Time versus Value? Perspectives on Hourly Billing

Time versus Value? Perspectives on Hourly Billing

By Heather Hui-Litwin*, guest blogger

I still remember my first day of work at a large law firm. While I was hired as a Scientific Consultant and not a lawyer, the firm still asked me to docket: I would record all the time I spent working on each client file. I had never worked in a law firm before and I had no clue what docketing meant.

The lawyer who was getting me settled in asked, “Are you okay with docketing?” Of course I said “Yes, it’s fine”! After all, it made sense and it seemed fair that the more time spent on a file, the higher the bill. I felt this way despite the fact that I was already a client of another law firm at that time. While I was always very aware of how expensive lawyers were, I really never questioned the idea of docketing.

My view of hourly billing has changed over the years. After becoming a lawyer myself, I definitely appreciate that being a lawyer is very stressful and that working on a file requires a lot of hard work. Also, running a practice is extremely expensive. Nevertheless, I feel that the inevitably indeterminate nature of hourly billing discourages many litigants from hiring lawyers – and drives some clients away as the costs inexorably build up.

 

The Lawyer’s Perspective

As a lawyer, billing by the hour is very simple to implement in principle: you simply keep track of the time you spend on your work in six-minute units.

Most law firms request that lawyers docket every task, including communications – whether with your client, opposing counsel, court staff or others. Some lawyers charge at the same rate to wait outside a courtroom for a hearing, or travel to the court house, because these activities constitute “work” and occupy time spent on that file.

Depending on the arrangement, clients are usually billed after services are rendered. Many civil litigation lawyers discover that it is challenging to estimate the final bill because of the unpredictable nature of litigation. Since no one wants to be shortchanged for their labour, it is understandable that lawyers use billable hours and also, in most cases, require a retainer. Lawyers use their professional judgment to decide on and then perform the tasks that are necessary, and bill the client upon completion. Since lawyers must do their best in any task they undertake, and could be held liable for any errors, they will spend as much time as needed to do things properly.

The only “estimate” they can offer is their hourly fee, which they hope would assist in informing the client whether their services are affordable.

Which brings me to another reason for the dominance of the hourly billing model – it encourages clients to settle. It also encourages clients to focus their communications on the legal issues.

 

Through the Eyes of the Client

From a client’s perspective, the hourly billing model may seem acceptable at first – logical, just like it did to me before I was a lawyer – but as a case progresses, it poses many problems.

Since the principle of time spent applies to every single task, independent of complexity of the task, charges add up very quickly. It is difficult for clients to understand why time waiting at court, travel time, or communicating with a client are all charged at the same rate (usually in excess of $300/hour!). Since all tasks are recorded in integrated accounting software, it would actually be simple enough to charge different rates for different tasks.

A client has no control over how much time a lawyer spends on each task. This means that the principle of proportionality – just how much time to spend – is entirely at the lawyer’s discretion.

I hear some legal professionals criticizing would-be clients who they think could “afford” a lawyer as “cheap”, when they choose to represent themselves. But it is worth remembering that clients usually prefer to retain control of how much to spend in proportion to the amount in dispute. For example, in a Small Claims case worth $3,000, a client might reasonably feel that spending in excess of that amount on a lawyer is unwise. But the cost of full representation in such a case could easily exceed $3,000. Even if the client could “afford” – that is, they could if necessary, find – $10,000 for legal fees, it makes no economic sense to pay a lawyer on a full retainer for such a case.

Another difficulty with hourly billing is that it is usually independent of the result, or the value to a client. For example, suppose the lawyer is hired to defend a summary judgment motion: the client is charged the same amount even if the lawyer was unsuccessful.

Finally – since each bill is to some extent a surprise (and usually more than expected) this creates a lot of anxiety for clients. For the client, it feels like they are being asked to hand over a blank cheque for each billing period.

 

Striking a Balance

 How do we ensure that lawyers feel compensated for the hard work they do, yet give clients the service they need in a manner that respects a desire for value and fiscal control?

I think offering unbundled legal services is one way to achieve this. It gives the client a choice to seek advice from lawyers for discrete services, keeping fees under the client’s control. It makes sense to offer services to clients in a way that they can choose how much to spend.

While quoting a flat fee for the whole case (taking the case from beginning to end) is often difficult and impractical, breaking up the litigation and offering legal support on discrete issues and tasks should make it easier for lawyers to provide services on a flat fee basis. This is how Michael Hassell’s Litigation Garage (http://www.litigationgarage.ca/Litigation_Garage/Lawyer.html), or Joel Miller’s Family Law Coach (http://thefamilylawcoach.com/homepage/) offer legal services. Lawyers can provide consultations for coaching purposes, such as explaining the steps of the court process or drafting or reviewing documents.   Another option is capped fees, where a lawyer charges by the hour, but the client sets a “cap”, so that he or she can be warned when the fees are approaching that level, and have a discussion with the lawyer about how to proceed.

I think most clients would rather be given notice of how much a service will be, and be given the choice of deciding whether to retain that service, instead of being presented with a bill after the services have been completed.

Not everyone can afford full retainers, or accept unpredictable billing. It is important to give litigants choices. Otherwise, more litigants will continue to choose, or be forced to choose, to self-represent without a lawyer’s help. And that leads to frustration for everyone: judges, lawyers, and most importantly, for litigants.

* Heather is a lawyer and former SRL who is working to develop a practice geared to the needs of SRLs and to offer unbundled legal services, fixed fee services, legal coaching and educational seminars. http://www.litigation-help.com

 

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Comments (3)

  • evert-jan Steen

    Brilliant, succinct, and in plain English, Ms. Heather Hui-Litwin, starting at the foundation hit the nail on the head! Kudos, and thanks. Here’s to a possible whole new liberalization of a badly wanting Demo – Cracy! Let’s get on with it! YEAH!

    November 4, 2015 at 4:29 pm
  • Kari Boyle

    Hi Heather. Excellent post. One thing I would add with respect to the perspective of the lawyer about hourly billing: I remember sitting at the end of a long workday counting my recorded billable hours (this was before everything was automated) and thinking “how could I have spent 12 hours in the office and only billed 5 hours!” This can happen for a variety of legitimate reasons but what I noticed how discouraged I was. There was also some fear, since hours were a key factor in how my compensation was calculated and how the partners viewed my future at the firm. In hindsight, it highlighted how much my sense of my value and worth as a lawyer (to the firm but also to myself) was represented by the number of recorded hours on the page. This is demeaning and soul-destroying, particularly for someone who worked hard to ensure client needs were met. So I just wanted to point out that while billing based on recorded hours is simple it has many significant negative effects for lawyers as well.

    November 4, 2015 at 4:48 pm
  • Noel Semple

    Super post! You’ve out your finger on the big problems with hourly billing, and no question that unbundling helps. One other alternative is contingency billing. Contingency addresses the problems you identify here. It eliminates risk and uncertainty for the client. It also aligns firm and client incentives re how many hours to put in and when to settle.

    Unfortunately, contingency billing has its own problems: chiefly (i) a lack of price competition and price salience to the client, leading to high total fees, and (ii) the failure of most firms, apart from certain plaintiffs’ tort practices, to figure out how to make contingency billing work. Access to justice would take a leap forward if we could figure out how to deploy contingency billing in more types of litigation practice, while simultaneously addressing its shortcomings.

    November 6, 2015 at 5:04 pm

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