Is the billable hour’s time up?

Old habits die hard.

When it comes to Richmond’s legal industry, most businesses don’t like paying by billable hours. But for the most part, the concept is sticking around like cold pizza.

Cullen Couch, a communications director for the University of Virginia Law School Foundation who in July surveyed 1,200 alumni, found that most firms still use the billable hour. That’s despite the fact that 53 percent said that the recession would “fundamentally change the business of law going forward.”

Ninety percent of the respondents who are general counsel at corporations (meaning they hire law firms for their companies)  said that they still use the billable hour, although 55 percent say they are looking at fee arrangements to replace it.

Reached by phone from Charlottesville, Couch said that he was surprised at how many respondents noted pressures to change billing structure.

“They have to re-evaluate by-the-hour billing, perhaps by the job, or by success, or different packages. But that unit of measurement is hard to replace.”

Gary LeClair, the chairman of the Richmond-based firm LeClairRyan, voiced similar skepticism in an article that ran this week in Virginia Lawyers Weekly.

“There’s a tremendous amount of buzz in the industry about this, but little in the way of effective alternatives,” he told Virginia Lawyers Weekly.

The UVA survey – which was emailed in July to around 10,500 lawyers all over the country – found more pressure on big firms to adjust billing protocol.

In a story that Couch wrote for the UVA Law School publication, he quoted several unnamed respondents.

“‘The hourly rate, for all its faults, does provide a measure of the difficulty and effort required,’ says a respondent from a national firm in a large metro area. ‘It provides a good standard for pricing services, particularly on the defense side.’ However, the respondent also notes that ‘on the plaintiff side where litigation is designed to create new wealth for a client, there is a greater opportunity to vary from the hourly rate.’ An international firm reports that it is ‘doing away with block billing.’ And offering something akin to ‘a hotel approach where you pay for X number of rooms for Y number of nights and get an overall discount off the rate for the rooms.’”

The survey also quantified somewhat the recession’s damage on the legal industry.

Fifty-three percent of national firms and 66 percent of international firms are laying workers off, whereas 34 percent of regional firms and 5 percent of local firms said they were making layoffs, the study found.

The findings jibe with what BizSense has reported throughout the year, with cuts coming at firms such as Hirschler Fleisher, Williams Mullen, McGuire Woods and Troutman Sanders, especially in certain real estate transactional departments. (You can catch up on the latest RBS legal news here.)

“It’s the bigger guys, and it’s probably fairly obvious. They have more overhead, and their large clients for years did not care because everyone was making lots of money,” Couch said.

“Price has become much more important than it ever has.”

Several of those firms have also tried to reduce their number of partners and the pay of first-year associates, according to several interviews with lawyers who spoke on background.

Couch said that while some big firms are asking new hires to wait half a year before joining, overall firms are still hiring, and they have to.

“It’s inevitable, you have to keep feeding the employment track or somewhere down the road you have a donut hole in how the firm works.”

One source who asked not to be named said that the hiring of new associates is also a mark of pride for bigger law firms, and one they are not willing to give up.

In part that’s one reason first-year associate pay escalated at the bigger firms in Richmond to the low six figures, but that has since been pared back some.

Aaron Kremer covers the legal industry for BizSense. Please send news tips to Editor@richmondbizsense.com.