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How One Firm Is Trying To Jettison The Billable Hour - Sort Of

Feb. 18, 2015, 1:55 PM

Question: what is loathed by law firm associates and partners, reviled by clients – and yet used ubiquitously by all?

Answer: The billable hour.

And so the announcement by Jackson Lewis , a national labor and employment defense law firm, that it would eliminate its billable hour requirement for associates starting this year, while bold, is likely to become only a small victory in a very incremental war against the billable hour.

This is a war that firms and clients have been waging for some time, but with lots of talk and not very much action. Six years ago, Evan Chesler , then the presiding partner of Cravath Swaine & Moore (and today its chairman), said in a New York Times article that it was “time to get rid of the billable hour.” And yet, that remains the metric by which most large firms bill their clients, and by which, in turn, associates and partners are judged by at their firms during compensation time and promotional reviews.

To understand why it is so hard to eradicate the billable hour in the law firm culture and the client relationship, take a deeper look at the implications and details of Jackson Lewis’s announcement, which was made in November and received a splash in the legal press.

Jackson Lewis is not eliminating the billable hour for associates. Instead, it’s eliminating therequirementthat associates meet a threshold of billable hours when they are judged at compensation and promotion time. This means that clients will still receive bills that show just how many hours an associate worked on a task, and associates will still have to keep records of their time.

The goals of the change are two-fold. One is to give associates a more holistic picture of their performance, rather than to focus on a single metric. While Jackson Lewis associates were always judged by a range of factors, said Scott Carroll , managing shareholder of the firm’s Cincinnati office who helped roll out the new program, at the end of the day it was hard not to boil it down to a specific number – the number of hours billed annually.

The other goal is to signal to clients that associates are not simply racking up hours on their dime so they can score big at bonus time.

“When you’ve got a younger lawyer whose goal is to bill 2,000 hours, that is a huge trust barrier for clients,” Carroll told me.

Indeed, said Ward Bower , a consultant at Altman Weil , while no firm has gone cold turkey on billable hour requirements like Jackson Lewis, some firms are de-emphasizing them in the mix of factors for reviews and compensation.

“Anyone can write hours down,” he said, noting that padding hours is a persistent problem among some lawyers.

But there’s a reason why firms can’t ditch the billable hour once and for all, and Jackson Lewis is really exhibit A: neither law firms nor clients can come up with a better, viable alternative to the billable hour.

Just ask Jackson Lewis, because, more than many other firms, it is actually trying. Labor and employment firms lend themselves to alternative-fee billing work because they often work on a large number of comparable matters for one client at a time, said Bower.

“A lot of these are high-volume practices,” said Bower. So labor and employment firms can offer a fixed fee or alternative fee for a predictable amount of work such as defending a series of wage-and-hour claims against a big company, advising on all of a company’s single-plaintiff workplace disputes, or analyzing discrimination claims.

Jackson Lewis has been handling such alternative fee arrangements with clients for “dozens” of years, said Carroll, but the trend has accelerated over the past decade as financial management at large companies has increasingly scrutinized corporate legal bills. The firm, for example, has fixed fee arrangements with clients including Pfizer Inc and Cardinal Health to handle a large portion of labor and employment work on an annual basis for a flat fee, said Carroll. It also handles this kind of flat-fee work for a major (unnamed) restaurant chain.

These arrangements have been very successful, said Carroll, with companies continuing to re-up their arrangements with Jackson Lewis.

But guess what? Even Jackson Lewis can’t get rid of the billable hour. Despite the firm’s efforts to evangelize about alternative fee arrangements, said Carroll, about 60 to 70 percent of the firm’s clients still prefer hourly billing.

“We have a great deal of clients who, their perspective is, ‘it’s what we’ve always done, it’s what we are used to,’” said Carroll.

And for now, Jackson Lewis’s move with associates doesn’t seem to have sparked any competitive following. Littler Mendelson, another leading national labor and employment firm, said it undertook a review of hourly billing requirements for associates and partners over the summer, and concluded it wasn’t changing anything – at least for now.

“I certainly want to keep tabs on what best practices are,” said Jeremy Roth , co-president of the firm.

Littler also touts measures it has taken to provide more efficiency for its clients, including coming up with new technologies to provide more data about clients’ dockets and workloads, and creating a new track for some associates who are billed out at lower rate.

In other words: long live the billable hour.