austindefender

Criminal defense in Austin Texas.

Apples and Oranges – The Bar Says It’s Time To Learn About The “Billable Hour”

Posted By on February 16, 2011

There are two models when it comes to charging and collecting legal fees. There’s a civil model, in which the lawyer sits at a desk and keeps careful notes of the time he spends on a case: the phone calls and faxes, the traveling here and there, the interrogatories and depositions, and all the mountains of paperwork certain kinds of civil cases tend to generate (specifically, the ones where the litigants are deep-pocketed).

New lawyers are recruited out of law school and told they need to generate X number billable hours, where X is enough to cover not just the new lawyer’s salary, but overhead and profits for the senior partners as well.

It’s soul-deadening, but lucrative work, and work most of my former classmates aspired to do.

Clients, not surprisingly, hate it.

Companies are attacking the billable hour out of a growing frustration with rising legal costs. “Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour,” said Cisco’s general counsel, Mark Chandler. In a speech at Northwestern University’s law school last January, he called the billable hour, “the last vestige of the medieval guild system to survive into the 21st century.”

Slate

Some lawyers think it’s stupid.

The billable hour makes no sense, not even for lawyers. If you are successful and win a case early on, you put yourself out of work. If you get bogged down in a land war in Asia, you make more money. That is frankly nuts.

Forbes

Criminal defense attorneys, and other lawyers who represent people rather than corporations – and the poor rather than the rich – pretty much uniformly reject it.

The other model is the flat fee model. Under a flat fee agreement, the total amount the lawyer will be compensated is negotiated up-front. The lawyer gets no more, no less. If the case takes up more time than expected, the lawyer’s on the hook it. On the other hand, if he resolves it quickly, his pay is the same, but his hourly rate goes up.

The lawyer, in other words, assumes the risk that – at the outset – it’s often impossible to know how long the work will take. Which is appropriate, since the lawyer is in a better position than the client to take a guess.

The client, on the other hand, gets the certainty of knowing exactly what it’s going to cost, and can shop around, if he wants, for the best rate.

The State Bar of Texas, in its proposed rules changes, has decided one of these models is ethical, and the other is not.

Can you guess?

That’s right – flat fees are unethical.

You can read the gory details here. But the short version is that the Bar isn’t quite willing to outlaw flat fees outright.

Instead, they’re redefining flat fees as advance payments, which must therefore be kept in special trust accounts, which the lawyer may not touch until he earns them, by billing for his time at an hourly rate.

Sound familiar?

It’s a bit like saying you can have an apple if you like, so long as it’s orange, has orange juice inside, and is actually an orange.


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