Breaking the rules

For lawyers, time has always been money, which has made the billable hour standard practice for the profession since the 1960s. But with the rise of artificial intelligence, which already can cut the time required to complete rote tasks from days or hours down to seconds, a once-inconceivable event just might come to pass — the supremacy of the billable hour could come to an end.

Results — not time spent on a project — are being touted as the new metric for evaluating the services that a lawyer can offer, and more firms are at least considering if not experimenting with different payment arrangements, including retainers and flat fees, which could become the norm someday.

That day’s not here yet, though. The billable hour’s death will be a slow one, because the legal profession is ultra-cautious about taking risks.  

Lawyers are like teenagers at a school dance, says Susan Hackett, an attorney and CEO with a law practice management consultancy in Bethesda, Maryland. They line the walls of the gym and wait for someone else to hit the dance floor first before they make any moves themselves.

“Lawyers like to be the first to be second,” she says. Hackett, whose Legal Executive Leadership firm has advised big corporate clients such as Mars and Hilton Worldwide Holdings on their legal departments’ business practices, is no fan of the billable hour — particularly from the client’s perspective. 

“Does anyone buy anything else this way?” she asks. “Sure, go ahead and build the house, and we’ll figure out the cost and how many bedrooms it should have after the work gets started. Lawyers have been paid to do their jobs dysfunctionally for a long time. Why not incentivize by giving more money for resolving a case rather than more money for continuing it?” 

But looking at the issue from a law firm’s point of view, why would they change a payment system that saw an average national $370 hourly rate for associate lawyers and a $604 average rate for partners in 2023, according to a National Law Journal survey? That sounds like fixing something that isn’t broken, at least for law firms billing by the hour, and there wasn’t a good reason to change the practice until AI arrived on the legal scene with the threat of disrupting how fast legal services and advice could be delivered.

Even without AI in the mix, there have been rumblings of discontent about the prevalent legal billing model, including from in-house corporate legal departments that have expressed frustration over how expensive and unpredictable the costs of outside counsel can be, mainly because of the billable hour, according to a 2023 joint survey of corporate legal departments conducted by the Association of Corporate Counsel and Everlaw. Just 38% reported being satisfied with the ability to predict
the costs of outsourced legal work.

And yet, in-house legal departments also are reluctant to try something new, the survey showed. Only 28% of survey respondents said that they were pursuing alternative fee agreements with outside law firms as a cost-cutting strategy, while just 33% were considering tapping into AI technology for legal work. 

“Billable hours is all they know,” Ken Callander, managing principal of Value Strategies, a legal consulting firm that promotes alternative fee agreements, told Law.com in November 2023. “To move toward something other than that, it’s really foreign to them.”

Dipping their toes in

Williams Mullen Chairman, President and CEO Calvin W. “Woody” Fowler Jr. has seen it all in his nearly 40 years practicing law.

“Every 10 years, we hear that the billable hour is dead, but it is very resilient,” he says. His Richmond-based law firm — the state’s third largest — has 250 lawyers, 196 of them based in Virginia, and bills most of its clients by the hour. 

Fowler expects that it will take five years or even a decade before the profession sees a significant shift away from the billable hour. First will come the early adopters, he says, who are like those teenagers brave enough to get out on the dance floor first. Then, Fowler expects that most of those hanging out by the gym wall will gradually take to the floor, although a few probably will remain wallflowers and “watch all the way to the end,” he says. Those firms “might look like geniuses — or be left behind.”

Using AI for legal work is another big leap for law firms, many of which have reservations about its security and reliability.

 For now, Williams Mullen is staying off the AI dance floor for the most part. The firm has begun using large language model-based generative AI programs like ChatGPT that can create text for marketing and internal development purposes, and leaders of various practice areas have been reading and studying up on other uses of the technology.

But right now, AI presents too many proprietary and confidentiality issues to be applied to legal matters, Fowler says. “It’s not ready for prime time yet.” 

Iria Giuffrida, assistant dean for academic and faculty affairs at William & Mary Law School, finds such prudence appropriate.

Although Giuffrida thinks that in-house LLM-based tools probably can be trusted with client information, she is less confident about the ability of public AI platforms like ChatGPT to guarantee confidentiality — and “confidentiality is sacrosanct,” she says.

AI’s liability rests with the lawyer, Giuffrida points out, and some attorneys have made well-publicized AI-related errors and paid the price.

Last year, for example, two New York attorneys were sanctioned for filing a brief with AI-generated case citations that turned out to be fake, and in February, a Massachusetts attorney was fined $2,000 for producing a document that also included fake citations caused by an AI tool’s “hallucinations.”

“AI is not a barred attorney,” Giuffrida says, so any malpractice that results from its use is the lawyer’s responsibility — and problem. At the same time, the “incredible efficiencies” that AI offers can’t be ignored, she says, and some attorneys undoubtedly will turn to AI to increase their productivity. That, in turn, will lead clients to question why they should pay a billable hour for a service, such as creating a legal document, that can be performed in less than a minute with AI’s assistance. 

Giuffrida expects that small and medium-sized firms that specialize in areas of the law that are fairly predictable, such as adoptions or real estate, will be among the first to use AI tools like ChatGPT in large numbers because AI is good at repetitive tasks.

By employing the new technology, they could punch above their weight when competing with larger firms for clients, she says. AI can take the place of a paralegal or first-year associate — whom small firms may not be able to afford — and do a lot of the grunt work involved in building some legal cases. 

Excitement and caution

Three small Virginia law firms contacted for this story all bear out Giuffrida’s predictions concerning AI. They’re enthusiastic about the technology’s potential, but, just like Fowler at Williams Mullen, they are also in wait-and-see mode. 

James K. Cowan Jr. is chairman of CowanPerry, a six-lawyer Blacksburg-based firm that performs mostly corporate and real estate work for flat fees, monthly retainers and other alternatives to hourly billing. “We do so much work on fee that any efficiencies are great for us,” Cowan says, which is why he expects that his firm will be among the first in Virginia to employ AI technology in legal work. 

“In 10 years, CowanPerry has developed a tremendous amount of work product, but the hardest thing is to find it,” he says. “AI can help. It gives you suggestions and analysis and allows you to focus on the things that matter. You can think more about strategy, the human side.”  

Colleen M. Quinn, founder of Richmond’s Quinn Law Centers, which specializes in personal injury, employment law, estate planning and adoption and surrogacy, uses alternative fee agreements for her more straightforward cases, and she says it’s popular with clients.

“The younger generation really likes to have a set amount,” she says, and it’s a time-saver for her two-attorney firm to not have to calculate hourly billing. 

She also views AI as a potentially huge time-saver for estate planning and other legal areas with recurrent procedures and documentation, although AI tools are less useful for litigation, due to their unpredictability. “Ethically, there still has to be fact-checking behind it,” she says. 

Dunlap Law, a firm based in Richmond and Monterey that serves mostly small businesses, has jettisoned billable hours, says managing partner Tricia Dunlap.

Her five-attorney, all-female practice offers its clients varying levels of service at different price points that are “clear, precise and transparent,” Dunlap says. “We put clients in charge of their budgets, and a level of trust begins to develop.” Like Quinn, she notes that not tracking billable minutes saves her firm time.

Dunlap expects that what she calls “the superpower of AI” will shift focus away from time spent on tasks at many law firms, and that the demise of the billable hour could benefit clients in many ways, including some that are not purely financial. “The time we don’t spend drafting a contract,” she says, “we can spend learning a client’s business and helping them avoid mistakes.”

Although the Virginia State Bar declined to comment on any trends concerning billing practices or the use of AI tools among its members, the marketplace is usually an accurate barometer of change — and the market for AI legal services is hot. 

“I get five calls a day from people trying to sell me AI,” Fowler notes.

The future of law? 

One of those calls might have been from a firm like Henchman. An international legal services company based in New York and Ghent, Belgium, Henchman furnishes AI-assisted contract drafting services to hundreds of law firms in 35 countries, including many in the United States. For a subscription fee, Henchman provides clients “instant access to their previously written clauses and definitions,” making work accessible in seconds.  

Michiel Denis, Henchman’s head of growth, says his company experienced 1,300% revenue growth in the past year and a half, and it now counts among its clients the multinational Boston-based law firm of Goodwin Procter, which has 1,800-plus attorneys. Most of its business, though, as Giuffrida predicted, comes from small and mid-sized law firms.  

“It comes as no surprise that the rollout of a technology platform is slower for bigger firms, as they typically have more practice groups leveraging new technologies,” Denis explains. Key to his company’s success has been what he calls the “bespoke” training it offers on the use of its systems. “Next to privacy and reliability, we notice user-friendliness is a key sticking point for Henchman clients,” he says. 

Hackett would second that. She has seen too many law firms “jump in from doing nothing with technology to the highest level,” she says, dooming such enterprises from the get-go. Firms end up with systems that no one wants to use, which only enforces the profession’s general embrace of continuing to do things the way they’ve always been done. 

However, law firms don’t operate in a vacuum, and many have clients who are already using AI in their own businesses, Hackett notes. These corporate clients likely will expect their legal counsel to make use of similar tools that can increase efficiency and, most consequentially, lead to a revamp of how they are billed and how much those services cost.  

“You can’t have one hand clapping,” Hackett says. “You have to do it together. Yes, law firms are slow to change, but market changes are fast, and technology is fast. Law is unpredictable. So is business. Get over it.”