The Billable Hour: Albatross for Paralegals As Well

Practically every day, in one legal publication or another, you’re going to read about how the billable hour will eventually meet its demise.  Whether this occurs in the next 10-20 years is questionable.  What we do know, is that CorporateAmerica is pushing back hard against inflated hourly rates including paralegal rates that can go as high as $250.00 per hour or more.

When news broke last fall that a few New York City lawyers had reached the US $1,000-an-hour mark (that’s US $16.67 a minute), a partner at a major firm in the city warned that the profession may have hit the “vomit point” with clients.

He was right: although the skyrocketing rates lawyers charge have been something of a joke for decades, several large U.S. corporations are no longer laughing. Some clients, it seems, are less willing to accept “open-ended, indefinite and unknowable liabilities when they walk into litigation,” says Lorne Sossin, a law professor at the University of Toronto. Now, to cash in on this discontent, a handful of boutique firms are beginning to offer alternatives to the billable hour, the industry standard since the ’60s.

An article in today’s Maclean’s, a Canadian national weekly. stated that charging by the hour—or in six-minute blocks—was originally meant to improve transparency. The problem, says Hugh Totten, a member with Valorem (latin for “value”), a new Chicago-based law firm that offers clients contingency fees (payable only if the result is favourable) and fixed fees, is that the billable hour “creates an incentive for endless litigation and for a complete lack of efficiency.”

This critical refrain isn’t new. In a 2002 report, the American Bar Association’s commission on billable hours blamed hourly quotas for driving young lawyers from the profession (an estimated 45 per cent of lawyers quit law by their third year), and for leaving little time for pro bono work. The commission identified several alternatives. While many private law firms provide options to favoured clients, most lawyers still work on the clock (91 per cent of legal work in Canada is based on billable hours). When asked how quickly firms are shifting from that model, Richard Stock, founding partner of Vancouver-based legal strategist Catalyst Consulting and frequent Paralegal SuperConference speaker, laughs: “Global warming is faster.”

Those paralegals in firms requiring 1800 billable hours per year are just as vulnerable to doing whatever they can to rack up hours as are associates.  The only problem is, there is no partnership carrot and most times, no upward movement on any career ladder.

Experts anticipate that the current economic downturn will lead to further belt-tightening and could force more companies to reassess deals with their lawyers. “The days of just writing cheques are coming to an end,” says Jay Shepherd, whose Boston firm, Shepherd Law Group, banned billable hours last year and doubled its 2006 revenue. “There is no other business that we don’t know the price of something before we buy it. Imagine getting on an airplane and being told they’re going to charge you by the minute. It’s crazy. Nobody would do it.”

In setting flat fees for work, however, paralegals will need to know how to complete assignments within the budgeted time.  Think about how you can bring the idea of flat fees to your firm:  start finding out how long it takes to summarize a deposition per hour (you can usually go somewhere between 12-25 pages per hour); review documents for attorney-client work product; form a corporation.  It may be a way to assist in better profits that in turn result in higher salaries (one would hope).

If paralegals can’t reach partnership, don’t move up a ladder but are required to bill the same as a 3-5 year associate, where do the boundaries kick in?  Anyone out there in a firm offering flat fees for paralegal work?  Let’s hear how it’s going.