Lawyers Ditch Billable Hour Structure

Private law firms charge their clients a fortune in billable hours. Now, some firms are doing away with this form of billing because clients just can't afford it. With the economy failing, some lawyers are finding themselves out of a job too.

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MADELEINE BRAND, host:

This is Day To Day. I'm Madeleine Brand. Many companies are adjusting their business practices to adapt to this economy; law firms, too. Daniele Anastasion reports a lot of firms are saying goodbye to a cherished and lucrative legal tradition.

DANIELE ANASTASION: The billable hour: it's an icon of the legal marketplace. Recall the wisdom imparted by Gene Hackman in the 1993 legal thriller "The Firm."

(Soundbite of movie "The Firm")

Mr. GENE HACKMAN: (As Avery Tolar) Everything depends on billing. How many hours do you spend even thinking about a client? I don't care if you're stuck in traffic or shaving or sitting on a park bench.

ANASTASION: For decades, lawyers have charged clients by the hour. The more hours a lawyer works, the bigger the profits for the firm. But one lawyer can only generate so many billable hours. So, what did firms do?

Ms. SUSAN HACKETT (Senior Vice President, Association of Corporate Council): They started hiring more and more attorneys, and a matter that might have been staffed with two or three lawyers in the past suddenly had five, 10, 15 lawyers all billing on the matter.

ANASTASION: Susan Hackett is with the Association of Corporate Council in Washington, D.C. Hackett says clients have always complained about the system, claiming it encourages inefficiency.

Ms. HACKETT: And while this sounds like common sense, in the legal marketplace this is a huge issue, because for decades, firms sent the bill and clients paid it. And if you didn't like it, then you couldn't afford to buy that firm's services.

ANASTASION: But that may be changing. With the slumping economy, corporate clients are slashing budgets, and law firms are feeling those cuts. Steven Williams monitors the legal marketplace for the Corporate Executive Board.

Mr. STEVEN WILLIAMS (Managing Director, General Counsel Roundtable, Corporate Executive Board): 2009 is going to be a tough year for law firms. There's about 30 major U.S. firms who have already laid off staff; another 20 major UK law firm have already laid off staff. They are looking for ways to lock in their customers and show to their customers that they're more flexible in the arrangements that they're willing to use.

ANASTASION: And as their clients look for efficiencies, the call to abandon the billable hour is growing louder. Attorney and mother of three Nicole Auerbach welcomes the change.

Ms. NICOLE AUERBACH (Partner, Valorem Law Group): As any working mother will tell you, when you are working full-time and you want to maintain your family life as well, you learn to be very, very efficient. If I wrote a brief, for example - a winning brief, by the way - you know, in half the time that the person in the office next to me did, that would be great for the client. But from the law firm's perspective, I was generating half as much revenue as the person next to me, you know, notwithstanding the fact that we both got the same end result.

ANASTASION: Ten months ago, Auerbach and several colleagues opened Valorem Law Group in Chicago. As self-described refugees from large law firms, Valorem's partners sought advice from clients on the changes they'd like to see.

Ms. AUERBACH: There were a lot of clients who finally said, listen, the number-one issue for me right now is cost control. I need to know what legal matters are going to cost from the front end. And I think the economic crisis has certainly emphasized that.

ANASTASION: Valorem's website proclaims that the billable hour is dead. Instead, they offer fixed fees, capped fees and fees based on outcome. A growing number of law firms now offer similar options, but they're in the minority.

Ms. PAM ROTHENBERG (Managing Partner, Womble Carlisle Sandridge & Rice, PLLC): I just don't think it's within the realm of possibility that the billable hour is going to just go away.

ANASTASION: Pam Rothenberg is a managing partner at Womble Carlisle Sandridge & Rice in Washington, D.C.

Ms. ROTHENBERG: There are thousands of lawyers and thousands of law firms across the country that bill on hourly-rate basis, and it would take a tsunami of change to have every law firm just throw it out. I think it's missing the point to focus on that. The point is to focus on what clients need.

ANASTASION: One thing everyone seems to agree on: law firms have to change the way they do business if they want to stay in business. And if that leads to the death of the billable hour, for many people it can't come soon enough. For NPR News, I'm Daniele Anastasion.

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