The billable hour has stood as the standard for legal billing for generations. Popularized by the American Bar Association (ABA) in the 1950s as guidance encouraging lawyers to track their time for profitability and efficiency, the model quickly became synonymous with legal practice.
Favored for its simplicity, transparency and convenience, the billable hour remains the dominant approach in the industry, with 79% of law firms using the model today – underscoring its widespread acceptance.
However, the 2023 State of the Legal Market report highlights a shift – the average attorney billed 1,611 hours in 2022 – a decline of 1.2% from 2021 and 9.1% below pre-pandemic levels in 2019. This trend, coupled with the rise of technologies like generative AI and evolving client expectations, is sparking fresh conversations about how law firms should define and deliver value in an ever-changing legal landscape.
Persistence of the billable hour
Historically, legal services were typically billed based on fixed fees or case outcomes, often influenced by informal agreements and perceived value. As law became more professionalized and firms grew, the need for a more transparent and standardized billing system arose.
Enter the billable hour. By adopting timesheets to track the time spent on cases, law firms ensured fair billing for clients while gaining a clearer view of performance and costs. Despite the model’s long-standing popularity, criticism for the billable hour has been widely reported, particularly in the following two areas:
1. Incentives misaligned with value
A common critique of the billable hour is its potential to encourage inefficiency. Since a lawyer’s value is tied to hours worked rather than results delivered, the model can inadvertently reward time spent rather than productivity or outcomes. Kevin Henderson and Eric Pacifici of SMB Law Group argue that this misalignment can strain the lawyer-client relationship.
2. Work-life imbalance
The pressure to meet high billable hour targets has been closely linked to burnout and mental health challenges in the legal profession. A 2023 report on lawyer well-being revealed that 77% of lawyers are experiencing burnout, particularly those working over 45 hours a week and billing 36 hours or more.
While some believe that moving away from the billable hour structure could alleviate the rising demands on legal professionals, many firms argue that billable hours remain the clearest and most quantifiable targets for measuring a lawyer’s performance and progress. Without this framework, expectations for productivity may become less defined, potentially leading to uncertainty about what constitutes ‘enough’ work.
Sebastian Hannelly, a mental health first aider and legal recruiter at Distinct, adds – “When billing hours are removed, firms often shift to other forms of evaluation, such as project-based goals that bring increased pressure to prove value through results, client satisfaction or efficacy. In turn, the absence of hourly tracking may push people in the industry to work longer or harder to ensure they are seen as productive, leading to burnout.”
Beyond billable hours, many argue that burnout is also driven by the pressures of non-billable work. A recent report revealed that U.S. lawyers spend just 33% of an eight-hour day on billable tasks. The remaining two-thirds are consumed by non-billable activities – essential yet often undervalued responsibilities like administrative duties, business development and training.
Exploring alternatives: The rise of AFAs
While the billable hour remains the backbone of legal billing, its drawbacks are driving conversations about alternatives. Alternative Fee Arrangements (AFAs) gained traction in the 1970s following a pivotal Supreme Court ruling in Goldfarb v. Virginia. This decision prompted the ABA to advocate for alternative legal fee structures, particularly for cases where cost certainty was a priority.
What are AFAs?
AFAs are billing models that deviate from the traditional billable hour approach by focusing on value rather than time. Common AFA structures include:
- Fixed fees: A set cost for a specific service or case
- Contingency fees: Payment contingent on a successful outcome, such as a percentage of a settlement
- Subscription models: Clients pay a recurring fee for ongoing legal services.
While AFAs now account for approximately 15-25% of legal billings at sophisticated law departments, their growth has been described as “stubbornly stagnant” in recent years.
A recent Deloitte report surveyed corporate legal departments (CLDs) to shed some light on this slow adoption. The report found that 75% of CLDs use AFAs primarily for cost savings, while 70% leverage them for cost efficiency. Yet ultimately concluded – “Despite the interest surrounding AFAs generally, time-based billing remains the dominant model in the legal profession, and is perfectly serviceable for many CLDs in many situations.”
How AI is shaping the future of legal billing
Though AI is still in its infancy, its impact on the legal sector – and across all industries – can already be felt. Legal technology provider Clio notes that while not all billable work can be automated, some roles are more susceptible to automation than others. For example, 81% of hourly work performed by administrative assistants has automation potential, compared to 57% of work performed by lawyers.
Jason Winmill, Chair of the Buying Legal© Council, believes that AI could drive a reevaluation of how legal work is priced. He explains, “If GenAI can produce the efficiency gains that are being touted, it may set off a complete rethinking of how legal work is carried out, priced, and valued.” Winmill argues that routine tasks, like employment and IP procedural work, will likely see a reduction in professional hours due to AI, making them better suited to alternative value-based billing models. However, he maintains that high-stakes work, such as bet-the-company litigation, should and will continue to rely on the billable hour model.
In contrast, Feargus MacDaeid, Co-Founder of Definely, sees AI as a tool to enhance the billable hour model. By automating non-billable tasks, such as administrative duties, he argues AI could enable lawyers to focus on high-value work. By automating non-billable tasks, such as administrative duties, AI will enable lawyers to focus on higher-value work. This shift could lead to fewer “written off” hours, more accurate billing and an increased capacity for additional work.
In short, AI represents an evolution in legal billing, not the end of the billable hour. As technology advances, attorneys must adapt by refining how they communicate and deliver value to clients – no matter the billing structure.
Working with Distinct
At Distinct, our legal recruitment specialists are committed to helping attorneys find the ideal law firm and career path that aligns with their goals. Whether you’re looking to reduce billable hours, explore more diverse work as an associate, or take the next step in your legal career, we are here to help.
If you’re a lawyer exploring new opportunities or a hiring manager seeking top talent for your firm, contact our legal team today.
