8. The incentive to overlawyer
Not only is efficient lawyering undercompensated through hourly billing, but overlawyering is encouraged.
The issue is somewhat analogous to cost-plus contracts, where a contractor marks up every sub-contractor’s and supplier’s bill and thus profits the more the client is charged.
Just as the cost-plus contractor has no financial incentive to keep the price down once hired for the job, so the lawyer who charges by the hour has little incentive — at least in the short term — to keep down the hours billed. To the contrary, the lawyer’s incentive is to bill as much as possible. The result can be unnecessary lawyering.
Of course, it isn’t always easy to draw a line between what is and is not “necessary.” In many areas of the practice of law, it is very hard to determine when a task is “finished” — absent a deadline that forces it to come to a conclusion.
In litigation, for example, it is rare that a document is beyond the point where it could be improved if only more time were spent on it. Even the most gifted writer’s output can usually be improved by further editing. Indeed, it is the gifted writer who usually demands more editing. Likewise, one can lose all sense of time while conducting legal research and often be uncertain when enough is enough.
Nonetheless, the fact that there is more that could be done does not always mean that more should be done. There can be a diminishing return. And there is such a thing as “busy work” in the practice of law — activity that fills up time sheets but does not really lead anywhere productive.
Moreover, there are often ways in which one can get to where one needs to go simply by being efficient. However, the whole problem is that the lawyer who is laboring under an employer’s expectation of high billable hours has no incentive to try to reach desired ends in as fast a manner as possible. The lawyer needs to rack up those hours. And the hours, more often than not, will go straight onto the bill.
The impact of technology on the billable hour
The tension between efficiency and the billable hour is all the greater because technology has enabled today’s lawyer to perform some tasks far more quickly than was the case only two or three decades ago.
Legal research is a great example. In the days of hard-copy legal research, finding authority and then checking to see whether it is still good authority — “Shepardizing,” to use the verb derived from the provider of the original tools for this purpose — was a hugely time-consuming exercise.
Today — using online tools such as Westlaw and Lexis — one can often achieve in minutes what, previously, would have taken hours. And one can do so from one’s desktop, without shuffling around a law library.
However, operating on a time-based billing system, the lawyer loses out in this situation. An old-timer who insists on researching the law the old-fashioned way might charge for three hours to come up with an answer to a question. However, the lawyer who utilizes legal technology to its fullest can do the same in, say, 30 minutes.
On a time-based model, the old-timer would get paid six times as much to reach the same conclusion. That makes no sense.
There’s another aspect to the efficiency gains made by the use of technology in the practice of law. If technology enables lawyers to complete certain tasks in, say, one sixth of the time that it used to take, does this mean that they get to go home early? Maybe, if they are their own boss. But, if they work for a firm, they still have to meet their billable hour targets.
This provides lawyers with a disincentive to perform a task as quickly as technology might allow. The problem with completing a task is that one immediately has to find a new one to perform in order to stay on the billable hour curve.
The quarter-of-a-million-dollar motion
It is not just the individual lawyer who has an incentive to rack up hours even if this risks overlawyering. The problem extends, at a collective level, to the firm itself. The whole system is based on billing as many hours as possible. So firms typically do not train their lawyers how to be frugal in the delivery of services. They have no more reason to do so than a shoestore owner has in instructing salespersons to suggest to customers ways of making their old shoes last longer.
At the time of writing this book, I had just litigated an appeal involving, in part, an award of attorney fees. A large law firm in Los Angeles charged about a quarter of a million dollars for preparing a single 20-page motion — with some supporting declarations — involving no discovery. This reflected about 600 hours of billable time. The firm claimed that this constituted the “reasonable” attorney fees that it was, supposedly, entitled to recover from my clients — the opposing parties — under a California statute with a “loser-pays” fees provision. The trial court awarded these fees and my clients appealed.
Putting aside the question of whether there was an entitlement to fees in the first place, I cannot accept that spending 600 hours on a single motion with no discovery can be reasonable. It reflects a billing culture that is out of control, involving work by lawyers who have no incentive to keep the time spent proportionate to the nature of the task.
I won that appeal for my clients. However, the appellate court did not reach the issue of whether the amount of the fees award was unreasonable, as it reversed on other grounds.
One benefit of smaller law firms is that, typically, they don’t have the resources to bill such excessive numbers of hours in the first place. Likewise, lawyers who are very busy — and who don’t have legions of underlings to whom work can be delegated — tend to be forced to be efficient simply in order to manage their workload.
So by no means do all lawyers meander through their days trying desperately to fill up timesheets. The circumstance where this does occur tends to be in environments with too many lawyers operating under too high expectations about how many hours they are meant to record.
Entire contents © 2008 John Derrick