a corporate counsel. She says it annoys her “to no end” when she receives a bill from a private firm and finds that no adjustments have been made for time wasted or of little value. Overbilling, she says, can cause a law firm to lose business. “A relationship of trust is extremely important, and if you start chipping away at that, the next thing you know you’re giving your work to another firm.”
Having to tally up bills is not unique to the legal profession, says Hajek. And establishing fixed fees is “doable—accountants do it, plumbers do it.” Lawyers are “a service industry,” so why can’t attorneys do the same, at least more often than they do now?
No Easy Answers
Liss thinks the billable hour concept has “gone terribly wrong. The key here is figuring out where the pressure points are that can bring about changes in the system. I’m convinced that it’s not going to be the law firms on their own, because it’s a pretty good gig [for the firms]. The pressure is going to have to come from clients, and some of them, but only some of them, are doing it.
“I also think a pressure point here is law students. If you remember what happened in the sixties and seventies with pro bono programs, a lot of the impetus for developing formal pro bono programs in firms came from prize law student recruits who would go into an interview where they were the buyer. It was a good market for them. They would say, ‘Tell me about your pro bono program.’ A lot of firms would hem and haw and say, ‘Well, we don’t have a formal one.’ That pressure from the students helped to develop pro bono.
“Well, particularly with the market picking up again for law students, they’re in a position to say, ‘Tell me about your minimum hours. . . . Tell me about how much you encourage and how well you’re doing with alternative fee arrangements, so that we’re not so reliant on the billable hours.’ That’s something that law students could have an impact on.”
“Billable hours have turned into a convenient, relatively easy way to quantify work done,” says Jakovic. “In that respect it has made billing and maybe clients’ understanding of what’s been done and why they’re paying for it easier. But definitely there are things of importance”—such as family, pro bono, and involvement in professional and civic activities—“that I think [the billable hour] has crowded out in the legal profession. That’s our challenge: to figure out how we can put those things back in, within the structure of the billable hour as the lodestone of how attorneys bill.”
No one expects the solution to occur without effort. As the ABA Commission on Billable Hours concluded, “There are no easy or clear-cut answers to developing successful alternatives to the billable hour. If there were, the legal profession would undoubtedly already have had these answers.”
Attorney Robert Pack is the author of numerous books, including Edward Bennett Williams for the Defense.