Goodbye Billable Hours

Could the recession spell an end to the decades-long practice of law firms billing by the hour?

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Earlier this month I reported that pay cuts could be a good way for law firms to avoid layoffs. Today the New York Times has another--law firms are using alternatives to the decades-old practice of billing clients by the hour, a practice that irks many clients (and clients have more leverage in a recession).

The paper reports that for one firm, "instead of paying for hours worked, more clients are paying Cravath flat fees for handling transactions and success fees for positive outcomes, as well as payments for meeting other benchmarks."

There are arguments against billing by the hour that go beyond trying to appease clients during a recession. Here's one:

In litigation, firms that charge by the hour can suffer if they are too successful and end a lawsuit — and the stream of payments from continuing work — too quickly. One law firm that recently collapsed, Heller Ehrman, was hurt in part because a number of cases had settled.

The legal blog Above the Law notes that the pay practices of major law firms are due for some reform--referring to the current method of associate hours supporting firm partners as a "pyramid scheme."

Update: Here's a great Q&A from earlier this month with Evan Chesler, managing partner of Cravath, Swaine & Moore, and an outspoken critic of hourly billing.


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