Quebec legal society calls for shift away from hourly billing

For the “survival of the profession,” the Quebec legal society is calling on its members to shift away from hourly billing to alternative pricing arrangements to better respond to client’s needs, foster greater access to justice for citizens, and encourage a healthier and more balanced professional life for lawyers.

But at a time when approximately 70 per cent of Quebec’s private practitioners still charge by the hour, the Barreau du Québec recognizes that its call for a paradigm shift will require a “total cultural change” that will be met with resistance by many lawyers and law firms who have done well by the status quo, said Claudia Prémont, the president of the Quebec Bar, which recently published an 84-page study entitled “Hourly Billing: A Time for Reflection.”

“Hourly billing is impregnated in our culture,” remarked Prémont. “It is the way that we evaluate if a law firm is prosperous, if a lawyer performs, and if a lawyer can join as a partner. But we have to evolve and offer something else. In some files hourly billing will remain the best way to charge for our services but we believe that there is a portion of legal services that that can be billed differently. It’s in our interest to open up.”

Ever since the hourly billable model replaced monthly billing and fixed pricing in Quebec in the late 1980s, it has been a staple of the legal profession in the province just like it has been elsewhere around the world. Touted by its proponents for its simplicity, the billable hour largely gained a foothold because it provided lawyers with greater predictability of income while minimizing risk because they were paid regardless of the outcome of the case. The adoption of the hourly billing  also “coincided” with a  steady growth of revenues for the majority of lawyers, often surpassing the consumer price index, over the past 20 years. “This increase is a powerful argument to not change the way that they practice law,” notes the study which surveyed 942 in-house and external counsel across the province and held discussion groups with 42 lawyers.

But the combination of market forces, increasingly stringent consumer demands, rapid technological developments, and the fact that fewer and fewer Quebecers are using legal services because of costs, is of “grave concern” and requires a fundamental examination of the way that legal services are offered, states the report. While hourly billing remains germane in cases that require in-depth expertise, it has “reached its limits,” particularly since it has detrimental effects on both lawyers and clients, asserts the report. Lawyers pay the price because of the pressure to bill and the innumerable hours they feel they have to put in to prove their worth, all of which has a negative impact on work-life balance and their health. Indeed, 46 per cent of young Quebec lawyers working in large law firms assert that they feel they cannot maintain the rhythm of working long hours for more than five years. Clients on the other hand bear the brunt because they assume all the risks and are often in the dark over how much the legal services are going to cost because the hourly billing model encourages thoroughness above efficiency.

“It’s clear that the billable hour does not encourage expediency,” noted Daniel Majeau, in-house counsel at Rolls-Royce Canada Ltd. in Montreal and a member of the Barreau’s committee on in-house lawyers. “The more time it takes them, the more a law firm is able to bill. We are billed by time but the value of 15 minutes is not the same all the time. There are some acts that are trivial and end up taking up 15 minutes and they are billed in the same manner as the 15 minutes it may take to negotiate a case that may end up saving us hundreds of thousands of dollars. At a point in time if a law firm or a lawyer does not take the time to closely examine the amount of time he devotes to a task and does not make an effort to reduce the fees, the client will look elsewhere. We (in-house counsel and external lawyers) don’t see things the same way. That’s for sure.”

It’s clear for instance that in-house counsel and external counsel do not see eye-to-eye. According to the study, 59 per cent of in-house counsel are interested in alternative fee arrangements in order to pare down costs as opposed to 9 per cent for external counsel. External counsel are more keen on aligning their interests with their clients than in-house counsel (31 per cent versus 6 per cent) and building lasting relationships with their clients (19 per cent compared to 4 per cent for in-house counsel). External and in-house counsel also have differing views over alternative fee arrangements, with 84 per cent of in-house counsel believing that they can improve the efficiency of legal services compared to 57 per cent of lawyers working in law firms. In-house counsel who have had experience with alternative fee arrangements have a more positive perception of them than external counsel: 51 per cent of in-house counsel who were billed through alternative fee arrangements felt they were just as effective as services rendered through traditional billing and 30 per cent said they were more efficient. In contrast, 36 per cent of external counsel believed alternative fee arrangements were less profitable, 28 per cent considered them to be just as profitable, and only 12 per cent said they were more profitable.

These findings do not surprise Dominique Tardif, vice-president at ZSA Legal Recruitment in Montreal. “In-house counsel face constant pressure to cut costs given the rather gloomy economy,” said Tardif. “Often, the key requisites for in-house counsel is effective management of external counsel, budget management and the ability to cut costs. So their job as in-house counsel is to do the maximum internally and only use external counsel when absolutely necessary. On the other hand, I think it’s altogether normal that private practitioners do not have cost cutting as their principal preoccupation but rather ensuring that their clients are well represented.”

Besides veiled profit motives, the biggest barrier to adopting alternative fee arrangements according to both external (23 per cent) and in-house counsel (32 per cent) is that the billable hour is too well-entrenched in the legal profession. Another obstacle is each other, with 21 per cent of external counsel blaming clients while 21 per cent in-house counsel pinning it on external counsel.

“It’s clear that for those in private practice and who have been using the billable hour since the beginning of their practice, it can be destabilizing to realize that perhaps we can offer our services differently,” said Prémont. “But I believe that by raising awareness and providing tools to our members that alternative fee arrangements will slowly make its way.”

Besides raising awareness to encourage change, the Barreau intends by this fall to offer courses and provide tools to its members they will need to change their business models, added Prémont.

But not everyone is convinced that the Barreau’s study will rouse Quebec lawyers to shift away from the traditional billable hour to alternative fee arrangements, particularly since the Canadian Bar Association covered much of the same terrain when it published its comprehensive report entitled “Futures: Transforming the Delivery of Legal Services in Canada.” “If this study can incite people, all the better,” said Pascale Pageau, the president, founder and sole shareholder of Delegatus Legal Services Inc., a Montreal law firm that provides experienced top-notch talent, familiar with the ins-and-outs of business, on an as-needed basis at half the rates charged by traditional law firms. “Studies such as the Barreau’s and the CBA’s can help people realize that there are changes taking place. They can help create awareness. But people are already talking about these things. Clients are much more open to these new business models. We must think of new ways to renew the legal profession.”

Majeau believes that law firms have yet to fully grasp the changes taking place. “They will have to face them,” said Majeau. “Clients cannot force law firms to change but clients can turn to other providers and seek other solutions. It’s unfortunate but it will probably take a crisis before these changes take place.”

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