The Virginia Couple That Gave Birth to the Billable Hour

The Virginia Couple That Gave Birth to the Billable Hour

Why you should care

Because time is money, especially when you are speaking with a lawyer.

Being an associate at a large law firm is not designed to be easy. To amass the roughly 2,000 billable hours required of associates each year, they pretty much have to work 60 or more hours per week for at least 50 weeks per year. The entire crazy system — fueled by the all-powerful billable hour — has long been criticized as nightmarish for attorneys, with partners being the only ones who truly benefit in the wealth department.

And yet the billable hour was not inevitable, nor has it been around that long in the big scheme of things. If you happen to be an associate looking to assign the blame for your particular set of circumstances, or to kill 1/20th of an hour before you return to billable work, may I propose a Virginia couple named Ruth and Lewis Goldfarb. Forty years ago, the U.S. Supreme Court held in a case brought by the Goldfarbs that minimum-fee schedules for lawyer rates violated antitrust law, an act that effectively spurred the growth of the billable hour — and sealed the fates of countless young lawyers.

Throughout the 19th century, legal fees in the U.S. were largely capped by state law with the costs of litigation footed by the losing party. More adventuresome billing methods, including retainers and contingency fees, began to crop up in the early 20th century. But, as litigation, corporate transactions and other legal work grew more complicated and expensive, many lawyers found themselves working harder and longer for the same standardized fee and, perhaps more importantly, falling well behind the pay scales of fellow professionals such as doctors and dentists.

It did not take long for the lawyer’s time sheet to go from a record-keeping tool to a record-breaking profit generator.

In a 1958 pamphlet titled “The 1958 Lawyer and His 1938 Dollar,” the American Bar Association (ABA) attributed the sinking fortunes of the profession to the fact that lawyers were sloppy businessmen who kept poor records and undervalued their services. (That same pamphlet also proposed a 1,300-hour workload for associates!) “Lawyers have slowly but surely been committing economic suicide as a profession,” the Virginia State Bar’s committee on economics concluded around the same time, proposing a solution embraced by state bars across the country: minimum-fee schedules.

For the Virginia State Bar, the minimum fee schedule was just good business, and lawyers found to be charging less than the suggested fee for a service would be presumed “guilty of misconduct.” For Ruth and Lewis Goldfarb, and the class of Virginia plaintiffs they headed, however, the minimum fees charged by the legal profession constituted price-fixing and were therefore — rather ironically — illegal. In 1971, the Goldfarbs had contracted to purchase a home in Reston, Virginia, and as part of securing a mortgage, were required to hire a local attorney to conduct a title examination of the property. To their horror, and after calls to several dozen attorneys in Northern Virginia, the Goldfarbs discovered that the minimum-fee system made bargain hunting for legal services a rather pointless exercise.

Four years and no doubt substantial legal fees later, the U.S. Supreme Court agreed, ruling in Goldfarb v. Virginia State Bar that minimum-fee schedules violated federal antitrust law. Many law firms had heeded the ABA’s clarion call before Goldfarb and started billing by the hour (and keeping better records), but when the Supreme Court kicked the minimum fee crutch out from under the ailing profession, it was clear that the billable hour was the way forward, and by the end of the decade the system was firmly entrenched.

Hourly billing also pleased clients, who received a clearer look into the services provided them, though it did not take long for the lawyer’s time sheet to go from a record-keeping tool to a record-breaking profit generator. This was accomplished in large part on the back of associates’ labor — billed out to clients at two to five times their own compensation rate, which meant that hiring legions of young lawyers became, as one big-firm managing partner once admitted, “like owning a printing press.”

Or put another way, from the vantage of those being pressed into service: “The profession’s obsession with billable hours is like drinking water from a fire hose,” Supreme Court Justice Stephen Breyer once observed. “The result is that many lawyers are starting to drown.” Consequently, lawyers are routinely among the most depressed, overworked and substance-abusing professionals around, and chasing the almighty billable hour has led many to pursue other callings. And even though the Great Recession did lead many firms and their clients to pursue alternative fee arrangements, the billable hour is still alive and well in 2015.

Would it have been any different had Ruth and Lewis Goldfarb decided to rent instead of own their home? Perhaps not. But young lawyers today have little time for such musings. The clock’s a-ticking, and it’s high time they get back to work.

Comment

OZYFlashback

Tales from the past to titillate and educate while giving you a lens on the present and future.