Why the billable hour must stay but 6 min increments must go
August 10, 2015 - Categories: Legal Articles
My legal services company, Access Legal Care, PLLC (a Michigan law firm) is an innovator in alternative billing and payment methods that enable lower- and moderate-income people to afford legal services.
We have flat-fee pricing for many services, we offer payment plans via automatic-withdrawal from a client's bank account on a monthly basis, and we provide various self-help and pay-as-you-go options where they make sense. Nevertheless, the billable hour is an important and necessary method of pricing in our practice and in the legal industry in general. The 6-minute increment, however (which is the traditional increment in hourly billing in Michigan and many other states), is long overdue for readjustment.
Why the billable hour is necessary
Access Legal Care covers the 80% of legal needs that lower- and moderate-income people will likely ever need. This includes a slew of family law services, landlord/tenant, civil litigation under $100k, simple estate planning, small- to medium-estate probate administration (contested and uncontested), bankruptcy, creditor lawsuit defense, business organization and incorporation, attorney demand letters, and several related services.
Many of these services -- or portions of these services -- are fairly predictable and lend themselves well to fixed pricing, e.g. Drafting and Filing motions, complaints, petitions, and answers to complaints/motions/petitions; bankruptcy; incorporations; simple wills, trusts, and powers of attorney; and several others. We can even-flat rate most hearings ($350).
For all of these, we offer flat-fee pricing; in fact, we offer flat-fee pricing for over 50 discrete legal services, similar to LegalZoom. For our document preparation and filing services, we prepare the documents "Pro Per," and do not thereby "enter an appearance" with the court, which is allowed in Michigan.
However, once a client needs us to be involved for full representation, i.e. for negotiation, discussions, and communications with the opposing party; representation in court; putting our names on documents as their attorney, etc, then we are committed to a case and the billable hour becomes a primary -- and essential -- billing method. Once an attorney is involved in contested litigation, there are just too many variables that make fixed-pricing unworkable.
Variables that make fixed-fee pricing unworkable are: conflicting parties, multiple parties, differing demands by clients for question-answering, discussion, and personal engagement; unpredictable judges; variance in possible outcomes; and alternative strategies for how to deal with these outcomes. In these cases, the billable hour is an important and necessary approach to maintaining profitability, affordability, and control of the client.
If I offer a fixed-price "contested" divorce, for example, then the incentive for the client is to make full-use of that pricing model and to regularly and repeatedly want to: 1) talk about their case (i.e., their evil spouse's latest antics) on the phone or in-person; 2) file more motions to get their spouse to do something, to prevent their spouse from doing something, or to object to something the court ruled; 3) send more "demand letters" or make more phone calls to the opposing party or their attorney to tell them to return the car seat, or to complain that they dropped off the child 15 minutes late, etc; and 4) respond to ad hoc motions from the other side (motions for attorney's fees, motions to compel discovery, motions for summary disposition, motions to enforce, etc).
Don't get me wrong: I love family law and other types of cases that involve some contested issue, with the hope that we can all resolve it as effectively and affordably as possible. The point is, however, that dealing with contested issues is unpredictable, and the billable hour is a way to manage this unpredictability of judges, opposing parties, and the client. For example, if the client knows that every phone call to discuss their spouse's latest bad behavior is going to cost them more money, they will at least think twice before spending an hour talking it over with their attorney. Perhaps they will spend that hour with a trusted friend or family member and then contact our office to find out if there is any legal remedy available to them to address that behavior. In this way, we give the client control over their legal costs, while allowing us to maintain profitability and flexibility (and in the long run, affordability) despite the unpredictable nature of a contested case.
Although we need to use the billable hour to manage unpredictability, we do offer predictable budgeting for the client with monthly payment plans, which I will discuss in another article. Our hourly rate ($185/hour) is also much more affordable than typical attorneys in Michigan, because we charge 50% of the state average hourly rate ($250). This is made possible by our monthly payment plans which increase our payment-rate to 97%. Finally, we make the billable hour more affordable by reducing our minimum increments to 3 minutes, instead of the industry-average 6 minutes.
Why the 6-minute increment must go.
In Michigan, and I believe this is the same in most other states, the common "minimum-increment" for attorney billing is 6 minutes. When I learned this in law-school, I thought this was highway robbery. This means that a 30-second reading of a client email will automatically cost 1/10th of an hour. At $250 per hour average, that is $25.00 for a 30-second email.
Once I entered practice, I realized that there is a need from some type of "minimum-increment." First of all, it would simply be impractical, if not impossible, to bill for everything in the 1-second increment. Second, there are many aspects of our service for a client that are not billed for, such as the time thinking about the case. In contested cases, as lawyers know, this time spent thinking about a case in bed at night, while driving, or at other times may actually be many hours during a case. Most of us (although some do) don't bill for time "thinking about the case." Thus, I don't feel bad to later bill a minimum-increment for the time actually "doing" things for a case.
Nevertheless, I argue that the 6-minute increment is still overkill. I have found that the 3-minute increment is just as workable as the 6-minute increment. It is easy to bill (.05 is just about as easy to calculate as .1). It is much more reasonable to bill 3 minutes for the slew of activities that are less than 3 minutes. It is still flexible enough to account for 10 minute, 23 minute, and 68 minute activities. And this simple change allows us to further our mission of being "40-60% less expensive than typical attorneys in Michigan."
In fact, that same 30-second email with our firm costs $9.25 (.05 x $185) rather than $25.00 for the typical Michigan attorney (60% savings). I feel this is a fair and profitable payment for our time spent on the matter, it makes the ongoing case more affordable for our clients, and it gives us a competitive-advantage over other attorneys. One day, we may be able to reduce that even further, and still be profitable.
Rather than doing away from the billable hour completely, attorneys should consider using fixed-fees where possible, even during full-representation, and then cutting their minimum-increment to 3-minutes on their remaining billable hours. They would gain a competitive-advantage over 99.999999% of all other attorneys in their space, their clients would feel that the attorney is committed to more affordable (and honest) billing policies, and the billable-hour will be less-vilified and more accepted as an important component in billing for legal services.
About Bert Tiger Whitehead, Access Legal Care, PlanetXLaw.com
Bert Tiger Whitehead IV, MBA, Esq. is an attorney, Six-Sigma Process Black-Belt, Technologist, and owner of two companies: Access Legal Care, PLLC, a Michigan legal services company (law firm) offering affordable legal help to lower- and moderate-income people, and PlanetXLaw.com Inc, a company providing software and services to attorneys to help them be more profitable and affordable, while connecting consumers to affordable attorneys. Access Legal Care was the 2013 recipient of the American Bar Association Louis M. Brown Award for Legal Access. Mr. Whitehead speaks at several conferences on 21st century law practices.