Does Hourly Billing Encourage Padding of Legal Bills?
On Monday the New York Times posted a story online about a suit against mega-firm DLA Piper alleging that the firm padded its bills. According to the story, lawyers at the firm engaged in email discussions about bills on this particular client’s case which included comments about “churning” the bill.
The story goes on to note that, “Legal ethics scholars said that it was highly unusual to find documentary evidence of possible churning — the creation of unnecessary work to drive up a client’s bill.”
It may be highly unusual to find a case in which such evidence has been uncovered, but that may be because many disputes over legal fees don’t get this far or warrant the large amount of electronic discovery that would be required to determine whether associates at the firm were exchanging messages about the firm’s billing practices. Indeed, it wouldn’t surprise me if there are plenty of lawyers engaging in these kinds of discussions whether bills are being padded or not. Similar emails might be an expression of frustration on the part of lawyers about the pressure to bill more hours.
“Padding” legal bills, even unintentionally, is an inherent problem when hours are used as the basis for fees. It is human nature to want to make more money, and hourly billing encourages making more money by putting in more hours, whether those hours are valuable to the client and the ultimate result or not. Instead of emphasizing results, service and outcomes, hourly billing rewards expenditure of time – and that is always going to result in some level of ‘padding.’
When a firm charges a client by the hour, the firm is also going to emphasize hours as a basis to measure performance of the firm’s lawyers. In a system that rewards expenditure of time, it shouldn’t come as a big surprise that padding is the result as lawyers try to find work to do on files to add hours to their timesheets, rather than focusing on excellent service.
The economic downturn has also created problems for law firms facing pressure from clients to reduce their fees, which may result in hiring less experienced attorneys at lower rates who provide an inferior work product or who take longer to perform tasks than a more experienced (and more expensive) attorney would.
The plaintiff in the suit referenced in the New York Times article complained that when he first started working with the firm, one of the partners was his regular contact, but as the firm grew, more and more attorneys who were unknown to the client were working on the client’s files. Ultimately, this resulted in subpar work and higher fees.
One of the DLA Piper lawyers quoted in the article lamented the practice of lowballing bills while adding more and more lawyers to a case. He also complained about the length of time it took for associates to complete assignments and questioned whether paying more for associates would result in higher quality work.
The article doesn’t specify whether the client’s complaints about fees began before the change in staffing of the clients files. Although some clients may not want to pay a high hourly rate, they don’t realize that the consequence of the pressure on rates can often lead a firm to sacrifice quality or to change the personnel working on a client’s matters, achieving the opposite of the client’s desired result.
The majority of lawyers are honest, ethical professionals who genuinely want to do right by their clients. In any profession, there will always be a few individuals who make a bad name for others by their bad behavior. But both lawyers and clients could curb at least some of this behavior by changing the way fees are charged and the emphasis placed on hours and hourly rates.