Nearly all law firms make their money by billing their clients by the hour. These are known as billable hours. The more hours billed, the more money the firm will make.
If lawyers do not bill enough hours each year, they will not make enough money to cover their salaries. The firm's billable hours also cover overheads and partners' profit share. Most other businesses do not use this type of system, as they generally do not charge their hours to a paying customer.
The concept of billable hours emerged in the 1950's. Before this, state law strictly limited legal fees, usually paid by the losing side in a legal case. Lawyers also supplemented their fees with bonuses from satisfied clients or with annual retainers. However, these maximum-fee laws were repealed when economic regulation fell out of political favor. Lawyers began to use a combination of billable methods such as retainers and set fee tasks.
By 1975, the Supreme Court stopped set fee tasks altogether, claiming that they were a classic example of price fixing and violated anti trust laws. Billable hours were seen as a clearer way to value legal services. They became the standard charging procedure for nearly every legal service. Now most law firms have a set target of hours that must be achieved each year. This amount typically ranges between 1700 and 2300 hours for each law associate.
Not all law firms are enthusiasts of this method of charging. Some say that the pressure to maintain the amount of billable hours means losing out on other aspects of being a lawyer. The lawyer may have to turn down more satisfying free cases for poorer clients or worthy causes in order to work for paying clients.
Many firms also set bonus or penalty clauses to make sure that each lawyer achieves their hour quota. This can exert pressure on both home and work life with longer hours in the office. Tedious, time consuming tasks such as proofreading corporate reports, document reviews and travel hours are all required to be billed by the hour.
However, not all law firms place the same emphasis on billable hours. Smaller law firms and public interest law firms often require fewer hours. These firms may place more emphasis on training, community-related activities and client development. Public interest and government employers do not have any billable hour requirements, as they do not bill their hours to a paying client. Law students now rightly find that the billable hour, with its threat of longer hours in the office, is a major factor when deciding on the type of law they wish to practice.