Not Dead Yet: The Billable Hour

The billable hour continues its painfully slow death. A new report illuminates this perennial issue and considers the recent rise in alternative fee arrangements.

Meanwhile, an EU ruling on the billable hour is also worth a mention.

First, in Calling time on the billable hour, LexisNexis has produced an insightful report following interviews with senior partners and argues that implementing alternative fee structures, such as fixed or capped fees and retainer fees, drive productivity.

Researchers found that firms are moving away from the billable hour – after many decades of this being the default method of charging. Unsurprisingly, it’s being driven mostly by consumers who are exercising some clout, demanding greater transparency and pricing flexibility. The result is an increase in demand specifically for alternative pricing structures (85% of firms offering them admitted it is the result of client demand as opposed to their own doing).

It’s a change LexisNexis says firms ought to consider, particularly for predicable work and “routine work with a clear endpoint”, while continuing with the billable hour for urgent or ongoing work and consultant work. For firms who might wonder how to implement such a change (a key barrier) - experts recommend firms utilise their pre-existing internal billing data to determine pricing.

The report doesn’t go so far as to encourage firms to head down the alternative fee structures route, but it notes that there are critics who don’t believe the billable hour is fit for purpose. One senior lawyer comments: “The billable hour model is out of date and creates negative incentives. People who work more efficiently are unduly penalised, because they bill less than someone who maybe took twice as long to do the same piece of work. We should be rewarding people for efficiency, not penalising them”.

Legal tech, of course, is the key driver of efficiencies in the provision of legal services – another reason why the billable hour is no longer an appropriate charging method (particularly for much routine work). It stifles innovation.

Hourly rate unfair

Just recently, the EU Court of Justice ruled that quoting a Lithuanian lawyer’s hourly rate in a contract for legal services failed to satisfy the legal requirement of being drafted in plain intelligible language. Though the ruling has little impact on the law in England and Wales for now, it will still be of interest.

The contract in question was concluded between the lawyer and a family law client and included a term providing for the payment of fees on the basis of an hourly rate. The court noted the absence of any other information provided that would help the average consumer estimate the total that would be due for those services. The term was therefore unfair and lacked transparency under EU law.

That said, the judge acknowledged that is was difficult (or impossible), given the nature of legal services, for the supplier to predict at the time of the contract the exact number of hours needed to provide such services; and therefore, the actual total cost of those hours.

Most firms here in the UK are compliant with strict regulatory requirements relating to price transparency. But if the controversial Retained EU Law bill is passed, it will have the effect of weakening or removing consumer protections (which are derived from EU law), leaving consumers of legal services in a weaker position.

The status of the billable hour continues to be downgraded; greater flexibility in pricing is undoubtedly a win-win for firms and clients. Firms intending to implement changes to how they price their legal services must continue to demonstrate transparency and clarity.


Posted on 02.02.23