This article appeared in The True Bill, the newsletter of the North Carolina Bar Associationâs Criminal Justice section, vol. 20, no. 1, November, 1999.

Time, Billable Hours, Electronic Research and Ethics
by John T. Hall

When electronic-research technology impinges on the tradition of the billable hour, it gives rise to ethical questions of if, how and what to bill for the research. Why would a law firm want to invest in computer technology and increase the speed with which work is done if that firm bills clients by the hour? Aren't computers and research CD-ROMs part of overhead expense? Isn't the client entitled to the best possible product produced in the most economical manner available?

My practice involves doing many appeals. With my computer, legal-research software and on-line access to Lexis, I can call up an argument from my form file of prior briefs in my computer data bank, use my CD-ROM or go online to highlight, cut and paste the recent authorities into the form brief, type in a new statement of the appropriate argument and facts myself and print the finished product.

Compare that process with the lawyer who produces a document for a client by doing research in the law library with hardbound books. That attorney reads and photocopies appropriate authorities, writes out notes on a legal pad, dictates the work, has a secretary key in the material and edits it all from a hard copy, which is then retyped and assembled into the finished brief.

The accuracy and quality of the work done by each of these lawyers may well be the same. Each product meets the needs of the client. The time required to produce each finished document, however, will vary greatly. Which client do you think will be charged more?

This article is intended to assist you in recognizing that there may be ethical problems in how you bill for research.

Mankind has toyed with how to keep track of time for hundreds of years, resulting in several revisions to the calendar. A perhaps apocryphal tale has it that in 1752, when England adopted the Gregorian calendar, which corrected for discrepancies in the Julian lunar calendar by dropping 11 days from October that year, landlords charged their tenants a full month's rent for the shortened month while paying wages only for the actual number of days worked--a clear manipulation of time for profit.

Billing clients according to a predetermined hourly rate has long been a substantial feature of the private practice of law. The amount of time spent on a legal matter should be considered along with other factors when stating a fee to a client. Ethics committees admonish lawyers to clearly spell out their terms in written fee contracts or letters of engagement. The novelty and difficulty of the legal problem, the experience, reputation and ability of the lawyer, the probability of success along with the actual result obtained for the client, the likelihood that other paying legal work cannot be undertaken if this case is accepted, the fee customarily charged in your area for similar services, the time limitations imposed and the history of the relationship between the lawyer and the client all are factors playing a part in determining the fee charged.

It is essential to clarify all the financial considerations at the beginning of the engagement. The client needs to know what expenses beyond the fee for legal services are his responsibility. Will those expenses include filing fees, transcripts, long-distance telephone calls, postage, travel time, mileage, word processing, secretarial overtime, telecopier (fax) transmissions, overhead and on-line costs for electronic research? Will the client be charged for photocopies? Will that charge be a quarter a page or a dime?

Should you bill for your research and reading time separately? Should you bill for the connect and on-line time for the use of Lexis or Westlaw as a client expense? If you use a CD-ROM for which you paid a flat fee and for which you buy supplements, is that to be absorbed as a part of your overhead expense or is it to be prorated among your clients who need that service? What if you pay a fixed fee to Lexis or Westlaw giving you access to unlimited research each month?

Whatever the details of your billing arrangement, the formula used to determine either a flat fee or an hourly rate must take into account the anticipated time required to complete the job plus the amount of money expected for that time.

Law school and the early days of lawyering taught me how much time I needed to research a legal topic using the books. But in 1984, when I signed on with an on-line company to do electronic research, the world changed.

Electronic research enables me to define a legal issue in less time. Less time means fewer billable hours. Fewer billable hours may mean less income.

When I first ventured into solo practice in the early 1970s I needed a system by which I could determine my hourly rate and predict my income. Had I entered the practice of law very much earlier I might have had the fee issue largely settled by the imposition of a minimum-fee schedule issued by fellow lawyers. Prior to 1975 bar associations around the country published minimum-fee schedules and urged their members to follow those guidelines. The urging was sometimes backed up by threat of disciplinary action for deviation from those fee schedules. Such a practice by the Virginia State Bar was held by the United State Supreme Court to be in violation of the Sherman Act (15 USCS Sec. 1). Goldfarb v. Virginia State Bar, 44 L Ed 2d 572 (1975). Other states soon abandoned the minimum-fee schedule.

Today, the North Carolina Bar Association conducts a yearly economic survey of members who choose to respond. Properly used, that survey can provide a great deal of guidance to lawyers trying to determine a proper fee. Part of the survey asks lawyers what their typical charge is for specific legal work. For example, the North Carolina Bar Association Economic Survey for 1998 (NCBA) reported that in small law firms of either one lawyer or two to four lawyers, lawyers across the state charged an average of $440 to $533, respectively, for a DWI guilty plea, $783 to $950 for a DWI trial, about $355 for handling a misdemeanor in District Court and from $1619 to $1849, respectively, for a felony in Superior Court. NCBA, p 20. The information is presented in a way that allows you to determine the customary charge for a legal service in a community the same size as your own.

The American Bar Association helped me solve my quandary by offering guidelines showing approximately how many billable hours I might reasonably expect to have in the first years of my practice in the early '70s. I still had to determine my hourly rate.

Allowing two weeks for vacation (never realized in those early years), there are traditionally 2000 working hours per year: 50 weeks of 40 hours each. After adding together fixed expenses (overhead) and the gross income I wished to earn, that total was divided by the average number of billable hours the ABA said I could expect to realize. As I now recall, in 1973 that figure was between 950 and 1100 billable, not working, hours per year for a new lawyer. The result determined my hourly rate.

Even if I was not billing a specific client by the hour, I forced myself to keep account of how many hours it took to resolve each matter. Knowing how much time I usually needed to dispose of a traffic case, to handle a misdemeanor or to try a felony to a jury has allowed me to set flat fees for specific problems with a realistic expectation that my income goals might be realized. My own time keeping and the resulting flat fees I charge echo the results of the most recent economic survey.

Such a discipline of time-record keeping may also allow your firm to keep track of its own efficiency. Are the estimates established by your firm a few years ago still valid today? Are new partners and associates performing in a manner consistent with the norms or expectations of the firm?

As my practice focused more on appellate work, research became a more substantial component of the work. My early research efforts were done in the law library with hardbound books, photocopies and handwritten drafts of the needed documents. Eventually, I added a computer for word processing. The NCBA '98 Survey reports that an average of 92.4 percent of one-person law firms and 95 percent of firms consisting of from two to four lawyers use computerized word processing. NCBA, p 15. As an incidental note, 3.8 percent to 4.7 percent, respectively, of such firms charge clients for word processing as a separate expense. NCBA, p 13.

When it comes to electronic research, the survey reports that a little over 39 percent of one-lawyer firms and 66 percent of two- to four-lawyer firms use computerized research. NCBA, p 15. Sixty-seven percent of the sole practitioners and almost 80 percent of the two- to four-person firms use CD-ROM research. NCBA, p 16. The report is not clear, but I assume that this percentage is of those firms using computer-assisted research at all.

There is a learning curve involved in doing effective electronic research. Learning the proper technique for asking a computer the question designed to get the answer to your problem requires time and experience. This is true for both on-line research and the use of in-house CD-ROMs.

As I relied more and more on electronic research to do my appellate work, the more efficient I became at drafting my electronic inquiries. I could more quickly recognize why certain forms of inquiry did not get the expected result and I learned how to correct the inquiries. With experience, each appeal tended to require fewer hours. Was I in danger of either losing gross income or overcharging my clients for the services rendered?

Fear that clients would balk at paying a higher hourly rate gave me pause. If I decided to increase my hourly billable rate to clients, would the client feel he or she was being overcharged and not necessarily getting a better product for the price asked? But, if the increased hourly rate was counterbalanced by fewer required hours to do the work, wasn't the client left with the same total bill? Will the client faced with a higher hourly rate appreciate the efficiency? Such efficiency also left me with time to seek additional clients at the higher rate.

What is a fair hourly rate from the point of view of the client? Many will respond that the fair hourly rate is what the market will bear. That is what free enterprise is all about, after all, isn't it?

Lawyers are not mere businessmen. We constitute a profession. As such we have created in the public expectations of professional conduct. We have a system of ethical obligations to consider. We must, as professionals, consider the client. It is the client we are here to serve. Good ethical behavior requires no less. As I said, mankind has been manipulating time for hundreds of years. Our ethical code of conduct is there to guide us from becoming like the greedy landlords of 18th-century England.

One way to determine both what other lawyers consider to be a fair hourly rate and find what the market will bear is simply to ask. The North Carolina Bar Association survey has already done the asking.

The learning curve for doing effective electronic research may justify a lower rate per hour for the services of a lawyer new to the technique; with efficiency born of experience, a higher hourly rate may be justified. The experienced lawyer may deserve the premium.

The average fee charged by lawyers in single-person firms focusing on criminal law is $121.50 per hour. In firms of two to four lawyers, the average hourly rate drops to $112.50. NCBA, p 27. Typical hourly rates paid to lawyers admitted to the bar in 1997 in general practice firms no larger than four members average $96. NCBA, p 22. With ten years' experience, that average rate increases to $124. NCBA, p 23. Twenty years' of experience will rate a little more than $135 per hour. NCBA, p 24.

To compensate for lost gross income that may result from billing fewer hours, a firm might, in addition to upping the hourly rate, reconsider the expenses assigned as a responsibility of the client. Has the firm been charging the client for photocopies? Has that charge been a dime a page (charged by about 22 percent of reporting firms) or a quarter a page (as over 30 percent of all firms charge)? NCBA, p 15.

Clarify all of the financial considerations at the beginning of the engagement. In addition to the fee for legal services rendered, the client must know what specific additional expenses, if any, are his or her responsibility. If these specific expenses are spelled out clearly in a contract or letter of engagement prior to employment, the client is as fully informed as possible and can decide if the projected total bill will be acceptable.

Overhead expenses always, to me, meant rent, utilities, operating expenses, equipment purchases, rental or repair, salaries for personnel, insurance and the establishing and maintaining of my law library. All of these were my "fixed" expenses and my responsibility. They were factors added to the desired gross income to determine the basic hourly rate to be charged to the client. Overhead expenses, you recall, were divided by the expected total billable hours per year to determine the basic hourly rate.

Such a concept of overhead assumes that my computer, printer, scanner, on-line service and CD-ROMs for research are a part of my library and equipment expenses. Basic telephone service, rent for my office and for storage of my closed files, along with the cost of photocopies and envelopes and stamps go on my bill.

But examination of the yearly economic survey opened my eyes to other possibilities.

We have already seen that 3.8 percent to 4.7 percent of small firms charge clients for word processing as a separate expense. NCBA, p 13. Other specific expenses charged to clients include: secretarial overtime (8.16 percent [one lawyer] and 6.13 percent [two to four lawyers]); secretarial services other than overtime (4.7 percent and 7.9 percent); postage (32 percent and 40 percent); mileage (40 percent and 49.5 percent); and telecopier/fax (25 percent and 35 percent). NCBA, pp 13-14.

Yes, small firms charge clients separately for computer-research assistance. Of one-lawyer offices, more than 15 percent do so, as do almost 25 percent of two- to four-lawyer firms. NCBA, p 14.

Frankly, I was startled to learn that about 5 percent of one-lawyer offices and 10 percent of two- to four-lawyer firms charge the client "overhead" as a separate expense. That "overhead" was defined by the survey as a charge not itemized in the list we just considered. NCBA, p 15. I am not ready to ask my clients so boldly and directly to shoulder those expenses. I'll keep them hidden within my hourly rate for legal services. Or is that not the ethical thing to do?

When electronic-research technology impinges on the tradition of the billable hour, it does give rise to ethical questions. Whether we should bill for the research is an individual firm issue, but it clearly is a part of the work product and the legal service rendered by the lawyer. There will be a charge for it one way or another. What to bill is determined by the actual expense incurred by the firm as allotted to the individual client. How to bill for the research opens consideration of hourly rates, billable hours and specified client expenses. An up-front listing of the client's responsibilities as to expenses beyond legal services appears to be one considerate, professional and ethical way to go.

Why would a law firm want to invest in computer technology and increase the speed with which work is done? Because it is the professionally responsible attitude to take. Because the client is entitled to the best possible product produced in the most economical manner available.

Formerly the first director of the Prehearing Research and Screening Staff at the North Carolina Court of Appeals and a former assistant district attorney in Wake County, John T. "Jack" Hall has been a "solo" practitioner since 1983, limiting his practice to defending people charged with felonies and appealing criminal convictions to the North Carolina Court of Appeals. He was the first chair of the Tenth Judicial District Grievance Committee.

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