During the Great Recession, many U.S. law firms closed their doors for good -- in large part due to declining revenues and an increasingly expensive supply of attorneys. Because most of a law firm's fixed expenses are personnel-related, it can be difficult to cut costs without cutting staff. However, some firms have begun to move away from the billable hour model to help increase productivity and revenue, even in lean times. Read on to learn more about the most common types of fee arrangements for law firms and how this landscape may be changing.
Many large law firms operate under the "billable hour" system. Attorneys must be able to attribute a great portion of their workday to one or more specific clients -- often by breaking down their daily tasks into tiny 6-minute increments. Many firms have minimum billing requirements for an attorney to remain employed, while others may base bonuses or promotions on the number of hours billed by each attorney.
Some opponents of the billable hour system argue that it creates inefficiency -- encouraging attorneys to pad their hours (and paycheck) by performing work that may not be necessary. The billable hour system can also be problematic from a revenue perspective. A law firm generally takes a generous cut off the top of each attorney's hourly billing rate to pay for infrastructure and other expenses. During boom times, this system works well; however, during a recession, a drop in the number of billable hours submitted can quickly put the firm into a revenue crunch. For these reasons, some large law firms are moving away from this billing system as their default method and are instead looking to one of the two options below.
Other firms are moving to flat fee arrangements for many types of cases. This involves the collection of a pre-arranged fee before services are performed -- even if the services end up being a bit more complex or taking longer than originally anticipated, the client will not be charged additional expenses. Flat fee arrangements are particularly useful in relatively routine matters, such as the preparation of a will or the criminal defense of a DUI defendant.
Other cases -- particularly personal injury or employment discrimination -- are handled on a contingency fee basis. Before taking the case, the attorney will require the client to sign an agreement providing that if the client doesn't win the case, he or she will pay nothing for legal representation. However, if the client does win the case, the attorney's fee will be based on a percentage of the total judgment or settlement provided. Some argue that this arrangement is the best of both worlds, as it encourages attorneys to take on only cases they feel confident they'll win, while minimizing the financial risk to the client.
For more information, speak with professionals like the Weathers Law Firm, LLC.