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At the LawCareersNetLIVE conference last December, I asked a trainee from one of the attending law firms for her best advice for trainees starting their training contracts. I expected to hear something along the lines of “networking” or “taking initiative and asking for work”. Instead, she stressed the importance of getting into the habit of “recording your hours”. That interaction, combined with my lack of knowledge surrounding the mysterious billable hour, resulted in the creation of this article.

So, what is the billable hour?

The billable hour is a system lawyers use to record how they spend their time working for a client in order to calculate how to bill them. This doesn’t include time spent on administrative and managerial tasks – only the hours spent dedicated to the client's case. So, it's no surprise that many law firms want to maximise those hours to increase profit. As such, lawyers typically have to meet a minimum number of billable hours every year.

Clients are billed in six-minute increments, making it easy to calculate the cost of an activity by plugging numbers into an equation (hourly rate x time spent = cost). The hourly rate differs depending on the band of lawyer a client is working with eg, the hourly rate of a junior associate will differ from that of a partner. Many big law firms, international or otherwise, use an electronic time-recording system in order to track how their fee-earners are spending their time and improve their efficiency.

The history behind the billable hour 

The billable hour as we know it is a relatively new phenomenon. Up until the 1950s, fees for legal services would be calculated based on factors such as the nature of a case and the client's ability to pay. In the 1930s and 1940s, the contingency fee was relatively standard, where lawyers would only be paid upon winning a case for their client. But by the 1960s, time recording had become a common practice in law firms, with the purpose of monitoring profitability. The billable hour soon became the standard, and lawyers began using six-minute increments – or multiples of them – to measure and record their tasks for clients.

Other fee structures

However, the billable hour isn’t without its disadvantages. As a measure of performance, it’s limited because it doesn't encourage efficiency – being a time-based, rather than task-based, unit of measurement. More hours may equal more profitability, but it doesn’t necessarily equal more productivity. Equally, the system ignores the importance of non-billable hours and non-billable tasks. These are often tasks that allow for the maintenance and improvement of the law firm as a business.

For this reason, some firms have adopted alternative fee arrangements (AFAs), which offer to remedy some of the disadvantages and limitations of the billable hour model. Some examples include:

1. Contingency fees: Pre-agreed shares of the lawsuit winnings, paid only if the lawsuit has been won.
2. Fixed fees: The lawyer and client agree on a price up-front. This fee can be paid in one lump sum, or in installments.
3. Blended hourly rates: With this model, different bands of lawyers are priced at the same hourly rate regardless of seniority. 

Regardless of the disadvantages of the billable hour model, it remains widely used – but that doesn't mean this won't change! With the prospect of AFAs and even hybrids on the horizon, who knows what the future holds for law firms (and their clients)?