At its essence, the traditional law firm model is this: a client comes in with a legal problem, and an attorney charges by the hour to resolve it.
Even though the billable hour concept is well known, what isn’t as clear is how this model got started. When did hourly billing begin? Have attorneys always had billing requirements? To answer these questions, here is the origin story of the billable hour.
It Wasn’t Always Billable
In the country’s early history, attorneys sold legal services at fixed rates set by state law. While the rules allowed attorneys to collect annual retainers and bonuses, laws regulated the price of legal fees and who paid them.
Then Came Contingency Fees
In 1908, the American Bar Association (“ABA”) approved the contingency fee as a method of payment. A contingency fee is a sum of money that an attorney receives only if a case is won. When the ABA approved the contingency fee, this ushered in other forms of payment for legal services, too, including bar-approved flat fees minimums.
The Birth of Hourly Billing
In 1938, states adopted more complex civil procedure rules and business regulations. These new rules expanded the amount of legal work necessary to resolve a case, and they made it difficult for lawyers to set reasonable flat fees. At the same time, clients started to become weary of flat fees, because attorneys failed to accurately communicate the relationship between the work they had done and the fee they’d charged.
Against this backdrop, the billable hour was born.
Hourly billing helped clients gain a better understanding of the services they were buying, and it monetized the enormous amount of time that attorneys were spending on cases.
By the 1960s, the billable hour became the de-facto standard of the legal profession, and firms instituted annual billing requirements to ensure profitability.
Why Does This Matter Today
Just as the traditional law firm model has evolved in the past, the legal industry is in the midst of a transformation today, too. Clients can no longer budget for the high-priced cost of the billable hour, and traditional firms continue to lose market share, as more entrepreneurial firms find ways to automate tasks, make process improvements, and decrease time demands on associates and money demands on clients.
We are proud to say that here at AEGIS Law, we are one of these entrepreneurial minded firms. Our unique business model and dedication to improvement ensure that we hire industry-leading attorneys dedicated to providing our clients with exceptional service. And to do so, at lower rates than traditional firms.
If you’d like to learn more about how our unique approach to legal services can help your business thrive, send us a message or call us at (314) 454-9100.
Who is Scott Levine?
Scott’s practice is dedicated to assisting entrepreneurs, investors, emerging and established businesses with the unique and often challenging issues they meet throughout the formation and growth process: from entity formation, to the management of founder relationships and economics, to the protection of intellectual property, to the financing of growth and navigating securities law compliance. He assists clients as they continue to grow and develop, whether this involves merger and acquisition activities, international licensing and distribution arrangements or counseling of directors and officers.
Scott is chair of the firm’s Securities practice. His practice is focused on advising a wide range of clients on SEC matters, securities transactions and corporate governance. He represents issuers, investment banks / financial intermediaries and investors in financing transactions, including public offerings and private placements of equity and debt securities.