It has been called the cockroach of the legal world. It has been labeled a "villain" by a justice of the US Supreme Court. Its impact has been described as "corrosive" by the American Bar Association.
The target of this vitriol: the billable hour, which is used by most law firms to calculate how much they charge clients, and which detractors say encourages bill-padding, promotes quantity over quality, and forces lawyers - who are typically required to bill 2,000 hours a year in six-minute intervals - onto a speeding treadmill that drives many of them out of the profession.
Now a small Boston law firm has banned the billable hour, refusing to take clients who insist on paying on an hourly basis. And both the firm and its clients say the alternative works in their favor.
Several major law firms have been pressured by large international clients, such as Cisco Systems Inc. and Pitney Bowes Inc., to accept fixed-fee arrangements for certain types of legal work. But the Shepherd Law Group is one of the few firms to voluntarily abandon the billable hour system entirely.
Shepherd, a five-lawyer firm that specializes in employment law, charges its clients a flat annual fee or flat price per task. Clients can call the firm as often as they want to discuss legal issues, although some services, such as training and litigation, cost extra. The new approach helps clients determine legal costs in advance and often prevents legal problems from escalating because clients are no longer reluctant to seek advice out of fear of incurring a hefty bill, said Jay Shepherd, the firm's founder.
"Hourly billing is wrong and it's anti-client," Shepherd said. "There's a disincentive to be efficient since you get paid more if you take longer to finish a matter - even though the client wants it to be finished as fast and efficiently as possible."
The American Bar Association concluded in a 2002 report that hourly billing is at the root of much that is wrong with legal practice: brutal hours, lack of collegiality (since time spent chatting with colleagues is time not spent billing), fraudulent billing, lawyers who intentionally stretch the time it should take to finish a matter, unpredictable costs for clients, little time for friends and family, little time for community service, and a system that rewards lawyers for quantity over quality.
In the law firm world, so despised is the billable hour that it has spawned a line of gag gifts, including clocks and watches that measure time in 10ths of an hour. It was maligned as "the legal world's cockroach" in an article in the New York Lawyer. Surveys consistently show that lawyer dissatisfaction is most often caused by pressure to bill hours. And Yale Law School estimates that for every two hours billed, lawyers must spend about three hours in the office, since they usually can't charge clients for food breaks, coffee runs, bathroom trips, personal phone calls, and professional development.
That means billing 2,000 hours a year - not uncommon at many large firms - requires about 3,000 hours a year in the office, or the equivalent of 60 hours every week.
"Nobody is happy with it," said Robert E. Hirshon, the former ABA president who commissioned the 2002 report. "The attorneys who are practicing law don't like it. The clients don't like it. And yet everybody seems to believe that they're stuck with it."
The ABA, which estimates that more than 90 percent of all law firms use hourly billing, issued a resolution last year encouraging firms to find alternatives. It also urged firms to pay lawyers based not only on how much they bill, but also on their pro bono work and mentoring activities.
Law firms did not always bill hourly. For most of their history, lawyers considered the difficulty of a matter and the results obtained when charging clients, and often sent bills for an unitemized dollar amount marked "for services rendered." In the 1950s and 1960s, timekeeping became routine as consultants promoted hourly billing as a way to increase profits; to make more money, firms could increase hourly rates or increase hours worked.
By the 1990s, mandatory billable hour requirements had become "unreasonably high," according to the ABA's 2002 report, which included a foreword by Associate Justice Stephen G. Breyer of the US Supreme Court, who called the "continuous push to increase billable hours" a "villain" that had eroded the spirit of public service that historically characterized the legal profession.
Some firms dabble in alternative systems, including contingency fees, volume discounts, "value billing" that takes into account the complexity of a task, "blended" fees that average partner and associate rates, and "success fees" that combine a flat fee with an extra fee paid if a certain result is reached. And certain types of attorneys, such as personal injury lawyers, who are typically paid on a contingency basis, and insurance defense lawyers, who frequently do flat-fee work, rarely bill hourly.
But hourly billing persists in large part because it is the only system most practicing lawyers have ever known. The Shepherd Law Group is one of the few firms to abandon the billable hour system entirely.
For clients, being billed hourly is "frustrating because you know that from the moment you get the lawyer on the phone the clock is running, so there's this impetus to get them off the phone as soon as possible," said Rich Polt, whose Waltham public relations firm, Louder Than Words, is one of Shepherd's clients. With the flat-fee model, Polt said, "I can get [Shepherd] on the phone and appreciate his insight because I'm not worrying about how much cost I'm incurring."
Caritas Christi Health Care System, the hospital network owned by the Roman Catholic Archdiocese of Boston, also sends it labor and employment legal matters to Shepherd's firm, which it hired after "struggling with figuring out how to streamline our legal expenditures because I just felt they were out of control," said Helen Drinan, senior vice president of human resources at Caritas.
By switching to a flat annual fee, the hospital network's legal bills for employment issues are about 30 percent less than it had been paying to its former law firms, Ropes & Gray and Murphy, Hesse, Toomey & Lehane, according to Drinan, who said Caritas typically spends "just under seven figures" a year on labor law matters.
Drinan and Shepherd declined to disclose how much Caritas pays Shepherd Law Group annually, but Shepherd said his fees for unlimited legal advice range from $1,000 to $30,000 a year, depending on a client's legal needs. He charges separate flat fees for training, such as sexual harassment workshops, and for advocacy work such as collective bargaining, mediations, arbitrations, and trials.
When Caritas paid its legal bills on an hourly basis, "A lot of my staff would say, `No, no, no, we can't call the lawyer because that would be too expensive," Drinan said. But the flat-fee system "works unbelievably well in terms of my staff getting the advice they need without running up extraordinary bills or hesitating over making a call. This is a good deal for us - there's no question."
Shepherd said the new system is also a moneymaker for his firm, which has revenue of less than $5 million a year, because it is attracting new and larger clients who have defected from firms that charge by the hour. He concedes the flat-fee model will be more difficult for larger firms to adopt since they base their annual budgets on the estimated number of hours their lawyers are expected to bill each year.
Hirshon, the former ABA president, also acknowledges that the current system is entrenched in law firm culture. Many lawyers benefit handsomely from hourly billing, he noted, especially senior partners whose paychecks are fattened by hours logged by young associates. And some clients are wary of trying a new system, despite being dissatisfied with the existing one.
Still, Hirshon said, "clients, especially clients of the megafirms, are saying, `We have to control these costs, and the only way we're going to control them is with fixed fees."'
Shepherd, too, thinks change is possible.
"Can it be done? Yes," Shepherd said. "Will it be done? I think other firms will be dragged along kicking and screaming."
Copyright 2007 Globe Newspaper Company