Will generative AI (finally) spell the end of the billable hour?

Episode Notes

Transcript

Speaker 1:

Welcome to the A Journal Legal Rebels Podcast, where we talk to men and women who are remaking the legal profession, changing the way the law is practiced, and setting standards that will guide us into the future.

Victor Li:

The billable Hour widely hated by lawyers and clients alike, the billable hour has nevertheless proven to be much more resilient than Beetles, Twinkies, and those non biodegradable containers used to get at fast food restaurants. It seems like every time there’s a major disruption or event that threatens to upend the legal industry, it spells doom for the billable hour. But that could be more out of hope than anything else. The billable hours survived the Great Recession and COVID-19, despite many people thinking or maybe wishing that it wouldn’t. But with the advent of generative artificial intelligence tools that can perform tasks and minutes, that might take lawyers or legal professionals hours, could we finally see the end of the billable hour? My name is Victor Li, and I’m assistant managing editor of the A BA Journal. My guest on today’s episode of the Legal Rebels Podcast is Reid Trautz, senior Director of the Practice and Professionalism Center at the American Immigration Lawyers Association. Reid is here today to talk about the billable hour and how artificial intelligence might or might not affect it. Welcome to the show, Reid.

Reid Trautz:

Thank you, Victor. Appreciate it.

Victor Li:

Yeah, thank you so much for doing this. So obviously I just gave the very, very quick version of your bio one line. Can you tell us a little bit more about yourself and your background?

Reid Trautz:

Sure. I spent 10 years in a small firm practicing law in the Virginia suburbs of Washington dc but for about the last 25 years, I’ve been a practice management advisor and ethics counsel to lawyers. First in the District of Columbia, but now worldwide with the American Immigration Lawyers Association. We have about 17,000 members worldwide. So I’m always helping members with the business of practicing law. How can they do that professionally, ethically, through all the changes that have been happening over the last several decades.

Victor Li:

And actually, I didn’t talk to you about this in the prep, but what drew you to immigration law?

Reid Trautz:

So really it was a couple of immigration lawyers and what they were doing. And in fact, they wanted to make some, help their members improve their business processes and how they handled some of the ethical issues. And so they hired me 18 years ago to come in and develop this program for them to help members, as I say, improve their business processes, prove ethics, and their overall professionalism.

Victor Li:

Gotcha. So let’s talk a little bit about the billable hour then. Obviously, it wasn’t always there, it had to be created at some point. So how did lawyers bill time before the Ivan of the Billable Hour, and why did the billable hour come into being?

Reid Trautz:

Sure. Well, lawyers back in for really many decades prior to the 1960s worked on a flat fee schedule. They really didn’t tell you what it would cost, and many of them just presented a bill at the end of the matter. Once it was resolved and you paid that bill starting in the sixties, many firms were starting to grow. The big firms were getting bigger, and they needed different ways. And accountants came in, CPAs came in, business professionals came in and said the hourly billing would be the best way. And because it also, they felt would treat clients and matters the same, right? You build every hour the same way. But then we had a change, and that caught on. That was very popular, but still, there were lawyers that were practicing on a fee schedule. But back in 1975, the Supreme Court said, our associations can’t set minimum fee schedules. And then of course after that, we had Bates versus Arizona within a two year timeframe, and all of a sudden the billable hour was just the best, easiest, and quite frankly, profitable way that lawyers could bill their time to clients.

Victor Li:

Gotcha. So I mean, you talked a little bit about it, but I mean, why do you think it’s been so resilient over the years? Just because that’s just the way it’s been done for these last few decades and people just are used to it?

Reid Trautz:

There is a lot of that, certainly both lawyers and clients. I mean, even today as we talk about alternative fee arrangements, right? Many clients are saying they like the billable hour and they like it. The reason that lawyers do is because you can measure things by the hour. You can look at what does it cost me per hour to produce things? How many hours did it work on? But it doesn’t necessarily transfer well to value. What value are you delivering to help resolve that legal problem? And so there’s been a group within the profession that’s never felt really comfortable with billing by the hour.

Victor Li:

Gotcha. And obviously there are some areas of the law where the billable hour is not the be all, end all. Immigration is one of them. What is it about immigration law that makes it a little bit less susceptible to the billable hour?

Reid Trautz:

So I think it started with this idea that when you commoditize work, that you can find a flat fee and say, I can do this on an average case. I can do it for the same price every time. And that really started to come into immigration. Although what we’re finding is certainly over the almost decade or so, there’s actually been no consistency in immigration. But because it is now entrenched with the immigration bar, we do an economic survey every three years. 87% of our members use flat fees as their primary billing tool. Some of ’em still do hourly billing. It may be certain circumstances, but it is fully entrenched, even though some people have made a move away from the flat fees because of the disruption caused in the immigration practice today, still many of them just stick with it. And so it is resilient, and I think that is what fits the billable hour in so many other areas of the profession is it’s entrenched and it’s just really hard to move out.

Victor Li:

So you talked about some of the alternative fees that lawyers could use. You talked about flat fees, also their blended fees, subscription models, and I’m sure there are a lot of other ones. How effective are those models and why haven’t they caught on with the legal industry as a whole?

Reid Trautz:

The reason that there are these alternatives to the billable hour is I think pressure from clients, pressure from clients to say, well, where is the value in the hourly rate that it really isn’t connecting our knowledge as lawyers, our knowledge to fix a problem, connecting that to the how many hours it takes us to complete. It isn’t necessarily what the client finds is valuable. It’s easy, it’s simple for lawyers to do. But clients are the ones that are driving the alternatives, although they too are questioning how do they measure value. And so these different strategies have come up. You see the hybrid billing where they say, well, we can do certain things, things that we know with a certainty that are usually done with the same amount of time. We, we’ll bill you in a flat fee for that, but everything else will bill you on an hourly basis.

And we see different hybrids. We’ll see people who say, well, we will do a flat fee for the whole thing, but if it goes beyond a certain level or if there’s unexpected things, then we may change that and bill it on an hourly basis. There’s reward billing, right? Where you say, if we can do it within a certain amount of time and keep our time down, you’ll give us a bonus. So there’s some bonus billing. And all those are strategies to help make the law firm and the client feel more comfortable about their economic relationship. And so we’re going to continue to see that, and we’ll talk about it in a few minutes, but that is really where we’re at because of the impact of generative ai, we are going to see people get creative to make sure that clients and lawyers, their perception of value are more in line

Victor Li:

With that. Let’s take a quick commercial break, and we’re back. Obviously, you talked a little about it at the end of your last answer, but let’s talk about how generative AI has appended the legal industry. Let’s start with your practice first. How has AI affected immigration law and where do you think things might be heading?

Reid Trautz:

Well, I think that immigration law, because so many of our members, the lawyers that practice immigration law are already on a flat fee basis. I’m not sure that we’re going to see big changes in their work because they’re already getting paid for at a flat rate to do it in so many hours. Generative AI may in fact reduce the amount of time that it’s going to take to complete that work. And at least for now, lawyers would retain that savings. Now, there may be pressure from clients to lower rates. We’re not seeing that yet because we haven’t seen generative AI really take over in the practice. But these are things that need to be on our horizon that we need to be talking about now because they are going to be changing over the course of the next several years.

Victor Li:

So what are some things that generative AI does well and what are some things that does not do well?

Reid Trautz:

Generative AI in its current form really is helps us extract knowledge, right? Lawyers get paid by clients to really apply their legal knowledge to a certain set of facts, and we’re able to extract that knowledge from ourselves, from our previous cases, from legal research tools that we’ve been using for many years. But those have been much more limited than the current generative AI tools. Generative AI tools can help us draft briefs, they can help us draft, come up with ideas. They can help us in a much more rapid way extract the knowledge that’s needed to help us then apply it to the case at hand and help resolve the legal issues. And what I’m seeing in, certainly, I’ve seen some advertisements already from companies that are saying, we can save you do this 10 times faster or multiple times faster than lawyers can do it now with the present tools they have. And so if they’re able to do it that much faster, the billable hour and the value that law firms get from the billable hour will diminish.

Victor Li:

Right? So let’s take a look at a industry where the billable hour is still very, very much the standards like litigation, for instance, like a big complex litigation case with eDiscovery and all that other stuff that the pretrial motions and everything that goes on with that. So obviously, if these tools start to get a foothold in that industry, it could cut billable hours substantially. But then wouldn’t that just then encourage law firms to get rid of maybe some contract associates, get rid of some eDiscovery lawyers, get rid of some younger lawyers in order to make up the fact that they wouldn’t be getting as much money from the client?

Reid Trautz:

I think that’s certainly a direction we’re going to go. Generative AI is not going to replace all lawyers or even all of the legal staff or paralegals, but it is going to, I think, reduce those numbers within law firms. And there’s the labor savings that firms will have, but we still haven’t quantified that yet. We’re seeing examples from companies, legal research companies where they are saying, we can help you draft this brief in a fraction of the time. Not only can you have it draft your brief, but you can ask these systems. You can put your opposing counsel’s briefs, memoranda into the systems and ask them to come up and identify the strongest arguments in those opposing briefs, the weakest arguments, and then again, then ask them, well, how would the AI tool counter those arguments? And so in a very short period of time, it not only helps us with the strategy and the time that it takes strategizing cases and gives us a baseline from which to then take and use human intelligence on top of that to come out with, okay, here’s how we’re going to counter their arguments. Here’s what further information we need. So it will cut down that amount of time that younger lawyers and paralegals may be needed on a case because the work’s being done by a machine.

Victor Li:

Gotcha. And ultimately, a lot of this is on the client, right? I mean, they have to demand that lawyers stop charging them by the hour. Or if they do experience a fundamental shift in savings as a result of these tools to then pass it on along to the client, do you think there will be a groundswell of clients that will put pressure on their lawyers to come off the billable hour as these tools start to gain more of a foothold? Or do you think that that might not happen?

Reid Trautz:

I definitely think that’s going to happen. We’re starting to see it happen in some of the larger firms with their clients saying, tell us how you’re going to apply generative AI to our work. They want to know what’s going on because there are confidentiality issues and things, but there’s certainly financial issues. How is that going to save us time and money on our bill? And so these are the things that lawyers have to be, I think, addressing, addressing now and being prepared for that and saying, how are they going to use generative AI tools in their firm and what will that cost them? Because these tools aren’t cheap right now. Many of them are expensive, but the predictions are that the costs will come down as the computing power becomes cheaper to run these systems. And then lawyers have to say, well, which people in my firm will become AI augmented, which people are going to be using these tools versus the ones that won’t be using the tool?

So there’s many decisions to be made to be able to then answer the question of the client that would say, well, how are you using AI and how is that going to impact my bill each month? That’s what lawyers need to be doing right now to anticipate, because while the billable hour is an absolute strong economic force, it has never met a technological force like generative ai. And we have to be prepared to use it because I am just quoting this as AI will not replace lawyers, but lawyers with AI will replace lawyers without ai. And I do think that that’s where we’re headed. Firms need to be prepared with those issues so that as the questions from clients come in, they’ve got not only good answers, but good systems and processes already in place to show clients how they plan to use AI and the impact that that will have on their financial relationship.

Victor Li:

Before we continue, let’s take a quick break for a word from our sponsor, and we’re back. So for those of us who have followed legal industry for a while and report on it and whatnot, we’ve obviously seen this coming before with the demise of the billable hour first, what’s supposed to be the recession and then covid. So what is it about this that’s different about AI that’s different in your mind?

Reid Trautz:

The biggest difference really is this idea of knowledge extraction, right? We’ve never had computers be able to generate really solid information and replace much of the human brain in terms of finding knowledge, extracting it, putting it into a format that we need to help us solve our client’s problems, right? Robotics, right? We’ve seen a lot of labor type things, but we’ve never seen computers start to replace the intellectual side of work. And that’s really where we are with generative AI right now. It can replace some of the work that lawyers do Now, it doesn’t replace all of it. It can’t replace all of the strategizing that a human brain does. It can’t really change communication. We still need to talk to our clients and counsel our clients and do many of those things, but it’s also going to, as generative AI gets better, it’s going to move away from just talking, being able to help us with knowledge, but also experience.

We’re going to be able to say, tell us how many cases have done this and the precedents that were in the past that support my client, right? We’re going to be able to use it to replace that experience. But the last thing that lawyers do is they use their judgment. And right now, I don’t believe generative AI is really going to replace the judgment of a lawyer or a judge or any kind of adjudicator, but we have to be prepared for the changes that it’s making in this client relationship. Can we still charge by the hour to extract this knowledge where it was before to write a brief? It took so many hours, so many associates took paralegal time, and now we’re doing it in a fraction, maybe a 10th of that time. And that timing is still undetermined, right? We still haven’t gotten all our use cases down in our practice to know how much this is actually going to save clients.

But I think we also have to get our business processes in line with that and say, well, if this is going to save us, we are going to use 10 times fewer hours. How is that going to adjust the businesses that we have? And that’s the impact on the billable hour. It’s going to change it when it comes to these knowledge base things, but it won’t change it, I don’t believe. When you’re talking about communicating with clients and strategizing and holding meetings, I think those will still be billed by the hour, at least for the foreseeable future.

Victor Li:

And obviously with lawyers and regulatory agencies and whatnot, lawyers can be very protective of their turf. It wouldn’t be the first time that they’ve tried to protect people from losing their jobs or being replaced or things like that. So do you see that happening or is this something that you can’t really regulate your way out of?

Reid Trautz:

That’s an excellent question. And I think that the changes we’ve seen in lawyer regulation over the past decade, while they haven’t really been sweeping, we have seen the dental whitening case out of North Carolina. We’re seeing the inroads that some companies, non-lawyer companies have made. We’ve got the Utah Sandbox and the Arizona rules that have sort of, in a sense, weakened the protectionism of lawyers. And I think this is going to continue that trend. No, it’s not going to replace lawyers completely. It’s not going to replace even paralegals, but it is going to reduce the number of people in law firms, and especially larger firms that have a pyramidal structure, that have people at each level and they’re all trying to produce that profit. I think we’re going to see a flattening of that. We’re going to see fewer lawyers, fewer young associates in smaller firms as well, because they’re not going to be as many needed. But we’re then also going to have to change our business model to fit that, to fit that new, because lawyers, we don’t want to make smaller profit, but we are not going to also need to have as many hours billed. We’ll need to find that replacement for that profitability. And we’re going to do it through a combination of hourly rates, flat fees, success, billing, all those things that are out there today, but just aren’t in wide use.

Victor Li:

So obviously there’s been a lot of Jim and gloom in this podcast, but if the Bill of Hour does start to fade away or even goes away, how do you think that will affect lawyers in terms of their mental states, in terms their emotional states? I mean, do you think it’ll make them happier, or do you think there’ll just be something else that comes along to get their guts?

Reid Trautz:

I think most lawyers hate the billable hour. They hate to track their day. They hate to keep track of that. I think a lot of lawyers also feel that they’re not delivering value to their clients when they’re just billed by the hour. It’s something that the firm has told them they have to do. I think ultimately, if we’re able to set flat fees or a hybrid fee to clients, that lawyers will be much happier getting rid of the billable hour. And I think that may be the best thing to come out of the whole generative AI, is that if lawyers don’t have to bill by the hour and track that, they’d be much happier.

Victor Li:

And to wrap up, if our listeners wish to get in touch with you, what’s the best way to do that?

Reid Trautz:

They can reach me at the American Immigration Lawyers Association. I’m also on LinkedIn, and my email address is PPC for Practice and Professionalism Center [email protected].

Victor Li:

Gotcha. All. Thank you again for joining us, Reid. I appreciate it.

Reid Trautz:

Thank you, Victor.

Victor Li:

If you enjoyed this podcast and would like to hear more, please go to your favorite app and check out some other titles from Legal Talk Network. In the meantime, I’m Victor Li, and I’ll see you next time on the ABA Journal Legal Rebels podcast.

Speaker 1:

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