Can An Hourly Rate Ever Be Excessive?
We’ve had much discussion here over whether an hourly rate can be too low. But can an hourly rate ever be excessive? Consider the new increases in biglaw billing rates reported in Law Firm Billing Rates Climb Even Higher, National Law Journal (12/9/04).
The article reports that at the upper end, one firm charges $875/hour for partner time while many others go well into the mid-$700 range. And associate rates, summarized in this chart begin at $160/hr in smaller markets and close to $200 in larger and go up to the upper $300/hr for experienced 8th years.
But are these hourly rates per se unreasonable? For example, consider that the hourly rates for 8th year associates equals or exceeds the top rate of $380/hour for attorneys with 20 years or more experience under the Laffey Matrix. Or consider that many solo and small firm attorneys with double the experience of a 5th year associate typically charge a similar – or possible lower hourly rate.
Whenever I express concern over these increased hourly rates, I’m always told that it’s not the hourly rate that matters so much as the overall bill. And I agree with that in many cases. For example, in evaluating an attorney, a prospective client will do better with the $500/hour lawyer who can resolve a case in a matter of hours versus the $200/hour lawyer who’ll require a full week. But that’s not what happens where large firms set high rates – because they bill those rates not just for short term work but over long periods of time. As a result, in the end, the aggregate bill will be just as unreasonable as the hourly fee.
Yet, I’m not sure that I see a solution. Solos and small firms offer lower billing rates but firms will often choose biglaw anyway. If the market is willing to support higher fees, then I don’t know that there’s anything that can be done to address the matter – until we reach a point that fees get so high that clients will seriously start seeking alternatives. And we solo and small firm lawyers will stand ready to fill that need.
Thanks to our lax system of self-regulation [the watchdog is sleepy, lazy, and related to the wolf who’s in the hen house], the legal profession in the USA has made the Rule 1.5 ban on excessive or unreasonable fees meaningless. Actual bill-padding and theft seem to be the only forms of unreasonable fees that are ever investigated and disciplined.
Large law firms pay about 50% to 60% of every dollar they bill in overhead. Smaller law firms and solos probably pay about 30% to 40% of every dollar. Or if you’re cutting edge and cut out paralegals, assistants, and fancy offices, you can pay as little as 10% of every dollar for overhead. So most of those big hourly rates are used to cover high overhead. These percentages are just from my personal observations. Perhaps others have seen different percentages.