Of the 2000-odd complaints received by the Legal Servicers Commissioner each year, the most common cause for complaint is a dispute about legal costs. At the same time, lawyers in private law practice also identify billing as a foremost cause for complaint. The irony in clients and lawyers sharing frustration over hourly billing rates stems from the fact that the initial introduction of time based billing originated from lawyers’ desire to be efficient and to maximise their earnings and clients’ preference of only paying for time expended on their behalf.
This essay will discuss the key problems with time based billing, how these problems can be addressed, and ultimately whether the billable hour system should be brought to an end.
II. PROBLEMS WITH TIME BASED BILLING
The billable hour system provides a poor measure of the value a lawyers’ work to the client. It nonetheless provides an excellent measure of the value of a lawyer’s work to the owners of a firm, as billable hours provide a single, clear output measure that can interpret employee performance in market values with minimal mediation, delay and also bypasses the need to rely on subjective assessments by supervisors. Given the prevalent implementation of time based billing, it is clear that the profession places greater importance on the firm’s point of view. From the firm’s (employer’s) perspective, where profit and financial health are of concern, the law firm can be accurately described in terms of billable hours, rather than being described in terms of legal services which is how the client understands the value a law firm provides to it. Is this focus appropriate? More specifically, is prioritising profit appropriate?
In a variety of aspects, law firms are comparable to corporations except that as limited liability partnerships, they are legally structured in a way that maximises profit incentives. Disctinct from corporations where employees may not be rewarded accordingly, law firm partners receive a direct share of profits. But unlike corporations where the overarching objective is to create profit, lawyers have a superior duty to uphold justice where the profession is essentially a formalised version of dispute resolution based on ethics. Thus the billable hour system as it has evolved today, with its focus on the firm’s profit in terms of billable hours, rather than a focus on the services it provides to clients in the interests of achieving justice, is a fundamental flaw of the current billing system. At a conceptual level, it undermines the overarching duty of lawyers to uphold justice. Prioritising profits is reasonable and appropriate unless this overarching duty is compromised.
Another problem with time based billing is that it rewards inefficiency. Justice Spigelman articulates that under such a system, legal practitioners do not have a financial incentive to do the service as quickly as possible. Why rush to complete a task in one hour when it can be billed out for two hours? Though there is nothing wrong with being a slower working lawyer compared to the next, being less efficient may be of ethical concern if this leads to a compromise in a lawyer’s duty to act in the best interests of the client and their overriding duty to court. Arguably not operating at the highest level of efficiency in itself is acting outside the interests of the client who will not want to pay for unnecessary time spent on tasks which can be completed quicker. Moreover, where a case is litigated, the lawyer owes a duty to court to conduct cases efficiently and expeditiously.
However, in reality lawyers simply cannot afford to waste time and the real issues stem from the use of time based billing as the basis for personnel management where salary, performance and progression within a firm is largely determinant on the number of hours a lawyer has billed. Billable hours have come to be used as a tool to measure and then control the...