To understand why the concept of the billable hour has had such staying power and why moving away from it — even in an AI-powered world — may be difficult, perhaps we must first understand how the billable hour became the dominant model of tracking legal performance
From the editors: This piece was originally submitted by our friend and colleague, the late James (Jim) Jones IV, as part of the proposed content for the 2025 Report on the State of the US Legal Market. Although it was not included in that publication, we have published it here in honor of Jim’s memory and legacy as a gifted educator who never failed to provide wise insight with interesting context.
Billing for legal work based on the amount of time it took to produce that work is not necessarily the proverbial “way we’ve always done it.” Indeed, the invention of the billable hour is widely attributed to Reginald Heber Smith, who was managing director of the Boston law firm Hale and Dorr (now Wilmer Cutler Pickering Hale and Dorr) from 1919 to 1956.
Ironically, rather than coming from how legal work was done in a big law firm, the concept grew out of Smith’s work in legal aid. In 1913, Smith — recently graduated from Harvard Law School — was invited to become counsel at the Boston Legal Aid Society. What he confronted in that job, according to Slice of History: Reginald Heber Smith and the Birth of the Billable Hour, was “the challenge of funding and staffing approximately 2,000 legal aid cases per year on a shoestring budget, with the help of only a few assistant counsel, a social service secretary and some clerical assistants.”
Tracking the hours
Realizing that he needed help, Smith sought assistance from Prof. William Morse Cole and his students at Harvard Business School. The result was the design of a new accounting and recordkeeping system for the Boston Legal Aid Society, a key part of which was a system for the accurate tracking of hours spent by each lawyer on each matter. Using the system, Smith was able to clear 65% more cases than in the prior year, and he significantly reduced the average cost of each case. Smith remained at the Society until 1919, when he joined the newly formed firm of Hale and Dorr.
Notwithstanding its development in 1913, the billable hour did not become the de facto standard for pricing legal services until the early 1970s. In the early days of the country’s history, attorneys provided legal services on a fixed-fee basis, normally using fee schedules set by state law. In 1908, the American Bar Association approved the use of contingency fees by lawyers. And this action was followed by the approval of other forms of payment, including bar-approved flat fee minimums.
As described by Jonathan H. Choi in his 2018 paper, In Defense of the Billable Hour: A Monitoring Theory of Law Firm Fees, “[p]rior to the 1970s, lawyers billed their clients primarily through a combination of fixed fees, contingent fees, and an amorphous method known as ‘value billing,’ wherein they would simply hand the client a bill at the end of the matter for ‘Professional Services Rendered.’ Few lawyers itemized their services by the hour or established a written compensation agreement with the client in advance.”
Explosive growth
All of this changed abruptly in the 1970s with the explosive growth of corporate in-house legal departments. Corporate general counsel embraced the billable hour because they believed it provided transparency into the relationship between the work done by outside counsel and the fees charged. Adoption of the new model was also fueled by the 1975 decision of the U.S. Supreme Court in Goldfarb v. Virginia State Bar, which invalidated bar fee schedules as violations of the Sherman Act.
While the billable hour, upon which law firms have become reliant, began simply as a way of valuing legal services, it quickly mutated into the dominant model for the evaluation of lawyer performance; for measuring the economic value of matters, clients, and practices; and for setting economic goals.
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As the billable hour model satisfied clients’ demands for more insight into the work of their outside lawyers, it was also used to enhance productivity as many law firms adopted policies requiring lawyers to bill a certain number of minimum hours each year. By the 1980s, the billable hour had become the linchpin of law firm management, surviving many predictions of its imminent death.
However, the model itself contains several inherent flaws that have become increasingly evident over time. And now, as we move into 2025 and engage a more AI-driven approach to legal work, many predict the billable hour — at least in the form the market has always recognized — may have to change too.
